The Setup:

Is $8 million the new target for retirement? We found an article that points to that idea so we’ll share our thoughts about how this impacts planning on today’s podcast.

Click the timestamps below to skip to a specific topic in the episode.

The Combination and Key Points: 

On this episode of Unlocking Your Financial Future, we look at a claim by a blogger at The Financial Samurai. They laid out an argument for adjusting the 4% rule to the 0.5% rule. That would mean a retiree hoping to generate $40,000 of income would need $8 million in savings.

The old 4% rule said a retiree can take 4% off their portfolio each year, and that will last them a lifetime. It’s an old rule but not completely obsolete. The way we build a portfolio today utilizes dividends, and our dividends are falling right around that 4% number. We like to work between 3% and 4%.

A group of professors came up with the 4% rule in the late 90s when the 10-year bond yield was at 5%. The Financial Samurai says you can use the 0.5% rule as a safe withdrawal rate guide once you’ve reached retirement or financial independence.

In theory it does make sense, but he’s assuming we’re going to stay at 0.5% in the 10-year treasury for the next 30 to 40 years.

“It’s very interesting. It caught my attention,” said Ben. “When I first saw the headline, I thought, ‘Oh God, I hope my wife doesn’t read this, because I might be working a lot longer.’”

To hear more, you can listen to the full episode or use the timestamps below to find a specific segment.

1:51 – Financial Samurai blog

3:22 – Where did the 4% rule come from?

4:47 – Will you need $8 million?

6:32 – Balancing your portfolio

9:05 – Other ways to supplement income

11:11 – Let’s look at some positives

13:16 – Mailbag: Will I spend more money in the first few years of retirement?

15:02 – Can I overcome a divorce financially in my late 50s?

Thanks for listening to another episode of Unlocking Your Financial Future. We’ll talk to you again next week!


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