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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Hey. Thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look. You got a question, or should I do my my question here?
Mike:I know we have two different feeds.
David:Well, let's see. How talking about let's ask this one that that came in. Is there a quote safe withdrawal rate? If not, can you provide other guidelines?
Mike:Yeah. So if markets only go up, it's like and I'm I'm being facetious when I say this. A safe withdrawal rate is slightly less of what the markets have have performed. So if you look back from 2010 to to today, a quote unquote safe withdrawal date technically is like 10%. Wow.
Mike:Which is what some people who hate debt on radio have been saying for a while.
David:Wonder who you're talking about there.
Mike:I don't either. There are a lot of lot of famous people with mustaches and goatees that talk about how they hate debt. Yeah. But and he's not wrong
David:Right.
Mike:But it lacks context. So if you look at the market averages from 2,000 to today, your portfolio really is like six to seven, maybe 8%.
David:Okay.
Mike:Maybe, depending on how you allocated it. So the safe withdrawal rate is less than 6%. And 6% is pushing it. That's very aggressive. You need to make sure that you have your reserves in the right places.
Mike:You can't rely on bond funds. You have to have very strategic portfolio put together to handle that kind of pressure on your portfolio. And be okay making lifestyle adjustments if things get stressful for a longer than anticipated period of time. Like 02/2002. Mhmm.
Mike:But up to six is really, really, really pushing it. You've gotta do everything just right. Which, by the way, I talk about in the book, this chapter four specifically, but chapter four, chapter five, chapter six. Okay. Yeah.
Mike:In my opinion, the rule of thumb is you want to create income streams so that there's never more than three or 4% of your portfolio that's left over. And I say three or 4% because it's a general rule of thumb. You wanna have extra money for health care or life surprises in any particular year. You just wanna have lifestyle flexibility. Mhmm.
Mike:So I I I would say three to 5% is a reasonable range. And it goes back to the fact that markets can go flat for over a decade. They can go nowhere for a very long term period of time. So what do you do with your eight to 10% withdrawal rate? Your, well, my my ETF that does cover call income is 8% today.
Mike:Great. What do you do when it's not? Yeah. My my real estate income in this private placement is like 9%. Great.
Mike:What do you do when it's not? People assume that things won't change, but change is the only constant since the dawn of time. Mhmm. And right now, our markets are very competitive for higher rates. If you look at the market and the riskless rate, it's in parity.
Mike:So what's what's that mean? From 2010 to 2020, the riskless rate was around 12% because ten year treasuries were around one to 2%. Today, it's like four or 5%. Yeah. Which means the riskless rate is much better than it has been historically.
Mike:So people are wanting to take on more risk. Or they're taking less risk, all things considered, because bonds are paying out so well. When that changes, you this is called reinvestment risk. Anything you want after that point is probably gonna hurt if you're if you're putting a bunch of products into this portfolio of products and you're just trying to figure it out as you go. Yeah.
Mike:It's oh, I just I feel so bad for the dividend investor who doesn't realize that those dividends can just stop paying. I feel so bad for the real estate investor who's purchased a bunch of REITs or preferred stock and saying, or the the covered call income individual who think that's actually gonna happen in perpetuity. The only thing that can guarantee it is an insurance company because only insurance companies can guarantee something. Doesn't mean you need guaranteed income. It means that your growth and how you're earning money needs to be separated from the income or your withdrawal rate.
Mike:You might get a great dividend portfolio. You might have great real estate. But a lot of that has to also get reinvested to keep growing it because if markets go nowhere for a while, the math changes. And what you don't wanna do is you don't want to I say this in the book, a planned reaction is better than a risky prediction. Yeah.
Mike:A risky prediction is assuming you're gonna get 9% or 8% or 7% or whatever on your real estate portfolio of these private placements for life. That's a risky prediction because it's not guaranteed. A planned reaction is say, hey, we're gonna do this for a while, but if it goes sideways, I've got this plan, I've got that plan, I've got that strategy, I've got that asset. These are We call them reserves. It's your backup for whenever your methodology fails, you have plan b.
Mike:Mhmm. It has to be that way. Yeah. So Alright. That's all the time we've got for today's show.
Mike:If you enjoyed the show, don't forget, the show is published Saturdays on YouTube. You can go to our channel, How to Retire on Time, the YouTube channel. Subscribe there, or wherever you get your podcast. As always, we'll be here live every Tuesday at noon, if you're on our newsletter or Saturdays and Sundays on a lot of the radio shows and stations around the country. And then last but not least, you can get download the book, How to Retire On Time for free at retireontime.com, among a number of other resources that we make available to you at retireontime.com.
Mike:If anything resonated with you, you can also go to retireontime.com and click talk to a planner and get on our calendar. We are very limited on how many plans we can do each month. If you want one of your plans to be one of yours, claim your spot today. Thirty minute call is how you get started. Doesn't cost you a dime to explore what could be.
Mike:Appreciate you all being here. Have a great rest of your week. We'll talk to you next time. Everyone, one last note. We're in the final stages of launching publicly our model that's been only available to our private clients.
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