Two_Retirement_Philosophies
00:00:00.000 | What's up everybody, it's Sam from Financial Samurai and in this episode I want to talk
00:00:04.160 | about two retirement philosophies that will determine your safe withdrawal rate.
00:00:10.120 | I'm very focused on re-retiring right now because I'm so damn tired.
00:00:15.040 | I gotta say man, every day I wake up it just seems a little bit harder.
00:00:21.040 | Are any of you guys experiencing the same thing?
00:00:23.760 | You know in the past I would write a post, you know, starting at like 9 p.m. and get
00:00:28.120 | it done by 11 p.m., schedule it for the next morning and then boom, ready to go.
00:00:33.400 | Now after about 8.30 p.m. it's a long day raising kids.
00:00:38.240 | I'm just thinking well you know I'm gonna watch some Netflix, watch my favorite show,
00:00:41.840 | I'm watching The Sinner now, it's kind of crazy but it's kind of worth it if you like
00:00:45.040 | thrillers and just going to bed and waking up when I wake up, which is whenever I wake
00:00:51.480 | up because I don't have an alarm, and then start writing.
00:00:54.240 | So that's why you're seeing a lot of these posts come out later and later because I'm
00:00:58.000 | thinking man I just need a break, I need to sleep.
00:01:01.600 | And at the same time I'm still able to publish three times a week, it's just not coming out
00:01:06.080 | at three in the morning, it's coming out maybe midday.
00:01:09.720 | So if you've been wondering why I haven't been recording more podcasts and writing more
00:01:14.460 | posts and publishing them earlier, it's because I'm burned out.
00:01:18.560 | And I've got to believe some of you guys are burned out as well, but we've just got to
00:01:22.120 | keep on going, we've got to keep on going because that's what life is about.
00:01:28.200 | When your back's against the wall you just got to keep focused, focus, focus, focus,
00:01:32.600 | and stay committed.
00:01:33.600 | So let's talk about the two different retirement philosophies.
00:01:36.440 | A while ago I proposed a new safe withdrawal rate rule or guide.
00:01:42.960 | It's basically whatever the 10-year bond yield is times 80%.
00:01:48.240 | So currently the 10-year bond yield is around 1.5%, therefore times that by 80% and the
00:01:55.120 | withdrawal rate will be about 1.2%.
00:01:58.000 | So if you withdraw at a 1.2% rate, you're probably going to be very safe and you're
00:02:02.200 | probably going to have enough capital left over to actually donate to people and help
00:02:07.200 | other people out after you pass.
00:02:08.840 | And I think that's a great thing.
00:02:10.560 | But that's not what everybody thinks when they think about retirement and when they
00:02:14.060 | think about dying.
00:02:16.260 | That's why there's two different retirement philosophies.
00:02:18.780 | The first retirement philosophy is to spend all your money before you die.
00:02:22.960 | In other words, you wish to accomplish complete portfolio depletion or very close to it upon
00:02:28.560 | your death.
00:02:29.840 | Your money which you earned is mainly there for you to spend.
00:02:33.360 | Very logical, very reasonable.
00:02:35.120 | And since you can't take your money with you, you might as well spend it all while
00:02:39.440 | alive.
00:02:40.440 | So let's call this the YOLO retirement philosophy, the you only live once retirement philosophy.
00:02:46.240 | The second retirement philosophy is to leave a legacy with your estate which will survive
00:02:51.840 | long after you're gone.
00:02:53.860 | Your legacy may involve providing a perpetual giving machine to charities you care about
00:02:59.120 | or taking care of your kids, even if they're adults.
00:03:02.240 | It may also include an ongoing donation to your college alma mater or steps to ensure
00:03:07.120 | your family business continues to run for years into the future after you're gone.
00:03:12.040 | Let's call this the legacy retirement philosophy.
00:03:15.380 | So YOLO retirement philosophy and legacy retirement philosophy.
00:03:19.920 | I think most people are likely somewhere in between the spectrum.
00:03:23.800 | However, the people who closely adopt the first retirement philosophy of spending everything
00:03:28.780 | they have before they die seem to be the main critics of the financial samurai safe withdrawal
00:03:34.800 | rate formula of 10 year bond yield times 80%.
00:03:38.760 | Now in case you're wondering how I came up with this formula, well, it's kind of a back
00:03:42.840 | of the envelope calculation.
00:03:45.280 | Back in the late 1990s, when the 4% rule was introduced and popularized by the Trinity
00:03:51.440 | study, the 10 year bond yield was about 5%.
00:03:56.240 | So therefore 4% is a safe withdrawal rate is 80% of 5%.
00:04:01.640 | It's a very simple rule guys.
00:04:03.640 | But my logic was, hey, it's not rocket science to say, hey, if you withdraw at a 4% safe
00:04:09.200 | withdrawal rate, while the risk free rate of return is 5%, you're going to be just fine
00:04:13.360 | in retirement.
00:04:14.360 | I mean, come on.
00:04:15.360 | I mean, do you really need a PhD and lots of funding and doing massive amounts of research
00:04:20.320 | to come up with that conclusion?
00:04:22.240 | So my financial samurai safe withdrawal rate rule is a play on that.
00:04:27.920 | And you can obviously withdraw at a higher rate if you want.
00:04:31.320 | 2% is fine, 3% is fine, 4% is fine.
00:04:33.960 | You can go higher than 4% if you want, but probably not for years and years and years
00:04:39.640 | because you will probably run out of money or get close to a point where you'll feel
00:04:44.680 | uncomfortable.
00:04:46.360 | And deciding how much to withdraw is really going to be up to you.
00:04:49.940 | You won't really know how much you are comfortable withdrawing in retirement until you are retired.
00:04:56.120 | Now I went through a one year period of retirement from 2012 to 2013.
00:05:00.940 | And I was uncomfortable withdrawing anything.
00:05:03.480 | I didn't touch principal at all, because I had been saving aggressively and investing
00:05:08.560 | aggressively since I graduated college in 1999.
00:05:11.920 | You might be different after 30 years of saving and investing.
00:05:14.600 | You'd be like, well, I got to spend my money and what's the point?
00:05:18.460 | But again, be flexible in your thought.
00:05:21.240 | You won't really know until you get there.
00:05:24.240 | At my high school graduation ceremony, I remember James Carville, a political strategist, came
00:05:29.280 | to speak to us.
00:05:30.660 | He concluded his speech by saying, "Leave each place better than you found it."
00:05:35.240 | And that made a big impression on me at 18 years old.
00:05:39.280 | It really made me care about the environment more and the people I worked with.
00:05:43.680 | Instead of giving your two weeks notice and quitting, for example, give a much longer
00:05:48.920 | notice so you can train your replacement.
00:05:51.060 | Right now, quitting your job, you might leave your manager in a lurch and he or she might
00:05:55.240 | not really appreciate it.
00:05:56.320 | But if you can find ways to come up with a replacement and a smooth transition, you have
00:06:01.480 | a better chance of negotiating a severance.
00:06:04.240 | When you're running up and down the public steps for exercise and you see litter on the
00:06:08.520 | streets, maybe pick it up and throw it away.
00:06:11.880 | This is kind of the philosophy of leaving each place better than you found it.
00:06:16.440 | And the more you think about this type of attitude, the more I think you're going to
00:06:20.560 | align with the legacy retirement philosophy.
00:06:24.940 | And the stronger you adopt the legacy retirement philosophy, the lower your safe withdrawal
00:06:30.880 | rate will be in retirement because you want to leave more money to other people, to help
00:06:35.720 | other people, institutions and so forth.
00:06:38.200 | And frankly, the more you don't give a damn about other people, I think the more you're
00:06:42.960 | going to focus on the YOLO retirement philosophy and you're going to spend your money as you
00:06:47.760 | see fit, which I cannot blame you for doing.
00:06:52.400 | We should all be doing that.
00:06:54.280 | Aligning with mega millions or billions is simply inefficient way of spending capital
00:07:00.600 | over your lifetime.
00:07:02.040 | But given there's so much poverty out there, so many people who need help, spending all
00:07:08.660 | your money on yourself is not the most magnanimous way to go.
00:07:12.960 | Now of course, you can dedicate your life and your money to helping other people while
00:07:17.960 | living and that is a great way to go.
00:07:20.980 | So again, we're probably in between the two bookends, YOLO or legacy.
00:07:27.680 | And personally, I want to be closer to the legacy retirement because as you get older,
00:07:32.880 | you just naturally think about what you are contributing to society and what you can continue
00:07:38.720 | to contribute to society after you're dead.
00:07:41.680 | I think it's just a natural evolutionary way we think about life and death.
00:07:47.880 | I mean, this is the way we can help subsequent generations hopefully get better.
00:07:53.200 | If there was no thoughts about legacy as we get older and wealthier, then why would there
00:07:57.580 | be these billionaires and very wealthy people donating tons of money to their alma maters
00:08:02.320 | to name a wing after them?
00:08:04.280 | Why are these very rich people donating tons of money to get anything named after them?
00:08:10.560 | It's probably due to legacy.
00:08:12.680 | Why do parents name their kids Junior or John the second, third, fourth, fifth?
00:08:18.760 | It's due to legacy.
00:08:20.620 | And in that regard, ironically, it's a little bit selfish, right?
00:08:23.780 | If you're using your money for your legacy, that's by definition focusing on yourself.
00:08:29.640 | In terms of legacy, you got to ask yourself what you're doing with your life, what is
00:08:33.460 | your job and will it mean anything after you're gone or once you're retired?
00:08:38.660 | When I was working in finance, I didn't feel much legacy generation at all.
00:08:43.920 | It was really more about building a career, making and saving as much money as possible
00:08:48.120 | so I could do something else.
00:08:49.940 | But now with Financial Samurai, I feel like I'm creating a legacy because the internet
00:08:54.740 | is forever.
00:08:55.740 | The writing will be forever so long as I pay my server dues and renew the domain every
00:09:00.180 | whatever it is, five, ten years.
00:09:02.660 | And you can also see how my writing has changed from 2009 to now.
00:09:07.640 | Back then, I was much, much, much more opinionated and maybe a little bit inflammatory, maybe
00:09:13.520 | a little bit offensive.
00:09:14.520 | I don't know.
00:09:15.900 | But now I think I'm much more moderate and I definitely want to include as many people
00:09:20.600 | as possible and see all sides.
00:09:22.640 | And part of it is because I know one day my kids will listen to these podcasts and read
00:09:27.220 | my writing and I don't want to come across as a jerk, right?
00:09:30.300 | Of course, I'm still going to have my strong opinions on various topics, which I strongly
00:09:35.020 | believe in, such as safe withdrawal rate.
00:09:38.260 | I don't think should be 4%.
00:09:40.060 | No way.
00:09:41.060 | But I'm going to make the arguments in a respectful manner to try to see all sides of the equation.
00:09:46.060 | So I'd love to hear from all of you.
00:09:47.900 | Are you closer to the YOLO retirement philosophy of spending everything you have and leaving
00:09:53.220 | nothing behind?
00:09:54.660 | Or are you closer to the legacy retirement philosophy?
00:09:58.060 | Leave a comment in the post, shoot me an email.
00:10:01.180 | I'd love to hear from you.
00:10:02.340 | And if you enjoyed this podcast, I'd appreciate a positive review and stay safe, everyone.
00:10:07.620 | Summer is here.
00:10:09.460 | Summer is here.
00:10:10.460 | Thank goodness.
00:10:11.460 | And I'm planning on taking things down a notch.