What's up everybody, it's Sam from Financial Samurai and in this episode I want to talk about two retirement philosophies that will determine your safe withdrawal rate. I'm very focused on re-retiring right now because I'm so damn tired. I gotta say man, every day I wake up it just seems a little bit harder.

Are any of you guys experiencing the same thing? You know in the past I would write a post, you know, starting at like 9 p.m. and get it done by 11 p.m., schedule it for the next morning and then boom, ready to go. Now after about 8.30 p.m. it's a long day raising kids.

I'm just thinking well you know I'm gonna watch some Netflix, watch my favorite show, I'm watching The Sinner now, it's kind of crazy but it's kind of worth it if you like thrillers and just going to bed and waking up when I wake up, which is whenever I wake up because I don't have an alarm, and then start writing.

So that's why you're seeing a lot of these posts come out later and later because I'm thinking man I just need a break, I need to sleep. And at the same time I'm still able to publish three times a week, it's just not coming out at three in the morning, it's coming out maybe midday.

So if you've been wondering why I haven't been recording more podcasts and writing more posts and publishing them earlier, it's because I'm burned out. And I've got to believe some of you guys are burned out as well, but we've just got to keep on going, we've got to keep on going because that's what life is about.

When your back's against the wall you just got to keep focused, focus, focus, focus, and stay committed. So let's talk about the two different retirement philosophies. A while ago I proposed a new safe withdrawal rate rule or guide. It's basically whatever the 10-year bond yield is times 80%. So currently the 10-year bond yield is around 1.5%, therefore times that by 80% and the withdrawal rate will be about 1.2%.

So if you withdraw at a 1.2% rate, you're probably going to be very safe and you're probably going to have enough capital left over to actually donate to people and help other people out after you pass. And I think that's a great thing. But that's not what everybody thinks when they think about retirement and when they think about dying.

That's why there's two different retirement philosophies. The first retirement philosophy is to spend all your money before you die. In other words, you wish to accomplish complete portfolio depletion or very close to it upon your death. Your money which you earned is mainly there for you to spend. Very logical, very reasonable.

And since you can't take your money with you, you might as well spend it all while alive. So let's call this the YOLO retirement philosophy, the you only live once retirement philosophy. The second retirement philosophy is to leave a legacy with your estate which will survive long after you're gone.

Your legacy may involve providing a perpetual giving machine to charities you care about or taking care of your kids, even if they're adults. It may also include an ongoing donation to your college alma mater or steps to ensure your family business continues to run for years into the future after you're gone.

Let's call this the legacy retirement philosophy. So YOLO retirement philosophy and legacy retirement philosophy. I think most people are likely somewhere in between the spectrum. However, the people who closely adopt the first retirement philosophy of spending everything they have before they die seem to be the main critics of the financial samurai safe withdrawal rate formula of 10 year bond yield times 80%.

Now in case you're wondering how I came up with this formula, well, it's kind of a back of the envelope calculation. Back in the late 1990s, when the 4% rule was introduced and popularized by the Trinity study, the 10 year bond yield was about 5%. So therefore 4% is a safe withdrawal rate is 80% of 5%.

It's a very simple rule guys. But my logic was, hey, it's not rocket science to say, hey, if you withdraw at a 4% safe withdrawal rate, while the risk free rate of return is 5%, you're going to be just fine in retirement. I mean, come on. I mean, do you really need a PhD and lots of funding and doing massive amounts of research to come up with that conclusion?

So my financial samurai safe withdrawal rate rule is a play on that. And you can obviously withdraw at a higher rate if you want. 2% is fine, 3% is fine, 4% is fine. You can go higher than 4% if you want, but probably not for years and years and years because you will probably run out of money or get close to a point where you'll feel uncomfortable.

And deciding how much to withdraw is really going to be up to you. You won't really know how much you are comfortable withdrawing in retirement until you are retired. Now I went through a one year period of retirement from 2012 to 2013. And I was uncomfortable withdrawing anything. I didn't touch principal at all, because I had been saving aggressively and investing aggressively since I graduated college in 1999.

You might be different after 30 years of saving and investing. You'd be like, well, I got to spend my money and what's the point? But again, be flexible in your thought. You won't really know until you get there. At my high school graduation ceremony, I remember James Carville, a political strategist, came to speak to us.

He concluded his speech by saying, "Leave each place better than you found it." And that made a big impression on me at 18 years old. It really made me care about the environment more and the people I worked with. Instead of giving your two weeks notice and quitting, for example, give a much longer notice so you can train your replacement.

Right now, quitting your job, you might leave your manager in a lurch and he or she might not really appreciate it. But if you can find ways to come up with a replacement and a smooth transition, you have a better chance of negotiating a severance. When you're running up and down the public steps for exercise and you see litter on the streets, maybe pick it up and throw it away.

This is kind of the philosophy of leaving each place better than you found it. And the more you think about this type of attitude, the more I think you're going to align with the legacy retirement philosophy. And the stronger you adopt the legacy retirement philosophy, the lower your safe withdrawal rate will be in retirement because you want to leave more money to other people, to help other people, institutions and so forth.

And frankly, the more you don't give a damn about other people, I think the more you're going to focus on the YOLO retirement philosophy and you're going to spend your money as you see fit, which I cannot blame you for doing. We should all be doing that. Aligning with mega millions or billions is simply inefficient way of spending capital over your lifetime.

But given there's so much poverty out there, so many people who need help, spending all your money on yourself is not the most magnanimous way to go. Now of course, you can dedicate your life and your money to helping other people while living and that is a great way to go.

So again, we're probably in between the two bookends, YOLO or legacy. And personally, I want to be closer to the legacy retirement because as you get older, you just naturally think about what you are contributing to society and what you can continue to contribute to society after you're dead.

I think it's just a natural evolutionary way we think about life and death. I mean, this is the way we can help subsequent generations hopefully get better. If there was no thoughts about legacy as we get older and wealthier, then why would there be these billionaires and very wealthy people donating tons of money to their alma maters to name a wing after them?

Why are these very rich people donating tons of money to get anything named after them? It's probably due to legacy. Why do parents name their kids Junior or John the second, third, fourth, fifth? It's due to legacy. And in that regard, ironically, it's a little bit selfish, right? If you're using your money for your legacy, that's by definition focusing on yourself.

In terms of legacy, you got to ask yourself what you're doing with your life, what is your job and will it mean anything after you're gone or once you're retired? When I was working in finance, I didn't feel much legacy generation at all. It was really more about building a career, making and saving as much money as possible so I could do something else.

But now with Financial Samurai, I feel like I'm creating a legacy because the internet is forever. The writing will be forever so long as I pay my server dues and renew the domain every whatever it is, five, ten years. And you can also see how my writing has changed from 2009 to now.

Back then, I was much, much, much more opinionated and maybe a little bit inflammatory, maybe a little bit offensive. I don't know. But now I think I'm much more moderate and I definitely want to include as many people as possible and see all sides. And part of it is because I know one day my kids will listen to these podcasts and read my writing and I don't want to come across as a jerk, right?

Of course, I'm still going to have my strong opinions on various topics, which I strongly believe in, such as safe withdrawal rate. I don't think should be 4%. No way. But I'm going to make the arguments in a respectful manner to try to see all sides of the equation.

So I'd love to hear from all of you. Are you closer to the YOLO retirement philosophy of spending everything you have and leaving nothing behind? Or are you closer to the legacy retirement philosophy? Leave a comment in the post, shoot me an email. I'd love to hear from you.

And if you enjoyed this podcast, I'd appreciate a positive review and stay safe, everyone. Summer is here. Summer is here. Thank goodness. And I'm planning on taking things down a notch.