Sequence of Returns Risk: What Every Retiree Needs to Know | Karsten Jeske | 106
01:16:31 Share

At some point you reach a savings target. And then he said, well, why don't I go another noch up and another knock shop, and another is one more years. And drum, obviously, I did that for a few years.

So I especially if you work in finance, but you can make very good money, and then you get your year and bonus, which is usually paid out early, doing the calendar year. And so you get that one bonus. And then you ask you, so should I retire? No, no, no.

Let's do one more year and let's get another one of these big paychecks. And of course, you do that for a while, but at some point that Vicky Robin's philosophy kicks in, right? So you realize that that you have such opportunity cost, you're giving up so much of your life for a job.

When everybody believes our sequence of return is no longer a problem, maybe then IT becomes a problem again. So this is why i'm pointing this out. Be careful if you retire and especially if you retire after a long bull market run, which is exactly the time when a lot of people become interested in fire, right? Because now there for four years, really high, and they think, now I can pull the plug.

Well, this could be the most dangerous time to retire. And because if you have a recession and the bear market around the corner, that could think your portfolio so badly that IT may never recover in the end, sometimes people call me kind of the grinch of the player community. And according to cars, nobody can never retire.

But is actually, in this context, is the other way around, right? So there are plenty of people that can retire much earlier then what the four percent proposed, even if the market is at all time. I then i'm the first to admit I market already fAllen by twenty percent.

Who knows when people listen to this, we might be in twenty twenty five or twenty twenty six and the market might look very different. Then on top of that, you take that into account that maybe the market is no longer at the all time high and the cape is no longer at the all time high or close to all time high. So you should factor that all in and you can probably increase. You're safe. withdraw.

Welcome to catching up to fy, a podcast on mindset money in life for late starters of any age on their journey to financial independence. I'm bill and i'm a late starter.

I'm jackie, and i'm also a late starter and where your host, we're here to help you on your journey to financial independence. No matter where you're starting.

we're going to talk to experts of the late starters and explore topics related to our mission.

Join us as we catch up to five together.

Hello, and welcome back to kitchen up to fy. Jacky, how are you doing today? Are you ready for this, what we got going on today?

Yeah, i'm ready for this. I'm little under the weather, but I got super excited when I knew that our friend beg was joining us. He is just awesome, smart st.

Guy, know. So this is going to be not just fine, but we are going to learn a whole lot. I can feel my brain growing already.

Before we get started, we ve got to make a few shout out here. Our weekly shout out for a podcast is, every day, five stories from people on the path to financial independence. With Megan comes SHE is awesome, a new pod caster, and want to encourage her audience to check her out.

I also want to make a shout out to a couple of charities that are near due to my heart now as my wife is recently recovered from about with breast cancer, and we would like you to consider the Susan g common breast cancer foundation that A W W W common, that ord. And then more locally and of interest to me here in max fill is an organization called breast connect where they survivors help survivors. And it's a nexium charity that has a great output of the money that is donated with a very little overhead costs.

So we encourage you to evaluate these charities through guide star, evaluate our twenty two million nine profits, and you can find the financials and midden costs. And IT tells you the impact of the funds that are donated. So without further a do let's introduce our big guests today.

That's carston. Jessie also notice big earn, and he is big, six six inches tall, with the shoe size of fourteen. He is the founder, the popular blog and early retirement now, where he writes on all topics related to personal finance, but is best known for his comprehensive series unsafe withdraw strategies.

He's originally from germany but came to the U. S. In one thousand nine and ninety five. He believes that one of the most important topics in financial planning is how to transform an initial accumulation portfolio into a safe and sustainable retirement income stream.

Carston has an impressive resume, has a masters and adapted in economics, and holds the chartered financial analyst designation. He has worked at the federal reserve bank of atlanta and be in my melon asset management, and was taught economics at embrace university and U. C.

berkeley. His work has been published in leading economic and academic journals like the journal of political economy and the journal of monetary economics. After a long career, academia, government and corporate america, carston retired early in twenty eighteen in his forties. He now lives in washington state with his wife and daughter. So carston, without further to do, welcome to catching up to .

five takes for having going .

on the show yeah what we're honor .

to have you all of mine yeah.

I always say that some of the smartest people I know are in the fire community and we get some real genius. And when I say that, i'm thinking about people like you like we just heard about all the things that you've done. Your degrees are credentials and all of that.

And I feel like it's definitely, uh, credit to the fire community that we have you as a resource. So we're glad to have you on our show, but i'd like to hear a little bit more about your fire journey. I heard about a little bit, but I just love to hear a kind of how that came about.

Yeah so I grew up in a lower middle class family family. So um my father was a bus driver. My mom was a homemaker.

We had no experience with a stock market or index funds or individual stocks. I had to pick that up on my own. And I I came to the U. S. For my university education.

I came here for grad school at the university of minister, and I was already slightly interested in in economics and finance, and then obviously got more into that field. And yeah, I so growing up in germany and kind of frugal, i've always lived to below my means and kept my expenses at bay and had relatively high savings. So IT.

So I always had in the back of my mind that I wanted to retire earlier than Normal, say something like fifty or fifty five. But yeah, I mean, then obviously I was fortunately enough to have the nice run ups and in the stock mark in the two thousands and two thousand tens. And so that accelerated the whole process.

At some point, you reach a savings target. And then you say, well, why don't I go another nut shop? Another said, is that one more years and done? Obviously, I did that for a few years.

So I especially if you work in finance where you can make very good money, and then you get your year and bonus, which is usually paid out early, doing the calendar year, and so you get that one bonus, and then you ask you, so should I retire? No, oh no. Let's do one more year and, uh, let's get another one of these big paychecks.

And of course, you do that for a while, but at some point that Vicky Robin's philosophy kicks in, right? So you realize that that you have such opportunity cost. You are giving up so much of your life for a job.

And so when is enough? enough. And well, at some point I was enough. I was thinking in two thousand and sixteen, already in two thousand and seventy, and you might have been enough. But then in two thousand, definitely, I knew that was time to go, and that's when I finally pulled the plug.

So I came from a little bit more, a modest background, and I think i'm not the first person, my family, to go to university by the first person to do this whole stock index investing. And that was not something that was given to me from back homes. I made that up and pick that up along the way.

Yeah, sounds like during your accumulation phase you were one hundred percent stacks. And that's interesting and more common in the first command. I think jacky is one hundred percent stacks now I am a little more conservative. But at the time you reached exit to retirement that I believe when you became interested in the sequence of returns risk, can you tell us about why you did and the fact that I guess you didn't find a lot of information about IT out there.

right? right. So first of all, sequence of return risk means that in retirement, think about you have a retirement of maybe thirty, forty, fifty years long.

It's not a question of if you're going to have a bear market during your retirement, right? Is a given that you will have some very bad recession, very bad bear market at some time along the way in your retirement. And it's almost a given that you have at least one maybe multiple very bad bear markets ts during your retirement.

So what determines your success in retirement is not so much if you have a bear market or how many you have, but very intriguingly, what matters more is when you have those bear markets. So in the worst possible scenario would be that you have a recession right out of the gates, right? So you imagine you had retired right at the peak of the stock market in ninety twenty nine, or sometime in the ninety sixties, early seventies, even in two thousand.

You would have then experiences a bear market right during the first two, three, four years of your retirement. And now some of the forces that help you during your accumulation phase, they actually work against you. So for example, we all know this concept of dollar cost averaging, right? So dollar cost averaging is great.

If the market is down and you're putting money in, you are now buying more shares for every dollar that you would put in, right? And so if you are in the accumulation phase, you can use this as almost like a psychological crush to keep investing. Hey, now is a good time to invest because the market is down.

Every dollar I put in buys me more shares. But this effect of the market being depressed and now you're taking money out now works against you because now you're taking more shares out of your portfolio. So it's certainly true that every recession right eventually recovers again.

We've seen IT, I mean, even the great depression, but recovered eventually. But the two thousands, the global financial crisis, the pandemic crisis, even the twenty, twenty two bear market, you eventually recovered. But the question is with you with drawers is, is possible that you might have drawn down your portfolio so much that even with the eventually stock market recovery portfolio never recover even though the stock market recovers? And so that's what sequence return rst means.

It's not so much your average return during your retirement is. When do the low return and highly turn periods lineup if you have low returns early on, that's really poison for your retirement, whether if you are lucky, in some more sense of you are lucky like me, and you retire in two thousand eighteen and the ball Marks still has some legs and star and keeps running with a few vegging in between. And even the pandemic bear market obviously was very deep, but IT recovered very quickly.

So for me personally, I had actually very, very good sequence of return risk. But IT may not last and IT may not be applicable to everybody. And then obviously, right, when everybody believes our sequence returns is no wrong, a problem, maybe then IT becomes a problem again.

So this is why i'm pointing this out. Be careful if you retire and especially if you retire after a long bull market run, which is exactly the time and a lot of people become interested in fire, right? Because now they porta years really high, and they think, now I can pull the plug. Well, this could be the most dangerous time to retire. And because if you have a recession and the bear market around the corner, that could think your portfolio so badly that IT IT may never recover in the end.

So because can I get clarification on something? So you retired about a year before I did. I retired two thousand nineteen. And you mentioned that bear market during cover. IT was really sure. So around what length of time would you consider a bear market recession where IT would really start to have a negative impact and be not good for that sequence of return risk?

yes. So I can give you some examples. So so for example, the 呃 the bear market doing the great depression， IT started in one thousand and twenty nine in september, I believe, and the market dropped by some absolutely insane amount, I think, about somewhere around eighty percent in nominal terms.

And the truth was in nineteen, two and then so that means that's just the way down, right? So and then obviously, the market doesn't jump back from the low point back to a new all time high. I take some time to come back.

So from a sequence of return risk uh point of view, you have to cover not just the way down but also the way up, which could sometimes take. Decades to recover right in the stock market, so that there was definitely the case in the nineteen thousand thirties. Give you another example, in two thousand, right in two thousand, the market peak, I think the S N P was out about fifty hundred, a little bit over fifty hundred.

The market did reach a new all time high in two thousand seven. But then I started tanking again. And IT took until probe about two thousand twelve to get even near it's old level. And then especially because we also have to taking into account inflation, right? So because the S P five hundred is quoted in natal terms.

So just because the stock market reaches or level IT means while your expenses have gone up and your portfolio has melt in the way a little bit due to in fact, well, this also divided yld maybe making up a little bit of that. But if you look at the month and S M P five hundred levels, even in two thousand seven, you never reached even taking dividends into account, you never reached a new all time high until I think something like two thousand and twelve thirteen. So I took over a decade to come back to a new all time high, taking into account inflation and dividends.

And then another very sinister, a very sneaky kind of bear market was, so what happened during the one thousand nine hundred and seventy also during the one thousand and seventy, you also had some very bad sequence of return risk. But actually the call hearts, the retirement cohorts that would have been impacted the worst, uh, from the one thousand nine and seventies were some of their retirement cowards from the thousand nine hundred and sixty to, for example, anywhere between sixty four and sixty eight. If you had retired, then you didn't even see any very deep bear market around the corner.

Though I think there was one short recession in the early seventies, nineteen seventy or seventy one with a very mild best market. But basically you porta, you just went a little bit sideways and a little bit down because of your and then in one thousand hundred and seventy three and seventy four year, the oil shocks, which was really bad for both stocks and bonds, and then continued one thousand nine hundred and seventy nine, eighty, eighty one and eighty two, you had some very bad market events that hurt both bonds and stocks. So you retired in something like nineteen and sixty eight, and you didn't even realize until the late seventies that this is really, really bad.

So it's kind of very slowly snuck up on you. And then I mean, even some of the cohorts that actually, in the end, fair relativity. Well, so are, for example, if you had retired right before the oil shocks and in saying late nineteen seventy two, yeah, you would have made IT with the four percent rule over thirty years with a diversified portfolio.

But IT would have been a very rough ride. So just because you made IT in the end, but in between, you probably thought you are not going to make IT because nobody knew how well stocks are going to perform post nineteen and eighty two, right? Because if you think about one thousand, nine hundred and eighty two to essentially two thousand was one very long bowl market with a few blips in in between obvious ly one hundred and eighty seven with a very bad one day drop.

Uh, but these were all very short bear market. So if you consider one thousand nine hundred and eighty two to two thousand, just one long board market that that nobody would have known in one thousand nine hundred and eighty two that this is how stronger the market is going to perform. So definitely, some of the coal hearts, even from the mid sixties of halfway through the retirement, would have thought of, I mean, this is the end of my retirement.

So even though they might have made IT in the end. So and this is again all due to sequence of return risk, there is no fixed number, right? So sometimes people say all of you made IT through the first five years, years, then you got nothing to worry about.

Well, but what if the first five years are basically the late sixties, early seventies, and then that's when the real stuff happens for another ten years after that? So is is very hard to put, uh, really hard numbers on IT. And in some way I always make this point right.

This is almost like, have you ever seen one of these mono bright pictures, right? Where this is this very elaborate shapes, and then you zoom in and then open more shapes and more shape. And the more you zoom, so and in some sense, your retirement and sequence of return.

This is like that too, right? They ever, they always say, well, the first five years are really important from sequence of reTurners. And now imagine you are five years into your retirement.

Well, guess what? From that point on, again, the next five years are going to be really, really important from a sequence of return this point of view. So it's this almost like the self replicating picture where you zoom in and zoom in. The more you zoom in, the more intricate IT gets a little bit like that happens with safe, safe withdraw rates and and sequence of return.

But but again, I mean, if I had to put, uh a number of on IT, right, for example, you can come up with the examples where you can say, well, you know, you definitely made IT right, right? So I D retired in two thousand eighteen. Our expenses have gone up roughly with inflation and now more than six years.

Injury retirement ah yeah our portfolio is up um probably around two x Normal terms, not in real terms. So definitely I have less to worry about running out of money. Of course, I still kind of sort of face sequence of return respect because going forward from now, right, if we have a bad recession closed by, yeah, I will still make IT if the market keeps rallying.

Well, maybe I i'll accumulate so much money that they might name a football stadium after me or something like that, right? And so in that sense, you always still face sequence of return risk depending on what exactly you said as your target. Uh of course, you can say, well, at some point you made IT if such right. If you six years into retirement and you have increased your portfolio x percent, yeah, I mean, even if we have another great depression now, I know that i'm not .

going to run out of money. So obviously, your hundred percent stacks, when did you make the transition from accumulation to accumulation? And what adjustments did you make in your portfolio to sort of mitigate some of this?

right? So in accumulation, I was pretty much a hundred percent stocks since then. I ve gone a little bit less risky. So if I look at my portfolio and now IT looks like something like a seventy five, twenty five. So seventy five percent, twenty five percent less risky as so something like bonds and cash and and that's just the natural transition.

If you are in retirement and you have a hundred percent stocks, it's probably look if you have just over accumulated vastly and you think you can get away with withdrawing only two and a half or three percent, yeah, probably you can still get away with one hundred percent stocks and keep IT easy. But especially for people say, don't want to accumulate by thirty or fifty percent and they actually want to retire when it's time to say, use the four percent all or use maybe three and half percent all of them, it's usually Better to have some diversifying assets, right? And it's exactly because of this issue.

You have sequence of return list. If you have a recession right around the corner, you would then have to withdraw from your equity. But for you, that might be depreciated by fifty percent. Well, wouldn't IT be nice if you had also some bonds lying around where you, in the worst possible case, right?

You have something like an inflationary recession, where your bonds are also, but usually a bond portfolio is not gonna follow by fifty percent, right? Would fall even in the, even in the one thousand nine and seventies. I don't think they are fell by fifty percent.

And in the best possible case, we have something like a deflationary recession. Our economies called that A A demand shock recession. You have something like in two thousand or two thousand eight, where is actually you have a recession.

And that puts actually a dampening effect on Prices or Prices go down, interest rates go down if the fed lowest interest rates is usually good for bonds. So not only do you have a an asset that doesn't fall like stocks, but IT might actually rally, right? So if you have you have a bond market rally in two thousand, two thousand eight, also during the pandemic.

The only exception is in twenty twenty two because we had a bit of an inflationary recession reception and inflationary a bear market new recession, I would call IT, was little bit of of weak economic growth but never reached the recession levels. So but most of the time, at least in the U S, you have a actually very good diversifying asset in the form of bonds because during the average recession, the fed usually tries to assist the economy lower interest rates. And that's going to be good for bonds.

And that will help you with your retirement for forty because now, but you can actually take money out of your portfolio effectively, right? Because that's the asset class that went up. Stocks went down and so you have some hedge against the deep their market. It's not it's not foolproof. So it's not like but you can suddenly raise you withdraw RAID from three and half percent to five percent, but IT helps a little bit at the margin to to have some diversifying as its especially bonds.

And so bonds would help you more during some of these low interest rate recessions and then just cash as and say something like a money market account or three months t bills IT would be obviously best if you believe that is gone to be an inflationary recession because then that you don't suffer that duration effect on the bond side. So if the fed actually had to raise interest rates during the recession, which would be happened in the one thousand nine hundred and seventies, early eighties, so that would be really poisonous for bonds, and then you would be Better off with cash. But probably my expectation is the next recession is gone to be, again, something like that.

That puts a damper on Prices. Interest rates go down. Bonds are going to be a great hedge with the VISA v, your stock porta. So you need to have a little bit of of diversification in retirement.

So Carter, when you're talking about having the flexibility with pulling from bonds or pully from stores, depending on which perform the bid. So obviously, a target date fine on the withdraw side is not gonna work because one fun. With a mix of stocks and bonds, you don't get to choose. So they need to be separate at this point, if you want to use the strategy of poor from stocks, when is the best time or poor from bonds?

And I this is I could talk a whole hour about that alone. The problem with target date funds is that they may be them too conservative in retirement, especially for a lot of early retirees. And so I propose that, I mean, obvious.

Ly, you do the target date fund construction, cora, quite yourself, right? D I, Y, then you can do this whole business withdrawing from bonds, but in the defense of the target date funds, I would say because they rebaLance the portfolio, right? So they will settle bonds and buy stocks if the stock market is down in.

And so if you sell from your portfolio, your net equity holdings might actually still be OK IT might be a big money is funeral IT IT might actually do the same thing as if you did IT DIY and in some way, a target date fund. And again, there's one other reasons why I don't recommend target date funds in retirement, but there is one other reason that I would give in defense of target. They trans, at least they would do the rebalancing in a very robust and an prety determined way, right? Where's sometimes you don't trust your emotions as a retirement? For example, here's a retirement ride.

The market is down ten percent and then they say, okay, I take all of my twenty five percent bond portfolio and I put this all into the stock portfolio because now I can buy stocks at a discount. No, you you're supposed to do this very strict, very rule space. So you don't want to do any kind of market timing schemes.

And sometimes emotions get the best of us. And we think we're smarter than the market and we try to all this has to be the bottom of the market well, but guess what, the market drops another thirty percent from there. And then you potentially at the bottom, you pull your money out of stocks again and put IT back into bonds right at the bottom of the stock market, right when the S.

M. P. Five hundred was six hundred sixty six points in march of two thousand and nine. So I think in some way, having this pretty terminal rebalancing rule the way a target date fund would Operate may not be so bad.

If you think that you can do IT yourself, if you maybe your emotions get the best of you. But the real reason why I don't like target date funds so much is that the average target date funds keeps redo your stock. But for your early in retirement.

And there is actually some research, and i've written about IT on my blog as parts in nineteen and twenty of my series. Some other very famous retirement researchers like kidz and wait file, came up with this term of bond tent, where you do the glide path before retirement into more bonds and less stocks, but then during retirement, you shift slightly back into stocks again. And the reason for that is that is, again, a hedge.

If you have A A recession right around the corner out of the gates in your retirement, you would then put money out of the bond, put folio back into stocks, and you would then get a little bit of this dollar cost averaging through the trough of the bear market in you do have a recession right out of the gates and retirement. But what I guess what if you don't yeah you leave a little bit of money on the table because you might have had too many bonds in your portfolio around retirement. Guess what? I mean, you already won the game.

You lose a little bit. It's it's a truly ahead. It's an insurance where things turn out really well. You lose a little bit and you can afford to lose IT.

But then if the economy and h and financial markets go down a lot, that's when you have a little bit of extra potential safe with job. It's not going to completely hedge against sequence of return, but is a very partial hedged uh, against this uh, sequence of return risk. And again, so this bond tent is the opposite of what the traditional target date fund does in retirement.

So I always recommend if you say target date funds and usually people have these target date funds in four o one key plans. If you have a four one k plan, you just take IT out of the target date fund and then mix your own stocker s bond allocation in your four one cave. You can do IT in your four one key.

You might have to roll IT over into fidelity or venga and do IT within a roll over I R A. But I personally don't care too much for traditional target date funds, certainly not in retirement and then even before retirement, right, especially for early retirees, you you can't really afford to do this very long drawn out twenty years path from ninety percent stocks to to fifty five percent stocks or whatever the most of these target date funds use. That starts way too early for most of the early retirees. And you should keep the hundred percent stocks much longer than what the average target date fund does.

I mean, people talk about reverse glide path. I mean, you could light into retirement. And then I think what you're talking about is gliding back into stocks as another head against mitigating the sequence of return risk. Right.

right, right. Well.

well, why don't we take a quick break? And when we get back, we're onna. Talk a little bit more about one of your blog post that we found be very interesting what the makers of the four percent rule don't want us to know. So we'll be right back.

Yeah, you let's pause for a minute. And before we continue, let's share some words about one of this week. Sponsors delete me.

yeah. The latest report from the federal trade commission showed that in twenty and twenty three, ten billion dollars was lost to consumer fraud, and two point seven billion of that was lost to impostor sgam's.

Yeah, they've tried to scan me. They've scan my mother. This is a real problem.

So what do you do about IT? Well, first off, just learning more about the tactics these scams use can help us know what to look out for. But in a big way, I try to keep our family protect. IT is to make sure that all of our personal information is removed from as many data broker websites as possible so that we're less enticing of a target.

Yeah, you'd be shot at how many sites out there are sharing your address, phone number, birthday, email and a lot more. But fortunately, you can get these data brokers to remove your information. But unfortunately, the process takes hours and hours to do IT by yourself. I know because .

I tried to contact them and only after spending ten hours that I give up and start using delete me, our sponsor today. So take control of your data and keep your private life private by signing up for delete me now with a special discount for our listeners, just go to join delete me not come for its last catching up that join delete me that come forth last catching up. You'll find the link in our showers tes.

OK, we're back talking with cars and esk about now the four percent guideline, not the rule. There is terminology here that is very controversial in this. And then the makers of this rule are repeat. And this rule was described back in ninety nineties. So the first thing that you mention of the sort of the ten things that they don't want us to know is and is something with the guards to keep ratios, market valuations on the success of withdraw and variable draw ts and your show size, which is a little story there you have about this. So can you're first define cape ratio and then how IT relates to market valuations and our likelihood of success with our right.

So I mean, first of a four percent rule, my problem is not so much with the four percent number. It's more with the term rule, and I think this is already why you set that up. It's a rule of thun as a guideline. So he goes back to the research from bill banging from the ninety nineties and the trinities study that with the diversified portfolio somewhere either between a fifty, fifty, fifty percent docks, fifty percent bonds, or maybe seventy five, twenty five, most retirement cohorts would have done very well with the four percent initially withdraw, or just that for inflation every year. And you should have asked you for about thirty years.

And so the problem I have with that is not as useful as a rule as IT is portrait, right? So it's depending on your personal parameters, right? Are you a very Young retirement? Are you say a middle age or still early, but maybe you retire your fifties?

You have very different promoters of, for example, if you retire on your fifties, I remember you have social security in the not to distant future. You might even so, for example, you retirer at fifty five. You could draw social security seven years into your retirement, or you could defer IT all the way to age seventy and then get some potentially very generous benefits after only fifteen years.

So if you fact in future cash flows, right, which is very different from, say, the traditional retire at the traditional retirement, very often they get their social security and then they ask how much of my portfolio, my gona withdraw the next sixty years? And then that's completely separate from your social security stations for a lot of earlier retirees. We have this multi stage retirement problem where we have cast flows in the future.

We might have something like a house downsizing, right? You might have eight hundred thousand dollar house, and you might sell that at some future point and move into a four hundred thousand dollars do. And that additional money goes into your put folio.

So all of that needs to be modeled, right? And with even just some idiosyncratic parameters, right, you could generate a very bare bones safe with draw rates of maybe only three and quarter percent. Say, for somebody who retired at eight eight, he doesn't have any additional cash flows from social security or pensions and might make some extra money with the gig economy.

But just purely from your portfolio, you probably can withdraw much more than that in your potentially sixty or sixty plus year retirement. Or you could have people that are retiring in their fifties with the very large supplemental cash roles rider around the corner, and you could have something like a five or five and a half of six percent uh, withdraw rate. And you can sustain that initial withdraw rate because you know that in the future when these additional cash roles come in, you're going to lower you with drawers anyways.

So the four percent rule is okay as a guideline, if you think you are gonna retire in twenty years and you want to get a rough estimate how much money you need, you can do that rule of twenty five x or the four percent. But once you get closer to retire, and obviously you want to check, right, am I in that three point two five bucket or am I in that to six percent? Um was draw rate bucket because IT makes a huge difference money wise, right? Or so imagine you have a million dollar portfolio, right that could sustain either or thirty two thousand retirement or sixty thousand and is almost a hundred percent range in between to go to or vice verse are right if you have a fixed retirement target.

So I imagine somebody wants to retire on one hundred thousand dollars a year makes a huge difference if this person needs, say, one point six million dollars or three point three million dollars night for to sustain a six percent or three percent safe withdraw rate. And so it's just like we can't all wear shoe size ten. We can all Operate on that four percent ral.

Like because the four percent or is like like size two, size ten might work for the average american, but I won't work for me and I won't work for a lot of other people. So we should take into account, first of all, these idiots and credit factors. And then on top of that, we should also take into account market valuations.

And that's something where I kind of sort of her to shake my head that this is not talk about more often. I mean, there are some other people who talk about weight file has some, uh, research on that. But i'm just amazed that in the especially in the financial planning community that this is not stressed more, right? Because depending on market valuations, obviously, you should have different withdraw if you are right at the market peak.

But the very high cape ratio, right? That is the prime territory where you might have a bear market around the corner. Every single time the four percent rule failed, you had A S M P.

Five hundred market peak with a cape racial l but that was elevated both in absolute terms. So usually somewhere around twenty five or more, and certainly also relative to its most recent history. And so whereas if the cape ratio is more IT, yeah you can obviously pull out a lot more money.

And and the the the reason for that is that, for example, if the market has already fAllen by twenty twenty five thirty percent is unlikely. We are gona tag on another great depression until this already twenty or thirty percent drop, right? So you should take into account that if the market has already fAllen by x percent, we're not a guiding we're not calibrating our safe withdraw rate to a past worst case scenario because part of the worst case scenario has already materialized.

So maybe instead of looking at what what would have been my safe withdraw instead of nineteen, twenty nine, maybe what would have been the safe was drawing one hundred thousand and one thousand and thirty one right after the market has already fAllen. Or the same analogous, where would the market have been, say, in the ninety seventies, when I was already down by twenty or thirty percent? So I wrote a blog post, right? The four percent of rule works again.

And I wrote that right around the market bottom in twenty twenty two, right there was in october. I said, looked, the market has already fAllen so much, but you would be crazy. You will draw four percent now. You now you can actually raise IT again.

And there are two different ways, right? One is, well, I run my safe withdraw rate tour, kid. And I look at, well, in the past, after we have already fAllen by twenty or twenty five percent, conditional on that, what would be the safe not conditional on the market peak, but conditional on the market already down by x percent.

So you could do IT that way? Or also there are some variable withdraw RAID rules that factory, the shiller k ratio. And so the same thing because the shiller k ratio was actually in the low twenties at that time already.

And so I looked a lot more sustainable to to do something like a maybe four and a quarter or four and a half percent withdraw rate. So this is what i'm coming from. So we should customize save withdraw rates, both on the individual level and then also taken to account some market metrix.

So unfortunately, right now, we are recording this in early september ers. Our market is again close to the all time high again. So I would at this point, obviously uh, target again something like a more conservative withdraw rate, but I mean, still take into account your personal parameters for sure, especially so people who are who your audience, right? They are not the people who want to retire age twenty eight.

Rather they people who want to retire, say, in their forties, fifties, early sixties, are still very early. But because of this, a special individual parameters like pensions and and social security, you might be able to get away with much more than four percent. I mean, you would be short selling yourself and if you did only four percent in that a situation.

Now another way we can mitigate the to to come back to sequence return this sort of dynamic or tactical asset allocation. And there are port folios that can help us reduce the volatility of portfolio and actually increase our safe withdraw. One of your colleagues, Frank best guys, is an advocate of this. And what would you say to the point that if you shift your portfolio to something potentially a little more complicated, like a risk parity portfolio, which we will talk about another episode, how does that help?

okay. So I general, at first of all, when I work for B N Y melon, that was what we were doing. So we did some tactical asset location ships.

So we were not stock pickers. We look at the big asset classes, U. S.

Stocks, as modeled by S M P V. I've undred futures, ten year treasury futures and something next three months d bills. And then shift back and forth tactically into what is attractive.

What is unattractive is out of what is unattractive and into what is attractive. IT is extremely difficult, and the average retail investor should probably not touch that. I think there there are some people who claim that something like a momentum strategy, uh, has worked in the pencil.

Basically, what you do is you are into equities as long as they are lying and as long as they are up and then obviously, you will never exactly catch the peak equity level. You but once you see there is a downward trend, then you sell equities and go into something like a diversifying asset, either bonds or cash. I I have some sympathy for that kind of strategy.

Personally, I find that probably the best thing you can do is have some kind of a mix where you take into account both signals from this trend following strategies as a momentum strategy, but then also some valuation. And the nice thing about that is so trend following versus valuation, a trend following, you usually a little bit late around the turning points, right? Because you are selling when the market has already fall and quite a bit, and then you are buying IT back after the market has already throw the bear market trough and the starting increasing again.

Where's with evaluation strategy? You usually a little bit early, right? Because you think that while equities are becoming really expensive now, so I am selling a little bit, but you will usually sell well before the market peak.

But then trend and valuation, you mix the two together, you might get IT roughly right around the turning points. And I have some simulations and probably going to write about that in myra series. So this this is getting super, super geeky the way I think they some now for that.

Uh, but I also think that that's something that probably the average retail investor is going to have trouble keeping organized and keeping discipline. But if you are that person, yeah, you should definitely look into that. Personally, I don't believe in risk parity strategies because they don't do that, right? So basically, they look at just purely basically, again, for the geeks is the various school, various matrix.

And then you try to assign certain weights, not in terms of portfolio weight, right? Because for example, if you do something like a sixty percent stock, forty percent bond portfolio, yeah I mean, the space stocks take into in your portfolio that sixty percent, but amazingly, the risk that comes from that percent stock portfolio still makes up ninety percent or more of the total portfolio areas. And so one way to deal with this issue that the is to bring in more uncorrelated assets and then a sign certain weights that not not on the portfolio percentage, but on the risk side.

So I want to have this much risk coming from stocks, this much risk coming from bonds, this much risk coming from commodities. The problem with these risk parity strategies, and you can definitely press Frank on that, is that mean, obviously a lot of people that run these risk parity strategies, they have a little bit of backward looking bias, right? So when I first encounter these risk priority strategy wasn't the two thousands, and they worked extremely well, right? Because the two thousands were a time when we had this really almost like a gold lock economy, right? Stocks we're doing well coming out of the dot com crisis.

Bonds were doing well because he bit of this world market in commodities. And then if you had put together one of these risk parity portfolios, stocks, bonds and commodities, and IT doesn't even have to be parity, right? Because parody means that really have three asset classes.

He has to be exactly one third risk from stocks, one third and one third. You there's nothing about parity. You can pick any a target weights, uh, you IT doesn't have to be exactly one third, one third, one third. But any kind of strategy that, that mixed between these three asset classes did pretty well. And the problem is that commodities then had a terrible, terrible bear market after the global financial crisis, offers of a lot of energy Prices and drop.

Then on top of that, the way you buy and hold energy and a lot of these commodities is is not like, uh, how are you going to buy and each if that holds crude oil is not like you're going to put your crude on in your backyard. Its crude on has uh, astronomical storage costs, right? And is actually such strong, such bad storage costs in twenty twenty crude or prizes went negative for a while.

If if you remember that, that was a crazy story where you actually had pay to get rid of your access crude, all because they were so expensive to store and nobody had any storage capacity left. And we had there's overproduction. We couldn't drive down production fast enough.

You actually had to pay somebody to take crude, all of you. And so in any case, so the only way you can buy some of these commodities is through futures contracts, right? Because you don't hold the actual commodity.

You basically just buy and sell promises to buy them at a future date, but then you never actually buy them and and take delivery and some uh, effects in futures markets and financial markets where this is actually a really, really bad proposition, where the return on your futures holding of crude oil our significantly worse than the crude oil spot Price. So what you can show is this over a certain time period, the crude oil prize was seventy dollars at the beginning and seventy dollars at the end. So if you had kept your crude oil and there's no storage cost, you would have made a zero return.

But with your future strategy of buying this futures contracts of purchasing include all at a future date and then selling the contract again. When IT I gets close to coming due, you would have lost money spectacularly, something like at the eight or ten percent annualize rate. And the reason for that is that there's something is called to container in the future turn structure, and I can get into the details.

But the point is that doing this via futures contracts, h, there is an additional cost. I mean, this is the additional cost on top of the etf costs on everything. So IT becomes a very cover sum and IT also becomes very costly to trade some of these contracts.

And so I was never a big fan of that. And so some of these risk parity proponents are what they do as well. During the two thousand tens, they didn't include commodities in the city strategies because while looking, they would riba, even though he was really good doing, the two thousands became really terrible thing to two thousand and ten.

And now they are including IT again. So I think there's a little bit of backward looking buyers. So if somebody posts some returns and said, here, here is my risk parity strategy and look how great the returns were, there is definitely a lot of backward d looking bias because they know what did best over the last twenty lots of people.

If they start at a certain time, they will exclude like energy commodities like oil and gas and they will only include gold, right? Because gold actually IT doesn't quite have this contains guo problem IT also has a small storage cost, but it's is not that bad. So anyways, i'm not a big fan of risk parity.

I think this backward looking buyers, and then I looked at the returns that Frank posts on his web page and the returns over the last few years were pretty atrocious. So I don't think that A U beat, just diversify, say, sixty, forty or fifty five to twenty five portfolio. And so you wouldn't have beat that portfolio over the last few years, say, from two thousand eighteen or something like that.

And I also don't think that you really have much potential going forward of really generating the expected returns that you need for a, say, a long early retirement, right? So because usually your equity allocation is too low and then you are mixing in a lot of very low return assets like commodities. I mean, gold obviously has had pretty nice run, but the long term return of gold is pretty much inflation plus maybe a percent.

And if you extrapolate that forward, it's probably not enough say for a forty, fifty retirement. So I would still pin my hope to just a traditional portfolio. And this whole risk parity business seems, although a bit like belts and whistles and A A bit like snake oil to me, that I don't think that, that's gone to work going forward.

IT hasn't worked over the last ten years, and I have serious double that this will help going for. And again, I mean, this is as a risk parity. I don't think the way he sets this up is really A A true technical acid allocation, right?

For example, if you want to seriously run a risk parity strategy, right, I need to see some python A M lab code where here here's a risk, here's a various covariance matrix. And uh then IT has to speed out weights and the weight have to pretty much constantly change over time. But because they have definitely been very significant changes in the correlation matrix, right?

So for example, the U. S. Treasury ies were very, very negatively correlated stocks and now it's actually back to zero, potentially even slightly positive.

So this is actually something that you have to almost run this maybe not daily, but for sure monthly, you have to constantly adjust by your target weight. I don't think he does that. So I don't think he is a very tactical asset allocation rule either.

And by the way, is nothing wrong with that, right? Because my seventy five, twenty five is not tactical either. But I think what he is doing is more strategic asset allocation, and that's based on a while this asset has more risks. So i'm gona assign this way to that, I think is more strategic as location, and I wouldn't call risk parity the way Frank is doing a particularly tactical. So but anyway, so the long wind and answer, i'm not a form of the OK.

Well, that's interesting because we come back to this with an episode with Frank and then we might go head to head with cars. And Frank.

that ll be fine.

is gonna listen to this and he'll probably get in touch with you to talk about this, but we'll talk about risk parity will define what IT is for a future episode to do so. But you've heard to hear carston is not a fan and outline some of the reasons we got in. To some ways, this is going to be good for some of our geeky investors out there.

We hope we didn't lose our average late starter and investor. But let's get back to this list of jackie. What's the next question on why the four percent guideline, what you don't want to know? Well.

one of the things honest that stood out to me was the one that so I might be skipping around just a little bit, but the one that talks about the other things we should consider when we're talking about draw down, like you mention pension, so security side, household cash flows at things like that.

So I guess for that when that was number eight, so we won't have to rely on the four percent rule ourselves like because you have pinch inside those and things like that to talk to us a little bit about that. I think that's really important. A lot of people as they think about how much they even have to touch their right.

So and again, i'm not going to blame so much the researchers that came up with this four percent of, for example, imagine you are bill banging in the nineteen nineties or the trinity study, and you have to write a research paper on what is the sustainable withdraw IT. You want to keep your retirement as a generic as possible, right? You say that this is the third retire, is no additional cash flows, a flat withdraw pattern, right?

You so you don't assume that later in retirement, maybe you're gona scale down right now travelling in as much or you might scale up because you might have nursing home and memory care can be very expensive. So there are none of these baLance and whistle lls. And of course, you don't want to have these baLance and whistles.

Ls, because you want to keep a generic because others SE people are going to accuse you. While all of your results are due to this assumption of that assumption, so you want to have as little ms of assumptions for these idiom craic factors as possible. But the problem is that while we are all idiocy credit little households and we all have our additional factors that we should take into account, right? We have potentially side hostel.

And when I retired I still had three years of extra not salary, but I had deferred bonuses that vested after three more years in two thousand uh uh nineteen twenty and twenty one I still got a pretty sizable uh sum of money and so I didn't have to touch my investments very much. I would have a company pension, small one, but I wouldn't want to lose IT. I can draw that at age fifty five, my wife and I, we want to do social security, and we do that social security maximization, where, because i'm a little bit older than my wife, so I will wait until age seventy, and he can claim at age sixty two.

And then if I pass away, which is just how demographic works, I might be the first to go, then you will take over my benefits. So if we take all of that into account, yes, you can absolutely push your safe, withdraw at a little bit. And now is not like you can go from their bones from maybe three and a half percent or three and a quarter percent.

You can just suddenly go to to six percent, but IT usually IT makes a meaningful difference. And then again, always keep in mind, right, that small changes in your withdraw, right, they may seem small. Imagine you can go up from three point five to four percent.

It's not a point five percent difference, but this point five percent of your nest, eg, which could be a very large amount right from three point five to four, is actually more than a ten percent increase in your retirement budget. So that makes a meaningful difference. And then again, i've done case studies for for folks in the in the fire community, and this is always the same pattern, right?

If you are already in your forties or fifties and you have these large supplemental payments in the not to distant future, you may push this a little bit higher. You might actually go to five percent or above five percent then again. So I imagine you have ten million dollars in your portfolio.

Well, maybe that three thousand dollars social security benefit that that doesn't make a huge difference in terms of the percentage, right? But for most people, right, that average americans that have maybe a seven low seven figure portfolio and you have some maybe three thousand dollars a month for once balls and maybe another fifteen hundred for another spouse, that adds up to quite substantial amount. And then again, it's not from right at the beginning.

IT might be a ten, fifteen and twenty years down the road, but even then, IT may make quite a big difference. IT might sometimes make a difference of one percentage point, right? And again, so one percent is going going from four to five percent.

That's a twenty five percent increase in your budget. So we should all look at this very carefully. And then especially your audience, right, doing the fire a little bit later.

You are predestined to do your math more carefully because you may actually underselling yourself at four percent even if the market is at all time high. Because, again, you have longer work history, right? You might get higher social security benefits than the average super early retirement.

And those social security benefits might be right around the corner. So absolutely, you want to do more careful analyses. Because if you are saving until you reached twenty five x, you might be sixty seven or seventy at that time.

You might get to fire much earlier if you do your math, right. So because sometimes people call me kind of the grinch of according to cars, nobody can never retire. But is actually in this context, it's the other way around, right?

So there are plenty of people that can retire much earlier then what the four percent were proposed, even if the market is at all time. I i'm the first to admit, right? Mark has already fAllen by twenty percent.

Who knows when people listen to this, we might be in twenty twenty five or twenty twenty six and the market might look very different. Then on top of that, you take that into account that maybe the market is no longer at the all time high and the cape is no longer at the all time high or close to all time high. So you should factor that all in and you can probably increase. You're safe. Withdraw, right?

So that's a good news for our community, right? We may undersell ourselves according to carston. And the grinch gives us one of the things that you mention. This list, which I really found interesting, is there are things that reduced the four percent rule. We ignore several things, and that we have to think of, when we look at this guideline of the four percent, what are the things that we ignore that reduced this already inherently?

Yeah so I mean, I for example, expense you, right? We probably not the biggest issue anymore, right? Because for most of us of with fidelity of one guard or swap, we have very low expensive als.

But yeah, I mean it's a for example, if you have a money manager that manages your portfolio and charges in A U M V of a percent a and a half, unless this person is actually so good that they generate this percent percent a half as extra return through, say, stock picking or markets timing, which again, I think most people probably wouldn't succeed in that. But yeah, suppose you have you have some other financial fees, right, or taxes that would to reduce what you could actually consume you so you might withdraw four percent. You may not get to consume everything because you have to cover your text, bill too.

It's not really a huge concern for most right? Because if you play this right and you stay, say, in the ten to twelve percent federal marginal tax bracket and your capital gains would be text at zero percent in that range so you could actually make something like a hundred twenty or hundred twenty thousand dollars. If it's all capital gains or mostly capital gains, you still pay zero federal tax.

You might live in a state that has zero state income tax. Washington, danny, see, right? And maybe text is not the biggest concern for most people, is not the biggest concern for me.

But yeah, I mean, obviously, you could live in a traditional high tax state where you have almost like A I think I think georgia has A A pretty, pretty quickly, you get to the highest marginal text, right? Just something five or six percent. There's some other states like oregon is also quite, quite greedy.

California is actually, if you stay within a certain budget, the marginal tax rates actually quite low as the really astronomical tax rates. The ten percent, eleven percent, I think thirteen percent. Now they only start for some really, really high incomes.

But yeah, I mean, it's obviously you have to keep in mind that you also have to pay taxes. And again, it's probably a whole other episode that do you want to bring some experts and that's how do you do the rose conversions and uh, how to spread out that, that need to take money out of your I R S. And so that i'm i'm not a text experts.

I don't really talk about that so often, but there are obviously some ways to mitigate some of this tax hit. But yeah, I mean, most people will probably have something like an effective tax rate somewhere between three and ten percent in retirement. And yeah, I mean, if you was done four percent, well that's really only maybe somewhere between three point six and three point nine percent after taxes so keep that in mind. Even if you are A D Y I investor, you don't have any A U M fees and you have very, very low expense ratios. They still a little bit of .

a text drag yeah well, we're going to get to the rest of these. And so carson, what about the flexibility? You say that that's overrated.

right? So again, I never say that is useless, right? I mean, i'm A i'm a flexible guy, too. So what would you mean things that if my current spending level sudenly becomes unsustainable because my, say, my portfolios is down by fifty percent and I have to take down my spending, I will definitely do that. And so i'm totally in favor that.

I so nobody would be crazy enough, right? So I imagine your portfolio is down and you pretend nothing ever happened, right? So the problem might have with this whole flexibility, montreal, that people say, well, you have to be flexible only for as long as the recession or the bear market last.

And then they look at some kind of market stats and you find that the average bear market only is that could be less than a year. I think some of the longest bear markets was probably nineteen, twenty nine hundred and thirty two. So that's three years, actually a little bit less than three years, I think two and three quarter years.

So you have to be flexible only for as long as the bear market. And that's actually not true, right? Because you at the bottom of the bear market, your portfolio, that's actually the bottom of the portfolio, right?

So the time IT takes your portfolio to recover right to a new all time high or too where IT was when you first retired, that may take again. And when we talked about that earlier in the show, that can take years and years, maybe even decades. So yes, i'm all in favor of flexibility, but sometimes people underestimate for how long you have to be flexible, right? And sometimes people might be them too aggressive.

They say, well, four percent is the safe withdraw, right? Well, but guess what, i'm going to do six percent and then i'll just be flexible if something goes wrong. And well, if you started at six percent, right? So and four percent is already a little bit shaky, right? You already know.

So imagine you have a million doll portfolio. You do initially was draw a sixty thousand dollars, a forty percent risks running out of money, right? So that means you can be at sixty.

You can just go from sixty then down to forty, right? Because you've already was drawn more than forty and forty was run out out of money. So you have to actually go away below forty to make up for the initial access with jobs.

So people have to realize that flexibility doesn't mean you're just skipping the the coffee that is at star box. I mean this this potentially some extremely painful uh, reductions in your spending potentially say you fifty percent cut in your spending. So you take all of the directionally budget out and you only spend uh, on the Mandatory budget.

And then that can also last for a very long time. And and again, we get some simulations on that. And yeah, I found some of these flexibility rules a first fifteen years out of your retirement, twelve years you had to cut your spending by fifty percent. And that seems a little bit excessive to me.

But yeah, I absolutely agree that if if you have some flexibility to, say, cut your expenses for two or three years by a twenty five percent, you can also model that with my simulation tool and then see what kind of a difference that does in your safe withdraw. And usually IT doesn't make a huge difference. I don't you order a safe with draw rate, three, five percent.

Maybe you make you to three point six percent, which is good. But you can't just miraculously say, oh, due to flexibility, I can suddenly increase my safe withdrawal to astronomically. It's not going to work that way.

And this is just purely mathematically, right. So it's like it's like squeeze a balloon, right? If you if you increase your spending early on, you have to decrease IT later and you can just make up for the excess with draws early on.

What's just a few scraping together pennies and and a few quarters here. And there has to be some very substantial cut in spending and has to be very long and some these against some of these flexibility rules. If you actually simulate them and you expose these rules to some past recessions like the nineteen thirties or the one thousand nine and sixties and seventies, or or even the early two thousands, IT would be quite painful. And then on top of that, right, you also potentially create some false along.

One of the best examples, as I mentioned, that early some of the cohorts in the early one thousand nine hundred and seventies, they would have made IT through the one thousand nine and seventies the inflationary shocks and the recessions and the poll worker and interest rates going up to the double digits and almost twenty percent um you would have made IT in the end but of course you didn't know IT in one thousand nine hundred and eighty two. So this flexibility um first of all it's quite painful. And then I also creates these false alarms, right?

So you have false positives where you have to reduce your spending even though IT wasn't necessary in hindsight. So again, I don't want to put IT too much. I think i'm flexible and we should all be flexible, but that is not a panache. So I think if you are flexible, try to model IT and see how much of a difference that makes. And then if anybody tells you, but you can withdraw more than that, well, that means you also have to be more flexible for much deeper spending cuts are much longer spending cuts so.

so constant. Now we see why you dedicated a whole big chunk of your blog to save will draw race. And you are the, I considered the authority when IT comes to that.

So we definitely will drop in the show knows this full article, your whole landing page for safe withdraw rates and seconds every turn rest. But is there anything else that you wanted make sure that we convey to our listeners about safe withdraw rates? yeah.

So I mean, if you just do the the landing page, which is just the earlier the time and now that come forward, flash S W, you are and over there, there is a little bit of a right up of all the different post i've written. So every post has something like one or two sentences where IT fits in.

Don't go through the list from part one to sixty one in that order because right? I mean, overtime is all sorts of topics come into my mind and they come in in a very crazy and random order. If you read IT in that order might not be very enjoyable.

But yeah, I mean, if you look at just that landing page and see if anything strikes your interest, then read more or just take take the summary and and be happy with the summary and be happy that you don't have to read the whole block. Some of them are very long. Says something next three, four, five thousand words then I mean, just in general, my blog is actually only maybe one quarter of my blog posts are about the safe withdraw rates IT, which I also write about some other topics that, that just come into my mind.

Earlier this year, there were people were kept bugging me about two papers that that were written. One is, should we have one hundred percent equities and be done with IT? No bond diversification? So I wrote a response to that paper, and then there was another paper that was critical, this whole idea of stocks for the long run, and also a road to comment on that.

So if you find these, my look, I think they were written something in february or march, April twenty four. So they got a lot of a lot of common. So I write about so other finance related topics, then also just some other not so financial topics.

So recently I had a blog post, early retirement reduce my life expectancy, right? Because there's some research on that topic. And I give my, uh, two cents on that. Does IT really .

because I want to know you want to know build to, right?

Because there is some academic research that claims that. But I point out a few and and bill probably knows, uh, some of that stuff because you're you're in the medical field and then some of the people that are in the in the intersection of medical and and statistics, they they write papers about topics like that. And so I point out some of the data and modeling issues.

And as I personally still cross my fingers that early retirement increases my life expectancy. And my idea is that even if IT doesn't right, at least I think the quality increased even if the quantity, the number of years, if I lose maybe a few months at the end, that's fine if I enjoy my life also. Well.

you also have for folks in audience to too kit for service. You tell us about that. yeah.

So that is also part of that safe was draw rate series is part twenty eight, where I go through the mechanics of that and IT has a link to that sheet. And if that's all really overwhelming, there are actually two realized blowers, the two sides of fine do, do you know eric and Jason? Maybe you you have a link to their blog too.

So they did, I think, to two videos where they go through the tool kit, say, hey, IT looks really intimidating. But here, I mean, you can pick this up in twenty, twenty five, thirty minutes and run your own personalized, safe, withdraw raight simulations, and is actually your relative easy. And if they hadn't done IT, I would have done that, uh, little bit of a walk rule video at some point.

But they did IT already for me. So I don't have to do IT. So that link to to their youtube channel and that video is also in that.

But we're about late starters, and i'd like to close today with any particular tips that we haven't talked about today that you might have for our late start audience that are little bit stressed out about not having saved, not having accumulated. And there are any top three things that they can do or look forward to even as late starters, right?

So I think first of all, you have to get started. Do you have to get started in investing? And I think they're always two barriers, right? If the market is rallying, people say that, okay, I don't want to put money in now because the market high.

If the market is down, they will say, oh, I want to put my money in now because the market is down, so you almost have to rewire your brain. So I always did that. If the market is rilling, I said momentum works.

If the market has gone up the last year, chance as I IT will go up statistically very significant. If market goes up, their chances that they will keep going up and the economy keeps expanding, their chances that they will keep expanding. So write the momentum train before we are the all time peak.

And then if the market is down, then you just think like a value investor and you say, well, evaluation looks really good now I can buy stocks at a discount. So that kept me, I mean, fresh. What you got me started because my work career started in two thousand, right at the peak of the dot come market peak, and then I crashed.

So the timing when you start investing is really not that important in retirement IT is whether it's a market peak or not starting to invest, you don't really have to worry about valuations just started and keep IT going. And a if you need some kind of a psychological crush to that momentum and valuation, the market goes up. Keep investing because as a momentum, if the market is down, keep investing because valuations are attractive and keep that going.

And yeah, I mean, automate your your finances and also enjoy the right, right. So I mean, I always felt that I was not worthy to cut yourself short and live like a mizer. I would rather retire a year or two or three later and actually enjoy the right, adjust this risk that you fall off the wagon and hate what you're doing.

As i've seen people from the fire community go through that, if you, if you cut yourself short too much. So I can see some of these, say, five meetings. People try to outdo each other.

And I have an eighty percent savings. And I have seventy five percent savings, oh my god, as I have only fifty percent. And yeah, I mean, if that restricts you too much, just do thirty or forty percent, right? I mean, you will eventually get there. And it's it's Better than not starting at all. So that works out on the .

downside too, when people reach fire and then they have a hard time spending, and they keep their spending slow, so the people that save the most often spend the least and have a hard time enjoying life on both sides. They get little a whip lash or whip sad by saving and unspent. Ding.

没有， 没有， 没有。

and really matters. Don't have a problem with that, because I can spend, spend, enjoy. And actually towards the end, i've cut back on work.

So in my free time, I do this podcast with jackie and how great. Because, like you, so these are the things I couldn't do if I was killing IT on the earning, saving, investing. So I may extend my runway, but i'm enjoying the ride a little more.

And thank you carston, for joining us today. We're gonna have to absolutely have you back to talk about their topics. We've covered a lot of ground today, but your knowledge base is almost infinite and we want to tap into IT in the future.

right? Tacking yeah. And carson, we talked about your blog. Where else can people find you at the best place?

Yeah, blog is already the best time on twitter. And I don't really do much on facebook. Sometimes people dm me on facebook and then I find IT after two months. And so the blog is probably the best. And twitter I I actually twitter is if you want to dma its twitter is probably the best.

Okay, the blog is early retirement. Now we will see you on that com and I will see you on twitter. But I like you mention, I want to highlight this is that you have a ton of other topics on your blog, but I have known you I was as a safe guy. But as digg for the show, you've got a ton of other great topics as well.

Yes, I thank you .

for joining us today. We look forward to up to you in the future, and just thanks for all you do for the fire movement. We really appreciated.

Yeah thank you. Thanks for having me.

So bill, as you know, we cannot do this show without our amazing staff and the people that help us put this sign. So our social media is dyna fault. Our editor, frits bazar, and shown notes are done by Sarah van stone bird. We love them and they keep us going.

Yeah I mean, the show wouldn't have the quality IT has without our folks, our peps. And we'd also like to give you if you calls the action for the show, we love our community and we hope you love us back if you want to support the show and what we're doing, you can do that at by mia coffee, which is a platform that allows you to virtually say thank you if you get value from our content.

The link is in the show notes, so you can head over to our website at catching up to fight that com and click on to support the podcast have at the top right. We hope you enjoy this episode of catching up to fy. We appreciate if you could leave us a five star review so that our message can reach .

others while we are financial educators and am a financial professional that loves to teach, our content is for general education and information purposes only. We are not providing financial, legal or tax advice. Always do your own research or consulted professional before making important decisions.

Let's see you next time on catching up to five.