The Physician Philosopher Podcast
MMM 54: How Much to Take Out in Retirement
So, you’re getting close to retiring (or maybe you just really like to plan ahead). There are so many different thoughts and feelings about how much each person needs to withdraw for retirement.
One things for sure, is that personal finance is very personal! So it’s going to depend a lot on what you need. There are a lot of good rules to follow that we are going to discuss today.
You want to keep your money flexible so you can be ready for anything that can happen in retirement! Keep on listening so you can know how much money you need to take our in retirement!
Today You’ll Learn
- How much money you need to retire (or at least an idea)!
- The rules you should follow to give you the best estimates.
- Why you should be ready to be flexible in retirement.
- Why you want to make sure you have enough money for good quality of life!
- And more!
Jimmy Turner 0:00
Do you know how much you need to retire? Or how much you can safely take out each year? If not, it's kind of hard to know when you've won the game of personal finance if you don't know how to keep score, keep listening to find out more.
Welcome to the money meets medicine podcast where we talk all about the personal finance topics you wish you had learned in medical school. I'm your host, Jimmy Turner. And here's your co host, who doesn't own a single bond and his portfolio. Ryan Inman,
Ryan Inman 0:32
well, dude, like shots fired immediately, like we're a minute into the show. My style is cool. No, I don't. And we've talked about it before, because I have what I look at as a bond proxy, and I'm paying off my house a little bit faster. And so instead of putting money into bonds, which will really dampen the volatility of my portfolio, which is really big words to basically mean, my portfolio is not going to swing as much up or down. As the market is moving, because stocks are more volatile. They have bigger price movement swings, I'm okay, knowing that I'm investing for 30 4050 years down the road, that I don't care too as much about the volatility in my own portfolio that I need the bonds to dampen that some could argue that returns might actually be increased with less volatility. But the way I look is that I've got a 3.25% interest rate on my house. And I want to basically pay that off faster and live debt free than I want to or risk looking at the volatility in my portfolio. So no, I don't know much. But that does not mean that everyone should do the same thing. Please,
Jimmy Turner 1:36
don't do that. That just sounds like a lot of justification. I was just trying to get you to talk about your asset allocation. Because in today's show, we're going to talk about stocks and bonds and the mixture between the two and then how much you can withdraw based on how much you haven't used those pots, ox
Ryan Inman 1:49
100. funds, zero bonds, kind of like when Dave Chappelle was making fun of prints and it was like game blouses. Like it's kind of my stocks, 100 bonds, zero, your hot mess, dude, whatever. You like it. You love it. You want some more of it? I'll stop with all that. All right, before we go in today's sponsor is from med evolve a company that empowers physician practices to work smarter with more data driven services. And are you tired of dealing with the headaches like finding and retaining quality billing staff, high turnover and limited resources, many practices are opting to outsource all or part of their billing process to help relieve the burden on internal staff. It frees up resources and really reduces overhead costs. For those who wish to keep billing in house, it's critical to have solutions that provide automation, and give you the ability to monitor staffs productivity and effectiveness, especially for remote employees. Thanks, COVID. Med evolve can help you leverage data and AI solutions that bring answers to the forefront and take the guesswork out of the revenue cycle management. To have this great company help you work smarter, reduce your cost to collect and get paid on time find them at doctor podcast network.com slash med evolve. That's m Ed, EV, Lv. And the link is also in the description of this show that you're listening to right now.
Jimmy Turner 3:19
Yeah, so Ryan, I thought this was actually a super interesting topic to talk about today. Because people often ask me about how much money do they need to retire? People are all about the accumulation phase. And they don't realize that question has so much or everything to do with the distribution phase and how much you think you're going to be able to take out at the end of the game when you start to retire. And so in the fire community and in the financial independence community to people throw out the 4% rule all the time, it may be the most common like rule of thumb that I hear in this space still to this day. But for the three years that I've been in this space, it's the one thing people mentioned. And for those of you that don't know what that is, it's the idea that you can safely withdraw 4% of your nest egg, the money you've saved, and rest reliably assured according to this idea that it will last for your retirement. Now we're gonna dive into whether that's actually true or not. But the reciprocal of this, just in case you haven't heard the 4% rule is the 25 x rule, which says that, if you save 25 times your annual spending, then that will give you the number you need to retire. And so the reason that they're reciprocal is because say you spend $100,000 a year 25 times X $2.5 million. And so that $2.5 million, if you take out 4%, the reciprocal is $100,000. So the 4% rule and the 25 x rule that many of you may have heard of in the personal finance space. Those are reciprocal rules that come from something called the Trinity study, which we're going to talk about today, but it actually didn't start there, believe it or not, that's not where these things came from.
Ryan Inman 4:54
Yeah, so I want to stop really quick there and go even I think more high level Jimmy to lay the ground. Work, if you will, when we look at retirement, right, when you are fully retired, you no longer have a paycheck. And that paycheck that you were earning all these years is zero. But your investments, everything you've been saving for now becomes your paycheck. And every year, you need to earn money in order to live. So when we're looking at how much money can you earn, through the nest egg that you have, there's got to be a way to calculate how much we're able to pay ourselves. And it's not based on our actual spending. So when we talk about this 4%, safe withdrawal rate, and we're looking at it and we go back through your scenario here, it's telling us well, if we have this much in investments, and we pull this much out mathematically, we will have this amount to spend this 100 K a year. And through probability of success, we will then turn around and say, Well, I hope right Fingers crossed by now not just hope and pray, well, there's at least some mathematical research that shows that if you took out this amount 4%, that in 30 years, the probability of success and I'm putting that in quotes would be 95% or more, that you will actually still have money left over than running out of money. And they've done lots of simulations to get to that 4% rate. But as we've seen how this was done, because they did this 25 years ago, right or longer, when the market was in a very different perspective, and not just the stock market, but also inflation. So in order to kind of prep for the show, because they didn't actually know the number that I went and looked at it when this was previously written, when they looked at the prior 25 years to when they actually authored this work. Inflation was at 5.7%. That is insane compared to where we're at now. Because if I look today, looking back the last 25 years, inflation has been stated at 2.2%. And we're looking at potentially inflation being even lower than that going forward. And that is one really big piece of the equation. And I pulled a podcast that he had done with Michael kitsis. And we can talk through that a little bit more. But I wanted to make sure from a high level, we understood why we're talking about a safe withdrawal rate. And that's really, because in retirement, you now have this money that you've saved for your future selves. And you need to be able to create the paycheck. The other way of looking at it that Jimmy had mentioned was, well, if you know how much you're going to spend, that can help you figure out how much you need to have saved up. So then when you go to take money for the paycheck, your standard of living doesn't change, right? Because there's two pieces to this equation. But in reality, they get to the same concept. It's just how does your brain work? What helps you think, do you think I need to make X amount of money because that sounds nice and pretty 100 K, or is it Hey, my actual standard of living is about $100,000. And therefore I need to have that adjusted for inflation, when I hit retirement age, and $100,000 today is not going to buy you $100,000 is the same amount in 30 years. In fact, even just with 2% inflation, the way our whole system is designed, your money will be cut in half that purchasing power will be cut in half. So in reality, you're going to need $200,000 30 years from now, to live off the same standard of lifestyle that you live off right now, using $100,000. And a couple more things to know before we jump in a little bit further is think about everything that you have right now maybe you do spend 100,000 a year, let's keep with that, while you have a mortgage, you potentially have student debt, you have kids that are in the house, right? Maybe you're traveling but maybe not as much. Those things absolutely will change. 30 years from now, your kids will be out of the house, college will be paid for hopefully, or they're handling it on their own, your student debt will absolutely be gone. You cannot have a mortgage in retirement, so your whole house payment will be gone. But you're gonna have things like increased travel expenses, because you're gonna actually client of mine, I love this. And I told him I'm stealing it because I thought it was great is when you retire. He called him his gogo years. Those are the years he wants to go do fun stuff he's out traveling, do all your expenses will actually rise in your first five years, as studies have shown when you retire because those are the times you want to go do everything that you thought you didn't have time to do while you were really working. And then you have your slow go years is my client called it where you're doing stuff but you're getting a little older, you're not moving as fast, you're not doing it and then you have your no go years, right? You're just getting moving. Like you're old. You don't want to do it, you're done. Now, your travel expenses might be lower your medical costs, as all of you know, are going to be skyrocketing, probably going through the roof here. And so it's just as much forecasting what your future spending is going to look like than it is what you need from an actual balance. What's that financial independence number Two pieces, and everyone's brain works differently. That's why I wanted to make sure we highlight this in the very beginning of the show of why we're even talking about a safe withdrawal rate.
Jimmy Turner 10:09
And I want to piggyback on that a little bit. Because I think it's really interesting. Sometimes when people hear these numbers are like, there's no way I could retire on that amount of money. And it's because the lifestyle that you're living right now, with kids in the house, with the mortgage with the student loans, like the amount of money that you're spending right now is probably massive compared to what it could be or might be later, depending on how your lifestyle changes. And with that mortgage payment, I think it's so important to realize that, ultimately, how much you need to retire is completely up to you. It's completely up to the lifestyle you have, it's up to the spending you have because the person who spends $300,000 a year is obviously going to have to save quite a bit more than the person who spends 100 or 50. I think that empowers people sometimes and they realize, Oh, that's under my control, like I actually get to determine that. And I can't tell other people when they realize that they're like, Oh, I guess I don't need $10 million, or some crazy number that people often have in their head about what they need to retire.
Ryan Inman 11:04
It's interesting. You could though, and that's the degrees of financial independence or fire, financial independence, retire early that you might have seen out in the blogosphere, or podcasts or whatever, there's lean fire, there's fat fire, there's fire, but without the ri, which is I think, my favorite part. And there's other pieces that we could talk on. And we have talked on where it's like, yeah, you might be able to achieve financial independence and leave the current employment that you have. Or maybe it's just being a doctor, I've plenty of clients that seems to happen more than anything, but that are physicians, and they're like, you know what, but when I retire it, 5055, six, whatever it is, I want to go into public health, right. And I know that I'm only going to make 60 K a year, but I don't care, because I'll be financially independent. Well, that also factors into how much you can spend and how much you're saving. And you might be financially independent. But if you're going to spend $120,000 a year and you bring home 60 really all we need to create is $60,000. Now, I'm not ignoring tax humor me for a second. But all we need to create is a paycheck for 60 K a year, that is very different than creating a paycheck for 120 K a year, or 200 K a year. So I think everyone is different personal finances personal and those pieces really have to be addressed. And I think also that when we talk about retirement, I think Jimmy, you've even mentioned on a recent show, but it is more of a recent phenomenon, right in the last 100 years. 80% of the people 100 years ago, we're still working at age 65 and beyond. And now that number is sub 25%. We're saving, we're thinking ahead, which is great. But some people haven't been saving enough or they're hoping and it's kind of that well, this is retirement age, this is what is normal. And then we're planning for 30 years, well, humans are living longer, right? The average human is living much longer than they were 100 years ago. And so 30 years might not even be enough. And especially if you're looking at retiring early, then are you retiring early and still going to have some income or not. And if you're retiring early and going to have no income, that's fine. But that safe withdrawal rate that we're talking looking at, was designed specifically for a 30 year time horizon. I think that needs to be factored into what everyone is also thinking.
Jimmy Turner 13:12
Yeah, so let's back up here and just talk about this a little bit. I'm gonna talk about it not in chronological order, because the Trinity study is what everybody's heard about. So this is a study from 1998. And if you want to know the technical name of this thing, it's actually called retirement spending, choosing a sustainable withdrawal rate. And it was done by Philip Cooley and some of his colleagues. And so they were professors at Trinity University in Texas. So it's colloquially called the Trinity study. And they basically looked at various withdrawal rates. In other words, he took out 3% 4% 5% 6%. And they did that at various asset allocations from 0% bonds to 100% bonds and everything in between. So there's one for 25% bonds and 75%, stocks, and 5050, and so on and so forth. They looked at over various years, there's three variables here, the amount or percentage that you're going to withdraw the asset allocation, and then the time over which you needed to withdraw that money. And at 30 years, this 4% rule came out, because you basically had a 95% chance or higher depending on your asset allocation, that the money would last 30 years. And so people said, Oh, well, if I withdraw 4%, based on my asset allocation, I have a 95% chance or greater that the money is going to last. And I'll have enough for my retirement. But it goes back to exactly what Ryan saying, which is that people are living longer now. So if you decide to retire at the age of 45, and you're going to live till 95, well, you don't need 30 years, you need 50. And so that's a very different situation. And I think that it's interesting, because really, the take home on this study was that the success rates that people saw in terms of the money lasting, increased with shorter time periods. So in other words, if you needed the money to last last time, your success rate went up. That makes sense, right? If you need to for 10 years instead of 40. You have a higher chance that's going to actually happen. Lower withdrawal rates, the less money you took out the Longer lasted. Again, that makes sense. And then higher stock allocations. And so that one's kind of interesting. Maybe we'll touch on this later in the show. But if you're not taking at least enough risk, you're not going to keep up with inflation and you're spending and you're actually going to lead your account depleting faster. I think that this study is the one that people point to for the 4% rule is the one that you know, the 25 x rule. And these are both rules of thumb as you'll learn in this, but the reason that I wanted to explain that is because that's where it comes from. And then I wanted to mention that when you think about 95% success rate, most people hear that they're like, Oh, yeah, gosh, 95% success, I am going to have an awesome opportunity to make this work. I actually read this series, so bigger, you know, bigger and from fincon. Ryan? Yeah. So he has a whole, it's I don't even know now at this point. It's like probably 20 blog posts, just on the safe withdrawal rate is called the safe withdrawal rate series. And during one of those posts bigger and has this awesome analogy that I love to mention when we're talking about safe withdrawal rates and the Trinity study. And basically, it's the idea that he says, like, imagine yourself on a plane, right? And you are taking a trip across the ocean to another continent, let's say you're going from New York City over to France, you're gonna fly to Paris, you are on that trip, and someone tells you, hey, there's a 95% chance that you're going to make it. But they don't tell you what it's going to be like, are you going to have all of this turbulence and it's so bad that oxygen masks are falling down? And like, you have this terrible tumultuous ride? Where you're not sure if you're gonna make it the entire time? What is that experience like? So it's not just about Yes, or no black or white? Will you have money left at 30 years? Because what if the last five years of that 30 years you have just enough money to scrape by and you're constantly worried about not having enough? When I read this study, the first time, I don't know three years ago? I was like, Oh, yeah, I mean, 95% chance, that's really good. But then when big Ern put it that way, I was like, Well, I guess it doesn't really work like that, like, I actually do care how the trips going, I don't want a 95% chance of success. I want 100% chance of success, and I want it in style. And so I think that's a really important point to bring up. Because, obviously, longer timelines and all that are going to mess this thing up. But it really does matter. When you're in retirement and you're trying to enjoy your life. If you not only will the money last, but how much security do you have in knowing that it will last? And what was that ride like on the way were oxygen masks falling down? Were you like worried that you're gonna die the entire time or don't have enough money, you're not able to make ends meet, I think that really matters.
Ryan Inman 17:19
Absolutely. Quality of life matters. And you've worked really hard. But part of that I would argue not to be insensitive to anyone that is potentially not a physician, I'm just gonna say, right, everyone listening here is in the top 5% of wealth in our country. So when people are blogging and talking about these things, they're talking and trying to help everyone. This isn't just I'm going to cherry pick our top 5% of earners, heads up everyone listening, when you hear politicians talking about the wealthy in our country, they're talking about you or your future self, if you're in training right now. And that's okay. You guys have worked hard, you're taking on a ton of debt, you become experts in your fields, and you're compensated for it. And that's okay, you should be okay. You shouldn't feel guilty about that. You've taken a lot of risk and a lot of sacrifice to get where you're at. But when we talk about safe withdrawal rates, retirements, how much you need, what you're doing, like we are all collectively, Jimmy, myself and all of you we are very, very fortunate for where we're at in our country. And you have to understand that when they write these things, like how the average person's saving for retirement, they might not even have half a million dollars when they're trying to retire. And so when you're running the numbers and the calculations based on what they're spending, and they're spending $30,000 a year, that's very different than what we're talking about some of you and looking at my clients and everything, are talking about spending $20,000 a month, that is a very different thing. So when we look at is like the number one killer out of all of this is sequence return risk, you have five horrible years like 2008 in a row, right, the Great Depression, and you have negative 20, negative 20, negative 20 years, the market is just absolutely dumping. right as you retire. That is the worst thing that could potentially happen. But all of you listening, have the ability that if you were decided to retire at age 54, and the market just had horrible, horrible returns for the following few years, you can always pick up some shifts, right, you don't have to fully retire completely and earn good money, like more money than most average Americans could earn, you could potentially take less because you probably had more in your savings account and your checkings and all of that than the average person. So there's some things that you could do to kind of alleviate the big shock to the retirement to the system that most people can't afford. So he's got a fantastic then you should link that in the show notes because it's 40 plus posts a lot and it's fantastic. But taking it and filtering it with a grain of salt of like this is talking to the world. This is not talking to an eye pick on pedes because my wife being a pediatric pulmonologist just being not a super high paying specialty, even at that she is paid so much more than the average American and that's Something that we have to put into perspective when you're reading this general financial knowledge that they're talking to everyone, not just the top few percent in our country, I just want to
Jimmy Turner 20:10
harp a little more on exactly what you're saying that more important than a safe withdrawal rate and picking what number that is, is the flexibility that you'll have in retirement. So your ability to earn a little more to spend a little bit less to depend on other sources of income if you're taking Social Security. Now, there's lots of opinions about whether that'll be there or not. But the idea is that much more important than picking a number for a safe withdrawal rate percentage, like the 4% rule from the Trinity study, or vengeance 4.5%, is your ability to be flexible in retirement. And I do want to give a little bit of perspective, because I'm actually gonna share this quote, and then Ryan, actually, I think we're talking before the show that you know, somebody, Benjamin, who actually is potentially going the opposite direction of this, but I always found this quote, interesting, because it's from Bill Bernstein, who for those of you that don't know, Bill Bernstein is he's a physician, retired neurologist who turned financial advisor, and is the author of several really good books like the investors Manifesto. I really like his stuff. And he actually has a free PDF called if you can see if you type in, if you can free PDF, you can find that on Google,
Ryan Inman 21:10
if you can, is the best thing he's ever written. It's super good, because it's so blunt and direct. And it's his early writing, I think it's the best thing he's done.
Jimmy Turner 21:17
Yeah, I give to my students for pre reading prior to the two lectures that we do on investing. This is a quote coming from Bill Bernstein, retired neurologist, financial adviser, author of several very good writings and personal finance, so on his views on the safe withdrawal rate, and this was in the Wall Street Journal. So he said 2% is bulletproof. So 2% withdrawal rate is bulletproof. 2% is bulletproof. 3% is probably safe. 4% is pushing it. And at 5%. You're eating alpo in your old age. So this is what Bill Bernstein said. And this was back in 2018, I think is when this interview happened. And just to give you some context there that someone who reads a lot about this stuff is very wise and knowledgeable and written some fantastic literature for personal finance. His view basically is if you take out 3%, it's going to last forever, basically, is it a view or percent, you're probably okay. At 5%. You're eating dog food. So it's just an interesting perspective that I think simplifies it a little bit because these are all generalized rules of thumb. And so take that for what it's worth. And I would say I think Bill would say the same thing here. But just to give you some framework with which to think about this, and we don't
Ryan Inman 22:19
know how much research he's done, is he just reading a bunch of things, seeing what's happened and kind of curve fitting his own data based on his experience? We don't know. And I think part of what we're looking at in the quote I'm about to read looks at is they are curve fitting the data to look at historical performance. And we talked about safe withdrawal rate, like the term safe is only meaningful, looking backwards, it is not implying a guarantee of future safety. Because you can't know it's extremely important to remember it is kind of mislabeled almost kind of this thing from a marketing perspective of like, well, it's a safe majority, that means I'm safe. No, no, no, it means when they curve fit the data, looking backwards, 2550 100 years, whatever it is, that is not guaranteed what's actually going to happen in the future. So Michael kitsis, who I think is probably one of the smartest financial minds in the space right now. And if you want to get super nerdy, and feel like it's a little bit over your head, but he has a podcast dedicated for financial advisors, fantastic guy, a friend of mine, and he had blamed Benjen on his show on October 13. And I'm gonna read part of the transcript of that show.
Jimmy Turner 23:28
So because we may have glossed over this a little bit, I mentioned the Trinity study. So Benjamin is the guy that did the research before the Trinity study that kind of set the Trinity study up. So he looked at a safe max withdrawal rate. So what could you take out in the worst of times. So just to give some context for this before Ryan talks about the rest of Benjamin did the Trinity study before the Trinity study, although there are some differences in
Ryan Inman 23:48
his idea that there was further proved by the Trinity study is the kind of the easiest way he thought of it, he had done his initial research. So I look at this as the creator of it. And I think also to note, like I said, when he had originally done the data, like it was inflation was at 5.7%. But also, Roth IRAs didn't even exist. So this was done a while ago, one of the pieces that he had in his piece, which the trainee study, but you didn't mention it was that every year the allocation that you set, was rebalanced to make sure that you're still in your ideal allocation. So that was another piece or key assumption, to basically have him created this 4% rule. But in kitces, he was on the podcast on October 13, which you guys can go check it out if you'd like. It's super, super nerdy. I'm a nerd. And I love it. Most of you will probably not. But I want to take a quote from this. And this is literal transcripts. So it doesn't work perfectly, but you get the gist. And he said, people have to realize that when they use the four and a half percent rule, it's the worst case scenario, it was in an inflationary environment. And based on what I know, now, it's talking about him, not me, in a very low inflation environment like we have now I wouldn't be recommending four and a half percent, I'd probably be recommending 5.25 5.5, something like that, which is going to enrage even more people, because it's higher than the four and a half percent. But that is what history has demonstrated whether our current environment is going to cause such low returns, that will undermine the whole structure, I don't know. But people have to keep in mind that inflation is equally important as returns in this analysis. And that when you have a low inflation environment, your withdrawals are going to be going up much more slowly. So there's an offset to the lower returns that you can't ignore. Now, this is me talking based on what he had said. So all the credit goes to him. This wasn't me or my thoughts. But I think that is incredibly fascinating that you can look all over the internet, and even with Bernstein, right, and they're saying, well, the 4% rule that had basically been proven for all these years, and this is what they did, is great, but to be rock solid, it's 3%. And what the creator of all of this is doing, not only with his clients that he had at the time, but now he's retired, he's in the 5.25 to 5.5% for his own investments, is fascinating that the person who done all this research, who created the concept is going against what everyone else in the gurus and everyone else is saying of like, if you want bullet proof, go to 3%. That's not the case. But I think the biggest thing that I want everyone to take away with is that no matter how smart you are, no matter who created it, or who's written great stuff, or whatever else you have out there, they are curve fitting the data based on historical performance, and we have no idea what is coming in the future, we have no idea. In fact, we're at a place right now that in 2020, we've kind of experienced some abnormalities with the pandemic global pandemic that shocked the world, the Federal Reserve increased our m two money supply by almost 24%. So what that means, and this is Jimmy shaking his head, but most of you probably don't know what that means. And that's okay, so I'm going to explain it really quick now. And hear me for a second, we use a very small numbers. Let's say that since the dollar was created, up until December 31 2019, we had $100 in total existence, right? We don't it's trillions. But let's say it was $100, at the end of 2020. And in one year, the Federal Reserve increased the money supply, not from $100, but to $124. In one year, that's insane. Almost 24% of more money is now been released out into the world, we have never seen that we are at almost negative interest rates, we are at historical lows, people are borrowing, it's super cheap banks are borrowing it next to nothing. We are in a very interesting time that when the studies were done, they were done using 5% inflation rate, we absolutely don't have that if we had that the government would be dead broke because we couldn't pay our own debt payments. So looking at what everyone is doing and going backwards, I want to say take this with a grain of salt look at it. And you've got to make your own decision on where do you think we're going, what do you think this matters? And I would absolutely look at what these people are doing. But it doesn't mean what they do, or what I do or what Jimmy does is right? It means it's right for us and only us. But we are here to give you and present this information on what we think is happening. And that is why you're going to see discrepancies across every field, right? Whether it's podcasts, blogs, YouTube, whatever books, everyone has their own opinion, because no one can predict the future.
Jimmy Turner 28:30
And that idea is not foreign to any of the doctors listening, right? Because in medicine, everybody has a different opinion on different stuff based on the studies that they've read based on the information they have based on their background and anecdotal experience. And so this really shouldn't surprise anybody. But just like in medicine, one of the most valuable things in personal finance, I don't know where the future is gonna go. I don't know if the numbers 3% or 6%. But I do know is that you're going to need flexibility. You're going to need adaptability during retirement and the ability to potentially shift plans if, if that's necessary. And so we talked about that a little bit earlier. But I do think that this is an important topic to wrap your head around, because it'll help you figure out what number you think you need. And I think that's helpful. But there are certain things that are true, right? The less money you take out, the longer it will last. The more time you need, the more money you need. And so I do find it interesting because there are people in this community who look at the 4% rule, the 25 x rule as gospel, and they'll say it doesn't matter if you're 30 and things that I'll see you know, are like you're 100% VTS ax and you've got 25 x you're not a device, by the way, not investment advice. All right. Get Ryan in trouble when I start talking like this, but you'll see this in the financial independence committee people be like, Oh, yeah, I'm 35. And I've got 25 times and I'm in 100% btsa x and that's gonna last because the Trinity study says so. And it's like, what what have you actually read this stuff yourself? So we're just trying to give you a more nuanced understanding than that, that hopefully you'll have the background information now after learning about Benjin and learning about the Trinity study and learning about Benjamin's view versus Bernstein's view and just we want to have a a framework for you with which you can think about these things. And at the end of the day, past performance is not a predictor of future results. And so just know that with a grain of salt, these are some of the things you can think about in terms of a safe withdrawal rate and how much you can take out in retirement,
Ryan Inman 30:14
or just throw it all in Bitcoin, call it a day,
Jimmy Turner 30:16
done. Alright, so there's two things in the news that I just thought were crazy. And by the time it comes out, people may have already heard about this, but I saw two crazy stories about Bitcoin, I just thought were unbelievable. One guy had 750 bitcoins on this hard drive, and Bitcoin went way down, and he threw it away. And so he's now offering the landfill to pay them $75 million to dig up the section of the landfill that he thinks that his hard drive is in, which is worth it's a quarter of what he would get if you found it, and another one who couldn't remember his password, and it's in this encrypted hard drive that you won't get 10 attempts, and he's already used eight of them.
Ryan Inman 30:53
Yeah, you're gonna see a lot more of that as Bitcoin fluctuates, and gets more momentum, which we could do a whole show on Bitcoin. I find it fascinating. Just a really cool in real time study of human behavior and economics and how the narrative is changing and all that but yeah, you throw away your hard drive, dude. Good luck. It's all 75 million. Yeah, he threw away like five or six years ago. So think of the disgusting stuff on top of it. And like, if you find it, do you actually think the hard drive is gonna work? Like,
Jimmy Turner 31:22
I was thinking, I don't know, here's $75 million a year find this hard drive, that doesn't work.
Ryan Inman 31:26
But if we don't find it, or it doesn't work, I'm assuming like, and I'm not an expert in this, but as trash would sit there in the landfill and accumulate like there's probably some really like hazardous stuff that's inside there, and how would they even know what it is what it looks like? Thanks. Alright, switching over to our listener question. This one was done by Blake and he emailed us into us and said, being in academics has some advantages. I have mandatory retirement with a good amount of employer contributions to my 403 B. By the time I max out my 19,500, employee contributions to my 403 B, my governmental 457 B, my wife's 401k, both backdoor Roth IRAs, we are saving nearly 28% of our income. We don't need our taxable account at all to reach our goals. We do have some but it's gravy. So our exposure to US stocks occurs solely within tax advantaged accounts. We have an s&p 500 index for five basis points. That's point oh, 5%, by the way, and a total US index for 35 basis points, point three, five, I don't know why that's so expensive. But since this is for entertainment purposes, only Thank you, like, entertain me, if you will, very poorly, we're going to do that. How many basis points? Is it worth to diversify our US stock exposure beyond the s&p 500?
Jimmy Turner 32:44
This sounds like a fancy question. But what caught my eye was that 35 basis point for the total stock market us index fund that he has, and I was like, that's pretty expensive for a total stock market us index fund the minds like point oh four.
Ryan Inman 32:56
Yeah, the retirement accounts could add. And so that's typically probably even the 457 V with a little bit higher fees than the normal. That's probably just the plan sponsored fee on top of it. But it is expensive. But here's my thing with this question is like how many basis points? Is it worth to diversify our US stock exposure beyond the s&p 500? That part doesn't truly make sense. We're talking about expense ratio. Look, it is what it is. You're in your retirement accounts. You can't change those. You be investing according to your risk.
Jimmy Turner 33:26
Yeah, I think what Blake's getting at here is that why I think but my suspicion is that most international index funds have a higher expense ratio than US stock index funds. And so I guess maybe what he's asking, Is it worth it to have the international exposure if the basis points are going to be higher in an international index fund,
Ryan Inman 33:47
I think let's talk both fees and portfolio structure. And I will say again, Blake, even though you put it in here, like I want to make sure this like hashtag don't sue me, bro. concept of this is purposes only this is not specific investment advice. But I'd be looking at is setting your risk tolerance going through whether it's online risk tolerances, reading books, understanding what it is, and getting your own risk tolerance, and then mimicking that across your investment accounts, treating it as one household. And as you go through, there might be a way that you say, Well, look, my governmental 457 has crazy fees for international. So I don't want to hold international there. Whereas my wife's 401k, the fees are half, let's say it was point 5% of an expense ratio, which is for everyone. That's what the fund charges to keep the lights on to manage the fund all that stuff. And if the same fund, let's just use that for an example is half the cost and your wife's 401k. Maybe you put that allocation into the wife's 401k versus into your 457 B, you're still having that exposure. It's just cheaper. But what that does, is it one makes it a lot harder to rebalance. And to international, let's say go crazy, whether it's up or down your wife's 401k We'll have a lot more volatility than the one that had the US stocks inside of it. For whatever time period we're talking about not saying that is what always occurs. But just the example. I think that you need to have not only us exposure, but you need to have international exposure, everyone is different in terms of how much international exposure, but I think everyone should now where you own this, inside of these accounts, is up to you the fees, the options, all of that, which we can't help you with on the show. But that is how I'm looking at it. The other big piece of your question that I want to address, because to me, this is the elephant in the room, is that you say we're saving nearly 28% of our income. Yes, you're saving 28% probably of your gross income, since you're looking at everything in tax deferred accounts. And yet, you say you don't need your taxable account at all, you do have some but it's gravy, it is not gravy, my friend, because everything you've currently invested in other than that taxable account, Uncle Sam is investing alongside you. And we don't know what tax rates are going to be in the future. Tell me what the markets gonna do tell me to tax you tell me inflation is gonna no one can, we don't know what that's gonna look like. But what I do know, with absolute certainty is that Uncle Sam is investing alongside you. When you look at all of the money that you're saving and accumulating it, maybe you hit your $2 million mark, or 3 million, whatever your financial independence number is, we'll take 30 40% of that, and cut out Uncle Sam's portion. And now How much do you have, or his taxable accounts? The Roth IRAs are another example of this. But that helps cushion and now you're playing a tax strategy game early on in your career, right? If I eat $100,000 in income, and I'm gonna pull that from my taxable account, and I'm at a 30%, let's just say this really is a marginal rate, then that means if I pull 100 k out of the account, I'm only left with $70,000. Like that stinks. So do I have to go now pull 140,000 bucks to get to my 100 k? Or what if I could look at and say the tax rates are favorable, if I only get up to 70,000 of income, okay, then we pull 70 k there, and then maybe we pull a little bit from the taxable account, maybe we pull a little bit from the Roth accounts, and you still get to that 100 k that you need. But you did it in an extremely tax efficient manner than saying, well, Everything I have is in a tax deferred setting that puts you at a ton of exposure to what tax rates are going to be in the future. And I think from a tax planning and just financial planning aspect, and based on the questions that you're talking about here, you probably have quite a bit of time in your career in your wife's career to go, that I would be very hesitant to say like all of my income is going towards or tax deferred. And so we're good.
Jimmy Turner 37:41
I will say that I think there's room to give Blake the benefit of the doubt, no such thing. He mentioned the doctrine of charities, I call it and coaching. But he has a governmental 457 plan. Because of that. And he mentioned that he works in academics, combining those two things makes me think that he works for a state academic institution. I don't know that. But if that's the case, I do know that when my wife, for example, was a teacher working for the state, she could put a lot of her investments away Roth. And so there's a chance that Blake has invested some of this pre tax, like he said inside these retirement accounts, but maybe there's a chance is taxable account plus us back to a Roth plus any Roth treatment he's given to any of these other accounts, might give him a chance to kind of hedge his bets on what the tax rates going to do in the future. I don't know if Blake's done that. Because we don't have that information about Blake, which is why this is always generalized education, right? But I'll say, Blake, if you're not doing that, definitely food for thought in terms of figuring out what the tax rates gonna do. Because you and I both don't know unless you have a crystal ball that works. And if you do I need your address. I'll be there soon. And we'll do lots of cool things that make lots of money. Until then, my crystal ball is pretty cloudy. How many basis points? Is it worth? I don't know that I can give you an answer to that. But what I will say is I agree with Ryan, in terms of having international exposure, I think for our family, it's around 15%. But that number is gonna vary. And I'll say that I've seen some really interesting commentary on some very famous people who are very well known investors who say you don't need any. Now I agree with Ryan, I think that having some international exposure and diversification is a good idea. But there are people out there if you do your reading, and anything else in America today, you can find your echo chamber if you want to. But I think diversification in and of itself is worth something how many basis points? I can't give you a number. But I do think it's worth something.
Ryan Inman 39:23
I just think it's the wrong question. I think you don't need to worry necessarily, yes, expenses are a big deal. But it's more of where you're putting in and what you're invested in what your risk tolerance is. I do think you need some exposure to it. But I wouldn't be worried about is it five basis points versus 35. I'd be more looking at as like you need the exposure where could you put it in the most cost efficient manner, but also, like I said, the bigger thing and for every Blake there's 400 people behind him that don't have access to governmental 457 that have the mentality of like I'm maxing out my retirement so I'm good and it is absolutely not the case you need so much more than just Even for retirement because Uncle Sam is going to want that money when you go to retire, whether it's through rmds are required minimum distributions, or just you need to pull money out to live and you're now pulling it out and having to pay tax on that. Now, before we end, don't forget to reach out to med evolve. So for those of you that know how hard it is to build and maintain a sustainable business, we understand that bringing the right help to achieve your goals is really, really important. So get in touch for them for data driven analytics, workflow automation, and medical billing technology and services by going to doctor podcast network.com slash med evolve, m Ed, Eb OLV, so you can keep going down on the right path. There link is also in the description that you've listened to the show on. But before we end, it is time for that important disclaimer, so she can make some money to go into her Roth IRA as well. Alright, everyone, well hope you're having a great rest of your week. It is amazing that you're here. Jimmy and I are very thankful that you're here. We really appreciate you if you'd like to have your question featured on the show like Blake did today. You can email Jimmy and I are happy to do that. Please share this podcast with other physicians and their families so we can help them understand personal finance as well.
Jimmy Turner 41:15
So if you need those emails that Ryan's hinting at there, it's Jimmy at money meets medicine.com or Ryan at money meets medicine comm We always love hearing from you guys and appreciate you hanging out with us. We'll see you next week.
Jimmy's daughter 41:32
Dr. Jimmy Turner is a practicing anesthesiologist. Mr. Aiman is a fee only financial planner, you should know that this show is not personalized financial advice. In fact, this shows only for your general education and entertainment purposes. So keep listening to learn how to become a three yourself and Joker or go find a great fee only financial planner like Mr. Edmund to create a personalized financial plan.
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