Traditionally, people saving for retirement and financial advisors relied on the 4% rule when calculating how much to save for retirement and the associated income those savings would provide after retirement. What if you found out it does not work? Is there another option? Today, we offer you an alternative approach, which is the 2% rule for retirement spending. Before we delve into today’s main topic, we update listeners on the recent London meet-up, what to expect on upcoming shows, and who our special guest is to kick off the first episode of 2023. Then, we discuss today’s main topic and learn what the 2% rule is, how it compares to the 4% rule, and whether the safe percentage for retirement is actually higher. We unpack retirement spending through the lens of several empirical papers, historical data, and market comparisons. We also find out why the US market has always been able to bounce back from uncertainty and whether there is empirical data to support the 4% rule. We also talk about the many financial challenges and opportunities that young people face, the biggest mistake people make regarding retirement, the value of financial literacy, book reviews, and more!
Key Points From This Episode:
Links From Today’s Episode:
The Elements of Choice: Why the Way We Decide Matters — https://amzn.to/3VvxZR8
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‘Determining Withdrawal Rates Using Historical Data’ — https://retailinvestor.org/pdf/Bengen1.pdf
‘Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable’ — https://www.researchgate.net/profile/Carl-Hubbard/publication/265279441/
‘Global stock markets in the twentieth century’ — https://onlinelibrary.wiley.com/doi/abs/10.1111/
‘Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3689958
‘The Safe Withdrawal Rate’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132
‘The equity premium: A puzzle’ — https://www.sciencedirect.com/science/article/abs/pii/0304393285900613
‘Long-Horizon Losses in Stocks, Bonds, and Bills’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3964908
‘Financial System Review 2022’ — https://www.bankofcanada.ca/2022/06/financial-system-review-2022/#:~:text=The%20tightening%20of%20monetary%20policy,remain%20two%20key%20interconnected%20vulnerabilities.
‘The financial resilience and financial well-being of Canadians during the COVID-19 pandemic’ — https://www150.statcan.gc.ca/n1/pub/75f0002m/75f0002m2021008-eng.htm
‘Hopefulness is declining across Canada’ — https://www150.statcan.gc.ca/n1/daily-quotidien/220517/dq220517d-eng.htm
‘Global Investor Experience Study: Fees and Expenses’ — https://assets.contentstack.io/v3/assets/blt4eb669caa7dc65b2/blt60e320775385837a/62431900eed9f60f2de8ad55/GIE_2022.pdf
‘Financial Literacy Around the World’ — https://gflec.org/wp-content/uploads/2015/11/3313-Finlit_Report_FINAL-5.11.16.pdf
‘Ontario Securities Commission Investor Knowledge Study’ — https://www.osc.ca/sites/default/files/2022-09/inv_research_20220907_investor-knowledge-study_EN.pdf
‘Measuring the Financial Sophistication of Household’ — https://www.nber.org/system/files/working_papers/w14699/w14699.pdf
‘Investment Literacy, Overconfidence and Cryptocurrency Investment’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3953242
‘Financial Literacy and Attitudes to Cryptocurrencies’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3482083
‘Bitcoin Awareness, Ownership and Use: 2016–20’— https://www.bankofcanada.ca/wp-content/uploads/2022/04/sdp2022-10.pdf
‘Optimal Financial Knowledge and Wealth Inequality’ — https://repository.upenn.edu/cgi/viewcontent.cgi?article=1093&context=bepp_papers
‘Financial Literacy and Retirement Planning in the United States’ — https://www.nber.org/system/files/working_papers/w17108/w17108.pdf
‘Financial Well-Being of the Millennial Generation’ — https://gflec.org/wp-content/uploads/2019/12/Financial-Well-Being-of-the-Millennial-Generation-Paper-20191122.pdf