The proven path to early retirement ignoring the 4% rule

The proven path to early retirement ignoring the 4% rule

 Personal finance has “personal” in it for a reason.

What I means is: the only proven path to retirement, for you, is the one you create and manage.

I firmly believe that.

I also believe however you can and should learn from others whenever possible. This site is all about that.

Passionate readers of this site will know my timeline and financial goals for semi-retirement, while bold, are getting closer:

  1. We hope to own a $1 M portfolio to start semi-retirement with (that portfolio value is outside my accumulated ~18-year pension at work; it excludes any part-time work (including this blog); it excludes any part-time or full-time work beyond the blog that I may continue enjoy with my current employer).
  2. We hope to be debt-free in a few years.

The combination of items 1 and 2 above should put us in a good financial position to make some changes or simply continue working – but those decisions would be on our own terms.

Whether early retirees are from the U.S. or Canada and anywhere around the world for that matter, I enjoy hearing from them and how they “got there”. Every story seems to be a bit different and nuanced, even if their approaches (including the use of low-cost indexed products) might be the same.

You can find a number of early retirement essays and case studies on this dedicated page here.

Early Retirement Now

I recently got a chance to meet the cerebral and entertaining blogger behind Early Retirement Now at the big FinCon conference in Washington D.C. this year. We had a chat about investing while waiting in line for some of our adult beverages at one of conference evening festivities. Karsten has certainly been very successful when it comes to investing and he has a great deal of knowledge to offer aspiring retirees – on any side of our Canadian or U.S. border – now that he is retiree himself.

Karsten was kind enough to answer a bunch of questions as part of this retirement essay.  I hope you enjoy the read…

Karsten, how about a short bio for my readers predominantly in Canada?

Sure Mark.

I’m from Germany originally and I came to the U.S. for my doctorate degree in economics at the University of Minnesota. After finishing school, I worked in two different jobs: Between 2000 and 2008 at the Federal Reserve Bank of Atlanta and between 2008 and 2018 for Bank of New York Mellon Asset Management. Both my wife and I retired in 2018. I’ve been writing about our journey toward early retirement since 2016 on my blog and now continue writing about personal finance in general and safe withdrawal strategies in particular.

Awesome. Karsten, welcome to the site!

Thanks, Mark. Glad to chat with you!

I’ve been a quiet reader of your site for many years now, including some epic posts I’ll link to in a bit. One of the things I’ve been thinking about more as I get closer to my own FI goals, is the notion of having a modest emergency fund. Say 1-year in cash.

I intend to keep 1-year in cash reserves as part of my bucket approach to retirement income planning, and likely live off dividends for the rest.

What’s your take on emergency funds in general? How much should most people consider holding in cash? What % of cash is your early retirement portfolio now?

While still working Mark, I never had an emergency fund. I had a large enough savings rate and I could deal with all cash flow shocks, like home and car repairs and medical bills simply from my positive cash flow. So, my conclusion from my own experience was that I never had much use for a designated emergency fund because I pretty much invested everything in the stock market!

When I wrote about my $0.00 emergency fund in my post in 2016, to present my approach I got pushback from two angles:

  1. People pointed to all sorts of sob stories about people whose car broke down and they had no money to fix it. Again: I never proposed having no money at all. I saved 50+% of my income and plowed that all into productive assets rather than leaving the money in a money market account earning hardly enough to recover the inflation rate.
  2. Someone pointed out that that if your spending shock were to occur right at the time the stock market was down then, indeed, it would have been best not to invest your emergency fund in stocks but keep it in a money market fund instead. But that’s a red herring. You are myopically looking at one single emergency. But over your entire lifetime, some emergencies will happen when the market is up, and some when the market is down. So, I wrote a follow-up post “How crazy is it to invest an emergency fund in stocks?” and found that it’s not crazy at all to invest your emergency fund.

So, in a nutshell: invest your money!

Don’t let 6+ months worth of expenses languish in a money market fund!

Very interesting.  Something for me to consider.  That is definitely not the advice some Certified Financial Planners (CFPs) tout. 

OK, on the subject of planning, even though I believe robo-advisors can help investors train their investing brain…I’ve read that you’re not a fan of these companies. You believe folks can easily invest on their own. Is that true? If so, what do you recommend new investors do or how they should invest?

I think that robo-advisors are a really bad value proposition. Sure, they are cheaper than a full-service advisor but you get what you pay for: very generic, middle-of-the-road asset allocation advice that you could have gotten for free with just a few clicks on the internet. In fact, back when I did my research on the robo-advisors, you could just enter your information (age, investment horizon, risk preferences etc.) and they will tell you their recommended asset allocation. The frugal investor could just replicate that exact same allocation in their own brokerage account for free. Why pay 0.25% per year for that?

Admittedly, the robo-advisors also offer two additional services that shouldn’t be ignored: 1) regular rebalancing of the portfolio and 2) tax-loss-harvesting. But that still doesn’t justify paying a non-negligible AUM (Asset Under Management) fee. You just rebalance your portfolio yourself occasionally, again with a few clicks on the web. Tax-loss-harvesting is a little trick in the U.S. tax code, maybe not that interesting for the Canadian readers. (Mark – it also occurs here and makes sense only for taxable investing.) It’s also something that the average investor can easily replicate at home without having to pay 0.25% in additional fees every year. I’ve written a short summary on it on my site if people are interested.

Talking about taxes, I’ve also pointed out a major tax headache created by robo-advisers. If you move over your assets and they have built-in capital gains you could be on the hook for a huge tax bill, see my post “We just saved $42,000 by not switching to Betterment”.

So much has been written on the “4% rule”. I’m just talking about your site! You have an epic series on this subject that has been read tens of thousands of times by readers; and that’s conservative I know.

I recently wondered with a Certified Financial Planner if the 4% rule makes any sense any longer.

So, can you distill a few things for me and my readership?

  1. What don’t you like about the 4% rule?
  2. What would you suggest investors consider instead as a safe withdrawal rate (SWR)?
  3. How are you drawing down or spending your own portfolio?

For a quick intro on why I find the 4% Rule very problematic, please check out my (slightly tongue-in-cheek) post “Ten things the “Makers” of the 4% Rule don’t want you to know”. I think that safe withdrawal strategies are way too complicated to distill into one single rule with one single withdrawal rate. It’s like recommending the same shoe size for everyone. That size will fit some folks perfectly, and others will find it too tight or too large.

More specifically, I believe that a withdrawal strategy has to be a lot more customized to take into account both the current macro environment (equity valuations and bond yields) as well as your idiosyncratic constraints, such as your age, the timing and the size of your expected supplemental cash flows (pensions, Social Security, etc.), whether you’re a renter or homeowner, how comfortable (able?!) are you with going back to work, and a myriad of other factors.

So, on the one end of the spectrum you have a 30-year-old retiree expecting no pension, very little Social Security and even that small benefit is four decades away. You probably want to use a withdrawal rate closer to 3% to make sure the money lasts the next 60 years. Oh, and you think that blog or podcast or internet business of yours will save the day? Do you have a guarantee that your blog will be around for your entire retirement? And it will make money 30 years from now? Do you still want to rely on income from a blog in 30 years? I don’t. So, I don’t even factor my blog income into my withdrawal rate analysis! (Mark – neither do I, I don’t make even minimum wage on this site!)

On the other end of the spectrum you have early retirees in their 50s with generous corporate pensions around the corner and large Social Security benefits not too far away either. I’ve seen cases where 5% or even 6+% initial withdrawals are easily sustainable because you have to bridge only 10-20 years until large guaranteed additional cash flows start.

And again: the sustainable withdrawal rate (SWR) has to depend on asset valuations. If you rely on a stock portfolio you have to calibrate your withdrawal rate to stock valuations. With very elevated price to earnings ratios and 10+ years into an economic expansion and bull market (as in “today”!!!) you should budget for a much more conservative withdrawal rate than in, say, 2003 or 2009 at the bottom of a bear market.

Another reason why there can never be a universal rule on withdrawals: the word “rule” is actually even more offensive than the 4% part! In my view, proposing a “4% rule” is financial malpractice.

What do I recommend Mark?

Do your own analysis taking into account your own supplemental cash flows and constraints. I created a Google Sheet, see my SWR Series Part 28 for the link.

My personal strategy?

We have a spending target of around 3.25% of our portfolio value. Currently, we don’t even have to withdraw that much from the portfolio because I still receive some deferred compensation from my last job that will pay me a small amount until early 2021. I make a little bit of income from the blog (less than 10% of our annual budget, though) but I don’t plan to rely on that, most definitely not in the long-term.

So, in light of the additional cash flows we’re actually extremely conservative with our withdrawal strategy. It’s because the risk profile is asymmetric: Running out of money in 30 years is a lot scarier than having too much money left over!

Well said. OK, something more controversial for you I suspect. I have a plan to “live off dividends” (or ETF distributions) in the early part of my semi-retirement.

I probably know your answer but do you like that idea?  Based on your experiences, what should I be mindful of as part of this approach?

Your hunch in right Mark, I don’t particularly like that idea.

As you point out in your post: “A dollar of dividends is = a one-dollar increase in the stock price.” There’s nothing magical about dividends. When I do my safe withdrawal simulations I look at the total returns of the various asset classes, and therefore take into account dividends and interest income. Most retirees will have to at least partially rely on selling some principal to fund expenses. Which is totally OK because stocks do appreciate on average even after dividends and even after inflation.

A dividend-centered strategy also exposes you to the following catch-22. On the one hand, if I stick with my S&P 500 index funds or U.S. Total Market index funds, I get a 2% annual yield. I think the MSCI Canada has a yield around 2.3%, not much higher. I’m one of the most conservative and cautious commentators on withdrawal rates out there but even I find a withdrawal rate under 3% way too low.

On the other hand, “chasing yields” i.e., replacing broad market indexes with a higher-yielding, more exotic asset mix to push up the dividend yield would have catastrophically backfired in the 2008-2009 bear market. I wrote about that in my SWR Series, in parts 29 through 31. Despite the higher dividends, you did significantly worse than with a boring, run-of-the-mill 60/40 portfolio. The failure during 2007-2019 was due to three factors:

  1. Replacing the plain S&P 500 or U.S. Total market with a high dividend ETF had no noticeable effect on performance. The Vanguard VYM (U.S. High-dividend Yield) fund (that you used to own Mark) underperformed the broad index very slightly. The State Street SDY (SPDR U.S. Dividend Fund) did slightly better. It’s a hit or miss!
  2. Replacing the U.S. index with international index funds that have higher yields backfired in 2008/2009. Non-US stocks underperformed significantly since 2007! I’m not saying that the high dividend yield caused the underperformance. There were other bear markets where, for example, Australian and U.K. stocks (very high dividend yields!) did really well. I’m merely saying that high dividends don’t fully protect you from sequence of returns risk. Sometimes the high-yielding international stocks do better, sometimes worse. And the under or outperformance is much larger than under item 1 above due to currency risk. It’s a crapshoot!
  3. Replacing low-yielding, safe government bond funds with higher-yielding funds (corporate, high-yield bonds, Preferred Shares, etc.) is very detrimental because of the loss of diversification benefits: the higher you move up in the yield the more correlation with the stock market you get!

So, in conclusion Mark, I will stick with my broad index exposure. Of course, people will always claim that they are smarter than everybody else and they can identify the dividend stocks that will do well in the next recession. I’m not convinced. But best of luck!

I had a feeling you’d say that!  I don’t chase high yields though but I fully understand what you are saying even though some of my dividend paying stocks actually never cut their dividends in 2008-2009. This doesn’t mean it can never happen!

So what’s in Karsten’s portfolio? Just indexed funds?

While accumulating assets for retirement, we used almost 100% equity index funds. Very little cash, no emergency fund, as I outlined above! A few years before retirement, though, I started venturing into some other asset classes to smooth out the sequence of return risk a little bit. So, our current asset allocation is significantly less risky.

First, we have a mortgage-free house that’s worth a little less than 10% of our total net worth. I consider a house an investment, and even a pretty good one, because it pays us a stable dividend in the form of the rent we don’t have to pay. Of course, we still have to pay for property taxes, maintenance and repairs, etc. but that’s a lot less than what we’d otherwise pay for rent!

Within the investable portfolio, i.e., assets minus primary residence, we hold the following allocation:

  • 51% equities. Almost everything is in equity index funds. Mostly U.S., but also a little bit of international, both developed and emerging for diversification.
  • 36% is in an account I use for options trading. By definition, the option trading is done on margin, so I get to put the money in some interest and dividend-paying assets. I hold around 70% of the margin cash in Municipal bond funds (tax-free interest income), 25% in Preferred Shares and 5% in cash. I’ve written about that options strategy here if you like to learn more. It involves selling put options on the S&P 500 index.
  • 11% is in real estate, invested in a few private equity funds that hold large multi-family properties. I like real estate as a diversifier for our large equity positions.
  • 2% is in money markets and bond funds for immediate cash flow needs.

Sounds very solid to me Karsten.

At FinCon in the U.S., it was a real eye-opener for me that some bloggers/podcasters/vloggers feel they need ~ $2M or even $3M to retire – given healthcare in the U.S. can be such a massive wildcard.  (Some treatments or life-saving procedures can cost hundreds of thousands of dollars without the requisite healthcare insurance.) Do you agree aspiring early retirees really need that much to retire on?  I think investors in Canada should strive to own a $1M portfolio – to retire well.

A million dollars is not what it used to be! What else is new? But seriously, my sense is that there appears to be two camps. Some blogger will tell you that one can retire with a nest egg well below $1 million, probably as low as $500-600k if you do some side gigs, such as blogging or some remote contract work on the side. Others will throw around those $2 million figures or slightly higher. The truth is probably somewhere in the middle. With $1.5 million in the bank, most people will likely have a comfortable and stress-free retirement in most places around the U.S.

Healthcare costs in the U.S. is a wildcard indeed. With Obamacare, we now have a program in place where you can get generous subsidies on your health costs that will keep your insurance premium and out-of-pocket expenses manageable but only if your income stays below certain thresholds. Would I want to rely on that subsidy for the next few decades? Probably not. So, like a lot of U.S. early retirees, we budget $20k a year and more for annual health expenditures.

Seems very smart but I expect nothing less from an economist! On a happier note than U.S. healthcare, what plans do you have in the future Karsten?  Near-term, a few years out?

We just settled down in the Pacific Northwest, outside of Vancouver, Washington. We’ve owned our house for about a year now, but because we traveled so much and we had to do some home renovations in the beginning we didn’t really get to enjoy our new neighborhood very much. So, near-term I’d like to explore the great outdoors opportunities here in the area. I’m also busy with my blog and some other writing projects.

Wrapping up this epic interview, what one or two words of advice do you have for any investor striving to get their financial house in order like you have?

Automate not just your savings but also your investments.

A lot of folks do a great job at curbing consumption and saving money but then never dare to invest the cash for fear of catching the market peak right before the next bear market. I know people who said the S&P 500 was overvalued at 2000 points. Years later and missing out on 50+% returns they are still waiting for a correction!

Thanks for this Karsten.  I hope to have you back on the site in the future.

Lots to learn from this post folks. If you want to find Karsten, visit any of the links above and subscribe to his site and give him a follow on the Twitter machine like I do @ErnRetireNow.

You can find more retirement essays from folks that have successfully “been there, done that” on this Retirement page here. 

What questions might you have for Karsten or myself based on this interview?  Happy to hear them.


My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

47 Responses to "The proven path to early retirement ignoring the 4% rule"

  1. I just want to follow up on this interesting retirement topic. Is it beneficial for anyone to continue working full-time and applying to collect the monthly CPP assuming that person is 65 years old? By doing so, that person can supplement their pay-home income and receive the monthly CPP at the same time. Are their any drawbacks to this double income strategy?

    Thank you Mark for your comments.

    1. Hey Ken,

      My understanding is this:

      If you continue to work while receiving your Canadian Pension Plan (CPP) retirement pension and are between the ages of 60 and 65 years old, you must still contribute to the CPP. Your CPP contributions will go toward post-retirement benefits.

      If you continue to work while getting CPP retirement pension and are between the ages of 65 and 70 years old, you can choose not to make any more CPP contributions. If you decide to keep paying into the CPP, your employer will also have to contribute. If you’re self-employed, you’ll have to pay both the employee and employer portions.

      So, on that note, if you continue to work past age 65, I think it could make sense to contribute to CPP if you expect your income to be modest in retirement, such that you’ll want to take advantage of the inflation-protected CPP benefits because of that.

      Recall you can defer CPP or OAS pensions after age 65…but the biggest bang for your buck to defer occurs with CPP vs. OAS. Deferring your CPP pension (an increase to your benefit of 0.7% per month or 8.4% per year) compared to OAS (an increase to your benefit of 0.6% per month or 7.2% per year) after age 65.

      Interesting read on this subject I found: 🙂

      Best wishes Ken!!

  2. Very interesting reading on RRSP withdrawal sustainable rate. Are there any regulations regarding the minimum to maximum withdrawal rates applicable when you reach 71 years old?

    My RRSP portfolio includes a diversified investment mainly made up of individual Canadian and U.S. stocks (some risky ones) and various ETF’s. I prefer growth stocks as opposed to dividend ones as I believe more in their upside potential, just me!!!

    Thank you Mark for your valuable comments.

      1. Thank you Mark for clarifying the sustainable withdrawal rate for RRIF. What I meant originally was for RRIF not RRSP. Sorry for the confusion. I understand that when RRSP is withdrawn, tax is withheld at source and amount withdrawn is added back to your income. Does the same rule apply when RRSP is collapsed and converted to RRIF, meaning if RRIF is withdrawn at a certain rate, income tax is withheld at source? For sure the amount of RRIF withdrawn is added back to income.

        Now, everyone is talking about how huge the market potential is for the Metaverse. The tech world is undergoing a tremendous revolution in the virtual and augmented reality world. Facebook is changing its name to Meta and there is a new ETF called META which looks very promising. Their stock holdings hold the top tech stocks. This new ETF can pave the way for investors to become millionaires!!!! Any thoughts??
        Thank you Mark for your valuable assistance and comments.

        1. Thanks Ken! Sorry, I wasn’t clear in my reply likely – yes, you are correct about RRSP withholding, etc. but with RRIF there is no withholding tax at all unless you take more than the minimum amount.

          “No tax is withheld when the minimum amount is withdrawn from a RRIF. When withdrawals in excess of the minimum amount are made, the above RRSP lump sum withholding tax rates apply, but only to the excess over the minimum amount.” Here is a very detailed reference:

          I haven’t looked into the entire “Metaverse” ETF space. Is this the Canadian one you speak of? 🙂


  3. Very interesting interview, Mark. I love reading anything that Karsten writes. His safe withdrawal rate series is awesome, second to none. As you know, I prefer indexing, too, mainly because with dividend investing, you have a less diversified portfolio (by definition no non dividend payers) so you will have a wider dispersion of returns, which will, on average, be less than a more diversified portfolio (due to skewness of stock returns). So the outcome will be less statistically reliable. However, I agree with you that you need to be comfortable with whatever strategy you choose, so that is more important than the strategy itself.

    Interesting to hear of Karsten’s option strategy – not for me either, too much hands on and I like to keep things simple.

    1. Karsten is a very bright guy.

      I know you prefer indexing (smart) but I am quite comfortable with my investing approach and I honestly don’t think I would be where I am if I took another approach – the focus on income that my portfolio can generate vs. focus on what the value is/is not (although very motivating….) has been a huge driver on our financial path.

      In fact, just wrote about that!

      Always interesting to read and hear about other points of view though. Learning is good.

  4. Hey Mark, I saw Heinzl did a blurb about when to consider divesting from any single investment. Might be interesting to see/hear what others have as their single largest holding (generically of course) and what, if any, parameters they have as to when they consider a holding to be too large.

    1. Hey Lloyd

      How have you been? Seemed like a long time between posts for you.

      Great and interesting question on individual holdings. My wife and I never trim and never try and time. We initially set-up our allocation by company based upon book% rather than current% and then let them all ride.We have different groupings (Main, Mid, Minor) and slot each stock into one of those groups based upon their book cost.

      As I’ve mentioned, we own 25 TSX listed dividend income/growth stocks and 2 ETFs. Largest current is AQN at 6.82% (book% = 3.76%) followed by BIP.UN at 6.22% (book% = 3.77%). All others are under 6% of current.

      I really like the idea of rarely having to think about selling anything. (usually just for take-overs).


        1. Hey Mark

          I’ve got mixed emotions on the size of the ENB div increase. They are packing a lot of debt so it sort of seems a tad extravagant, especially given Line 3 is still not completely approved in Minnesota. I would have preferred about 4%. I think they needed to do something given they had promised a 10% increase.

          I was quite pleased with IPL when they decided not to raise their divy this year. I think it was the prudent and proper thing to do. They are correctly focusing on the funding of their Heartland project and the increases will follow once it’s online in 2021.


          1. I don’t mind it myself but I worry they are trying to do too much. A 10% dividend hike seems excessive. I’d rather have the slow and steady approach but I’m optimistic the Board at ENB knows more than I do 🙂


    2. Was that the when to trim your winners part?

      It depends on what you mean by “seriously oversized.” My own rule of thumb is to aim for an initial weighting of no more than 5 per cent of the total equity portfolio, but I’ll let that number creep higher as long as the outlook for the company remains positive.

      How much higher? Well, if a stock rises to the point that it accounts for, say, 10 per cent or more of your equity portfolio, trimming would probably be prudent. Cutting back will limit the damage should the company’s fortunes take a negative turn. It will also limit the gains if the stock continues to rise, of course, but it’s all about controlling risk. I picked 10 per cent because it’s a nice, round number; you might wish to trim before the weighting gets that high.

      Taxes are another consideration. If you hold a stock in your non-registered account and selling would trigger a hefty capital gains tax hit, you might want to give it a little more slack than you otherwise would – again, as long as the company remains healthy.

      The bottom line is that the decision to trim your position depends on how large the weighting is, your conviction about the company’s prospects and the tax consequences of selling.

      Like John, I try and keep my individual stocks to around 5% max of my portfolio value. The exception for me is ETF VYM. I would be happy to see that rise up to 10-15% over time.

      A small but growing challenge for me are the tax consequences of selling any “winners” in my non-reg. account. I don’t want to do that due to capital gains while I am working full-time.


  5. Great questions Mark and interesting responses Karsten. Thank you. So true that each of us has a different financial situation and investment mindset. For myself, I see the cash in my RRIF accounts not as emergency but as having enough to cover the monthly payments. When travelling, we don’t want to worry about having enough in cash to cover the payments.

    1. Thanks, Paul. I hear ya on the cash issue. In retirement, without any new cash flows, I certainly also keep some money market, short-term bond funds, etc. But in the accumulation phase, I couldn’t get the money invested in stocks fast enough.

      1. Good stuff Karsten. Maybe something I need to consider but I do sleep well at night knowing any small emergencies are easily covered by $10k in cash (accumulating small interest) and everything else is invested as much as I can.


    2. I think that’s smart Paul. I can see us keeping about $10k for the time being in cash and then slowly increasing that to ~ $50k in cash or about <5% of our total portfolio in the coming years.

  6. Mark, any royalites? lol

    Yes, great article, and ER site. A detailed approach doesn’t begin to describe Karsten.

    Yep, ha, spot on Lloyd.

    Interesting take on “rule”; something I commented similarly on in an earlier 4% thread. Guideline at best and likely a flawed one IMHO. I agree with a more balanced investing approach, and prefer a personalized fluid withdrawal plan like VPW but only as a basic guide in retirement now to stay conservative.

    Options are beyond my interest/knowledge and breech my intention to keep investing “simple”.

    I also prefer to look at my house as asset neutral and as a lifestyle choice; it doesn’t pay me anything and is also an expense with a value that basically might offset costs of similar rental. A sale also might be a bonus at some later time in life to deal with unexpected care costs.

    1. Thanks!
      VPW will avoid running out of money. But then your withdrawals will have the same volatility as your portfolio. And worse drawdowns: have to take into account inflation and also subtract withdrawals, so drawdowns in withdrawals can take a long time, sometimes decades.
      Also: agree on the house. he value of the house is not factored into the SWR. Only factored in as an “asset” that reduces my mandatory expenses.

      1. Thank you.

        Sorry you might have lost me beginning at “And worse”.

        VPW requires flexibility and I understand this. It simply provides a suggested withdrawal based on a beginning year asset balance so a really bad year or years means a much lower withdrawal subsequently. The drawdowns are actually fairly aggresive compared to the 4% rule but intuitively more sensible based on a variable annual balance, if one has other steady income, a healthy dose of FI and lifestyle flexibility. (we tick those boxes) The default end date is age 99 and still doesn’t exhaust funds which is fine for us.

        We have about 67% equity and 33% FI with a work pension that covers all of our basic needs, and future govt pensions (OAS, and 1 CPP due to loss of pension bridge) in 4(full) or 9(enhanced) years to enhance that. Our assets provide primarily discretionary spending and so far our withdrawal rate is right about 3% or just slightly less than income generated, less than VPW (updated version) suggestions of 6% (due to incorporating the future govt pensions into the overall calculations) and is actually less than VPW suggestions after a 50% market correction in one year.

        Maybe I’m wrong but the biggest questions we have is how much do we want to spend up to the suggestions, and can we live a worst case scenario in lets say a dead decade of returns and/or some amount of income cuts. The first one we’re not sure of and the second one while very ugly still remains okay to us based on overall assets/income streams as we’re presently spending. I would like to spend capital, but prudently so this remains a question with especially as the market climbs ever higher.

    2. None from Karsten!! I would tell you and others if I did. Unless he is going to buy me a drink next year at FinCon for delivering more Canadian readers to his site 🙂

      His point about his house was interesting since while I see my new condo I’m typing in now, as an investment, it is absolutely a place to live. We would have moved here even if the prospects of it going up in value weren’t as high. Houses are very much an expense but unlike a car, they should be an appreciating asset with time.

      That said, I’m not including my house as a retirement plan.

      1. Ha, I kid of course.

        I too don’t include my house as a retirement plan, although as I stated above it may have some value concerning additional health care expenses at some point. Right now I do everything I reasonably can to stay healthy but we don’t know what the future brings.

      2. On an unrelated note I see ENB did raise 9.8% to 3.24 annually.

        I note they did not provide dividend guidance beyond the 2020 increase announcement, like they did last year for 2020. Hmmm.

  7. I loved the observation that the word “rule” was more offensive than the actual number used. That sentiment corresponds perfectly with the first idea expressed in the article, personal finance is indeed “personal” … any “rule” ignores the fact that planning needs to be done based on personal circumstances.

    My wife and I are relatively recent retirees and over the past four years our spending has been all over the map. Not because we don’t plan or are disorganized, but rather because our goals and objectives have led us to a very uneven spending pattern over the first couple decades of our planned retirement. We have a 40 year financial projection that considers what we want to do and how we are going to fund the plan. No “rule” provides enough granularity to make a plan “personal”.

    That said, I do believe that “guidelines” can be helpful for longer term planning. But once the planning horizon becomes clearer and nearer term, they become ineffective. That’s when you need to hunker down and do some detailed thought focused on the specifics of your situation to enhance the chance that your can achieve what you want with your remaining time.

    1. Congrats Larry and thanks for your comment. I have to get to your book but I’ve been busy!

      I’m gravitating to a 3-4% rule of spending my dividends and ETF distributions with a modest cash wedge in early retirement. I know Karsten is not enamored with that approach but I don’t see much difference in spending the ETF distributions from VTI vs. VYM for the most part.

      There is absolutely no “rule” that can be personalized but I do believe taking minimal withdrawals in early retirement, certainly if markets are poor, can increase your chances you’re not going to outlive your money. A variable spending approach to spend more in “good years” and less in “bad years”; based on a mix of stocks and bonds; is largely some of the best advice most people can go by.


  8. Good article. Biggest take away for me is to get a REALLY, REALLY good paying job and save. Once that is accomplished, start a blog, network and get lots of hits or write a book.

      1. He is impressive (Justin) with saving and frugality and more. His portfolio seems to be doing very well thanks to this extended bull run as well.
        I bet your indexed portfolio is up as well Karsten! The U.S. side for mine is > 25%. Crazy.

    1. Ha. Karsten likely had a very good paying job and knowing him just a little bit, he doesn’t seem to care so much for the blog income as much as he enjoys running it from a place of passion.

  9. Great article, thanks Karsten. I agree with perspective on house purchasing. To me a house is an asset just like most other assets, except I live in it. Never thought of the no mortgage payment as a dividend so that’s a cool perspective. Since I still have a mortgage guess I only have a partial dividend. I like having a small emergency fund of about 3-5K but as long as you have assets to work with you can find the money to cover emergencies.

      1. Yes, maybe ~2-3% upside for our condo here in Ottawa although it has already climbed > $50k in value in the last 24 months. We’ll see. I’m not planning to use my condo as a retirement plan. The key is to live off the dividends and ETF distributions early on with some part-time work to supplement the portfolio growth in my 50s.

    1. I have a small mortgage still as well Gruff but I suspect when that is gone – life will really begin. I figure $10k in cash for now is good given if anything happens to our jobs, or even one of them, a small severance might be available. I’m not cheering for that right now that’s for sure!

  10. When Karsten spouts info, I listen. I am not the least surprised he was working such vaunted careers. He writes from a depth of knowledge and wisdom that is hard to miss.

    I highly respect his careful approach to retirement and it’s inherent issues.

    Thank you for this wonderful interview Mark!!!

    1. I think all draw down plans have flaws but I’m learning the key is to minimize downside risk to the extent possible. I believe having some secure fixed income + cash + mostly equities in the way to go. Seems Karsten agrees largely:

      “51% equities. Almost everything is in equity index funds. Mostly U.S., but also a little bit of international, both developed and emerging for diversification.”

      I would probably go as high as 80% equities (stocks + ETFs) eventually in my 60s or 70s but I certainly don’t think I could do 36% options like he has!


Post Comment