I Withdrew 5% a Year—and Still Doubled (S&P 500 Test)

About this video

• Video Title: I Withdrew 5% a Year—and Still Doubled (S&P 500 Test)
• Channel: Erin Talks Money
• Speakers: Erin (Implied from channel name and context)
• Duration: 00:14:05

Overview

This video explores the impact of withdrawal timing on retirement portfolio growth. It compares an annual withdrawal strategy with a monthly withdrawal strategy, using S&P 500 data from 2014-2024, starting with $500,000 and withdrawing 5% annually. The primary goal is to demonstrate how small changes in withdrawal timing can lead to significant differences in portfolio value over time.

Key takeaways

• Annual vs. Monthly Withdrawals: Withdrawing 5% annually from a $500,000 portfolio over 11 years (2014-2024) resulted in a portfolio of approximately $1.29 million. A monthly withdrawal strategy under the same conditions resulted in a slightly higher portfolio value of just over $1.3 million.
• The Power of Timing: The difference in outcomes, though seemingly small in percentage terms, highlights how the timing of withdrawals can impact compounding. Monthly withdrawals keep more money invested for longer, especially during market upticks.
• Sequence of Returns Risk: Spreading withdrawals monthly can help mitigate sequence of returns risk, as it reduces the impact of withdrawing a large sum just before a market downturn.
• Practical Implementation: Setting up recurring monthly distributions with a brokerage and periodically rebalancing the portfolio are practical steps for implementing a monthly withdrawal strategy.
• Additional Considerations: While the test simplified by excluding taxes, fees, and inflation, these factors would influence the net outcome. Incorporating a cash buffer and considering strategies like "guardrails" can further enhance portfolio robustness.