How To Get More Retirement Income Using Retirement Guardrails with Matthew Jarvis, #219
You’ve likely spent your entire lifetime saving for retirement. How do you make sure the money lasts as long as you do? How do you make sure you enjoy your retirement? It’s a balancing act for which there may be a solution.
Matthew Jarvis is a Financial Advisor who runs Jarvis Financial, located in Seattle, WA. He’s also the host of the podcast “The Perfect RA” and the author of the book “Delivering Massive Value.”
In this episode of Retire with Ryan, Matthew discusses the concept of retirement guardrails, how they work, and who they’re for. If you’re looking for a spending strategy that often leads to a successful retirement, this episode is for you.
You will want to hear this episode if you are interested in...
[0:56] Introducing this week’s guest, Matthew Jarvis
[1:55] The big problems with the 4% rule
[3:59] Why Matthew uses retirement guardrails
[8:02] What if you can’t afford retirement guardrails?
[10:20] How guardrails work for you
[12:51] How frequently you should evaluate your guardrails
[18:29] The five-year war chest
[22:46] Who is the strategy for?
[25:06] Don’t be afraid to get a second opinion
Why Matthew uses retirement guardrails
The basic premise of retirement guardrails is when the markets are doing well and your accounts are up, you can withdraw a little bit extra. When the markets go down, you’ll tighten your belts a bit. You may put off a trip or delay a car purchase until the markets come back up. Then you can resume normal spending.
Guardrails tell you that as long as you’re within a certain band you can take the money out without issue. If the purchase moves you outside that band, you simply have to adjust some withdrawals moving forward.
But you have to be willing to take less in the bad years. If you can’t adjust your budget to adapt to reality, this strategy will not work for you.
How guardrails work for you
Let’s say you’ve saved $1 million. You’d set guardrails at $1.2 million and $800,000. As long as you stay between those guardrails, you can ignore the noise. However, just like you stay in between the lines while driving, there will be some bumps and sharp turns.
The only time you have a problem is if you’re hitting the rumble strip or screeching along the guardrails. Maybe the markets went down or you had to take out a lump sum. That means it’s time for a course correction.
What does the course correction look like? If you dip below the $800,000—and you’ve been taking out $50,000 per year—you’d temporarily reduce your income by 10%. You adjust to that new amount until you readjust to the center of the road.
If the markets are doing well and you’ve moved above your upper guardrail, you get to spend more money. You can go buy that RV, take that trip around the world, start flying first class, or donate to your favorite charities. The goal is that you are always in control of your money.
But how do you account for the years when the market is down and you don’t want to sell off your investments?
The five-year war chest
Let’s say you’re selling $1,000 worth of investments every month to take out a $1,000 withdrawal. When the markets are up, that works out just fine. But that strategy doesn’t work when the markets go down. Why? Because you’ll have to sell more and more shares to get that $1,000. You can sell so many shares that when the markets come back up you won’t recover. What’s the solution?
A five-year war chest: You need five years’ worth of income that’s protected from the markets. It can be kept in money markets, short-term bonds, or CDs—whatever is liquid and not impacted by market volatility. You can typically get through the worst the market has to throw at you within five years. If you have five years set aside so you don’t have to make withdrawals during this time, it gives you a better chance of a successful retirement.
Who is the strategy for? Who won’t it work for? Why is it preferable to the 4% rule? Listen to hear Matthew’s take.
Resources Mentioned
Subscribe to the Retire with Ryan YouTube Channel
BOOK: Delivering Massive Value