Speaker 1: We love to talk about investing here on this podcast, but what if your investment strategy doesn’t have to be perfect to get you to financial independence? Today we’re talking with Christine Benz about good enough investing, knowing when you have enough, and whether some of us are making financial independence harder than it has to be. And as always, this is not investing advice. This podcast is for entertainment and educational purposes only.
Speaker 2: Hello, hello, hello, and welcome to the BiggerPockets Money Podcast.
Speaker 1: My name is Mindy Jensen, and with me as always is my decumulation-interested co-host, Scott Trench.
Speaker 3: Thanks, Mindy. I’m super excited to withdraw some information from one of the world’s leading retirement researchers over at Morningstar in Christine Benz. Christine is Morningstar’s Director of Personal Finance and Retirement Planning and the author of How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. She has spent decades studying investing and retirement planning, and she also hosts Morningstar’s The Long View podcast. Christine, welcome to BiggerPockets Money.
Speaker 2: Scott and Mindy, thank you so much for having me on.
Speaker 3: To start things off, I’d like to share the headline. We talked to several retirement decumulation researchers and experts here on BiggerPockets Money, and the headline, I think, that someone could take away simplistically from Morningstar research is that Morningstar says the base case with today’s valuations is a 3.9% withdrawal rate for 30 years, 3.5% for 35 years, and 3.3% for 40 years, which is bad news, or a little bit more conservative, I would say, than some of the other opinions out there in the decumulation or withdrawal expert field, but that’s also not the whole story. Could you tell us what your views are on decumulation rates and how you frame them today, and how you build the framework from the bottom up for evaluating these?
Speaker 2: Sure, thanks for that question, Scott. The numbers that you reference relate to what we call a base case that we use in our retirement spending research. So in contrast with some of the research that people might be familiar with that anchors on backward-looking market returns, we actually incorporate our investment management team’s capital markets assumptions, their forward-looking 30-year capital markets assumptions, and we assume a static spending system. So we assume that someone would withdraw, say, 3.5% initially in retirement and then just inflation-adjust that dollar amount thereafter. And so you’re right, the numbers are a little bit conservative relative to, say, the 4% guideline that people may have heard about, but the reason is that those capital markets assumptions—because stock performance has been so good for so long—are fairly conservative, especially for the next 10 years. They sort of normalize after that, but within the next 10 years, our team is basically saying you should plan for maybe not such great equity market returns over the next decade if you’re a new retiree. And so that’s why we come in a little bit low for that base case. A large part of the research focuses on different spending strategies that one could use, where if you are able to flex a little bit with how your portfolio performs and how the markets behave, that redounds to the benefit of your plan—that you get to spend more over your lifetime if you are willing to be a little bit flexible. So that means reining in spending if a bad market materializes during that period, spending a little bit less, and then in good market environments, you should be able to spend a little bit more. There are lots of different variations on those flexible spending systems, but all of them give you a higher starting withdrawal percentage than that fixed real withdrawal system would let you spend.
Speaker 1: So with a flexible spending system, how frequently should somebody who is retired or is approaching retirement be looking at their financial picture and their portfolio? Because it would be really awful to be looking at it, you know, once a year, and then you’re withdrawing, and you’re like, ooh, I didn’t have to spend so much, and now I wish I hadn’t.
Speaker 2: Yeah, I think it’s something, Mindy, that people should revisit annually—take a look at how your portfolio has performed. And there are all different variations on these flexible spending systems, ranging from very modest adjustments. So one I like is simply, if your portfolio has had losses in the previous year, you just don’t get an inflation raise in the year after that. It turns out that even that helps you take a higher starting withdrawal percentage. So that’s a very simple tweak to a 4%-type spending guideline. And then there are more elaborate ones, like the guardrails approach, which we detail in the paper, that lets you spend substantially more early in retirement but does require more frequent course corrections. It really depends on the retiree’s willingness to make adjustments. If people have very tight plans, I would recommend they stick with the more modest adjustments, where it’s not really jerking you around based on how your portfolio has behaved. If you have a slightly more flush plan, you could probably tolerate more frequent adjustments. So it depends on knowing yourself, knowing how willing you would be, and how much your budget would allow for periodic course corrections.
Speaker 3: The headline number is 3.3% for 40-plus-year retirements. What does that number change to once we implement this framework around flexible spending?
Speaker 2: I don’t know the 40-year number off the top of my head. I do know that for a 30-year time horizon—and we tend to do most of our research using that 30-year time horizon, the traditional retirement time horizon—I believe for, say, a guardrails-type system, it goes as high as the upper 5s as a starting withdrawal over a 30-year time horizon. So it would be lower for a longer, like a 40-year, time horizon, but it would still be meaningfully higher than that base case assuming static withdrawals year after year.
Speaker 3: I’ve been studying this debate, I’ll call it, in retirement decumulation, both traditional and early. I’ve mapped out a bunch of experts and their opinions in the space and what their headline numbers are. And what I found is that the differences that you come up with versus Bill Bengen, versus Karsten Jeske, versus Cederburg, all depend, I think, on six questions. So first is, what history are you using to project your future returns, and why did you slice the dataset there? For example, somebody might argue you should use the whole block, the longest available data, and project that going forward. I believe—I could be wrong in this—that you are saying, well, you have to factor in current valuations, and you slice the data and then project forward returns based on the historical data we have for valuations where they’re at in current circumstances. That’s a debate and friction point. The next one is what “safe” means. Do you run out of money ever? Is there an acceptable failure rate that we’re calling safe for these withdrawal numbers? How are you spending—are we assuming constant inflation-adjusted spending, or are we assuming guardrails, which we covered here? The assets that underlie the portfolio, the way you construct the portfolio, again intersecting with how you slice the data, the valuation conditioning we talked about here, and then taxes and other fees, whether they’re included or not. How am I doing? Is this how you perceive the differences in the decumulation debate, or how you frame it?
Speaker 2: No, I think that’s a wonderful analysis. And as you said, we are doing it a little bit differently in that we are attempting to think about current market conditions, current equity valuations. Fixed income yields are an important input. I think back to when we initially began to work on this research using these forward-looking return assumptions—that was back in late 2021. And I remember our initial result was super cautious. I believe it was 3.3% for a 30-year horizon, so significantly lower than 4%, obviously. It raised a lot of headlines when we came out with that research, but in hindsight, I was pretty comfortable with the way that things shook out, because the message there was that starting conditions are super important for your retirement spending. So if you can pay attention to where we are with yields and inflation and equity valuations, that helps you accommodate different market scenarios that might play out. In that specific period that I referenced, the late 2021 period, we had high inflation, rising interest rates, which hurt bond prices in 2022, also rising interest rates that hurt equity prices in 2022. So the message in our research was, you know, given where we are with conditions for the major inputs that you would think about, we would suggest some caution is warranted today. So I would encourage people, even if they are anchoring on historical returns as they’re thinking about their spending rate in retirement, to anchor themselves in the here and now and think about, well, what do conditions look like for my particular drawdown period? If there’s something that worries me the most about new retirees, it’s that we could—and I’m not predicting this will happen anytime soon, but I think it’s likely—we will have some kind of equity downturn over the next decade. And so if new retirees can build that into their planning, I think that’s incredibly beneficial—being able to spend less if such an environment materializes, being able to spend from safer assets rather than having the bulk of your portfolio in equities. Those kinds of things would influence an overall more conservative plan.
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Speaker 2: Well, it does, because we use Monte Carlo simulations, as a lot of people who work in this area do. And I remember when we first started working on the research, our optimal safe withdrawal rate was corresponding with a very light equity weighting, and I remember saying, wait, go back and redo that, because that can’t be right. But it is partly a function of the fact that if we are thinking equity returns may not be that great, but bond yields are looking better, we’re going to try to lock down that safe stream of income today by holding more in fixed income assets. So all of the pieces work together. For the past few years in our research, we have pointed to, for new retirees who want a very consistent stream of real spending in retirement, we would argue that they should try to line as much of that up as possible by having ample fixed income assets. Having a decent-sized allocation to TIPS as well would also be a good strategy.
Speaker 3: So this is a really interesting point here. Again, this is what I think is so fun and fascinating about this whole research field, because right now your real yield on TIPS supports like a 5%-plus withdrawal rate. And so that brings a circular problem, right? The people listening to this show typically are looking at early retirement and are really interested in decumulation in an early retirement sense. And if you can build a safety margin using TIPS right now with today’s assumptions—that’s defensible, although very contested by other people in the space—and you get to a higher yield than your 3.3% number there just by doing that. Then the next question I think that nobody asks, but they should, is: what happens to my terminal wealth, or my residual, 30 or 40 years in, in a median Monte Carlo simulation, if I do that versus keep my equity exposure? Well, now you have a real trade-off. You can exchange a high degree of certainty for a much lower wealth number in many of these runs. Tell me how I’m thinking about this, or how you would respond to a challenge like that, and how that factors into the way you construct portfolios.
Speaker 2: Right. So the TIPS ladder that you referenced is a wonderful strategy for, I would say, people’s knowable fixed spending. So I love the idea of aligning those fixed spending needs with something like a TIPS ladder. The downside, as you referenced though, is that it’s self-liquidating. So you spend—you get your income from the TIPS bond as it matures and spend it in the next year, and on down the line. But unless you have some other component of your portfolio, you will spend through those assets, and that may or may not be what you want. So I like the sort of blended idea that we had on our podcast with Stephen Sexauer, who has this paper that I would urge people to go check out, on the idea of having this TIPS ladder blended with an all-equity portfolio. I think he uses all U.S. equity. That is a sensible way to approach it, where you’re addressing both goals. You’ll have something left over, most likely, through that equity portfolio, but you’ll have aligned your spending needs with that TIPS ladder.
Speaker 1: Is now a good time to start thinking about bonds? I don’t have any bonds in my portfolio, and I just read that bonds are at like a 10-year high, the bond yield. So that sounds good. As I get older and closer to retirement, should I start putting more money in bonds? And how do you think about the yield—should I wait until… it’s a great question, Mindy.
Speaker 2: I would say probably don’t try to be a bond market strategist. I’m not a bond portfolio manager. I would say, for people who are, say, over age 50, or within 10 to 15 years of retirement, they should start building out their bond portfolios and just dollar-cost averaging into that position—I think that’s a good way to go about it. But as you say, bond yields are high-ish today, maybe not high relative to history, but the bond yield is very much connected to the long-term total return of bonds. So if you look at a chart of where the Bloomberg Barclays Aggregate Index’s yield is relative to the long-term total return, they’re in lockstep. That suggests that investors in a high-quality fixed income portfolio today are getting 5% or so, but that’s a nominal number. And that’s the big risk factor with bonds, and why you wouldn’t want to put your whole portfolio in nominal bonds, because if inflation is, you know, wherever it is today, in the high 2% range, that’s just going to gobble up that much of your bond’s return. So TIPS, I think, are an attractive way to defend against that inflation risk—Treasury Inflation-Protected Securities. Yes, I do think it’s a decent time for people who are in some reasonable proximity to needing their money to start de-risking that portion of the portfolio. Equity valuations are high, fixed income yields are higher. The only wild card is inflation—do we kind of hang out here with sort of sticky inflation for a while? I wouldn’t rule it out, which is why something with some inflation protection is going to hold you in better stead than nominal bonds.
Speaker 1: So what sort of portfolio makeup are we talking about for a traditional retiree who retired in the last couple of years? Bengen’s research was based on a 60/40 stock-bond portfolio. It sounded like you were suggesting a heavier bond or fixed-income allocation than stocks almost.
Speaker 3: Could you define the portfolio? What is the portfolio that you would recommend?
Speaker 2: Yeah, so we test all different portfolio equity allocations with that base case spending system. So we’re assuming that someone is going to take out X% initially and then inflation-adjust that dollar amount thereafter. And one of the reasons why, when we run that base case research, it lands on that very conservative equity weighting, is because our system is basically saying back to us, you know what, if you want to spend like a robot throughout your retirement and you never plan to revisit your spending, guess what—we can kind of line that up today in fixed income securities. That’s one reason why that static real spending system does tend to correspond to a fairly light equity weighting. It’s just a function of the spending system being conservative overall. And one important trade-off to note there is that oftentimes those very conservative spending systems do correlate with really high leftover balances, which is probably not what most people want, right? If you are just going to take out a certain amount year after year and never revisit it, it will tend to mean, in many market environments that would play out over someone’s time horizon, that you’re going to underspend pretty significantly if you’re never going to revisit that spending. And that’s one reason why I would say don’t do that, unless your plan is to leave some huge leftover balance, or that’s your goal. But in my experience, that’s not most people’s goal. Most people’s goal is to maximize their own lifetime spending or opportunity for giving, whatever it might be. Most people don’t want to underspend during their lifetime so that they can leave a big pile of money behind.
Speaker 3: What is the safety margin that you discuss here? How much can my flexible spending come in under your flexible rules before your simulation breaks and calls it a failure? Because if you have flexible spending, you could say, oh, I’m going to spend 4% of my portfolio and flex that down, for example. Your portfolio could go down 80%, and you’re still spending 4% of your portfolio. It’s really hard to get a failure rate in that situation. What do you define failure as in your framework?
Speaker 2: We use a success rate, we call it, of 90%, which means that in 1,000 simulations that we might run on an initial spending of X and an asset allocation of Y and Z, that in 900 of 1,000 of those simulations, the portfolio would still have at least a dollar left over in it at the end of whatever time horizon we’re testing. So that’s how we define success and failure in our research.
Speaker 3: Awesome. Tell me about the valuation argument. Why do you believe we should react or respond or change our assumption about withdrawal based on today’s valuation?
Speaker 2: Well, simply because there’s a connection. It’s not a perfect predictor, but of the predictors that we have as investors, equity valuations tend to be one of the better ones, certainly better than earnings growth or something like that for the market. So I would say that’s one reason why people should at least have that in the back of their minds when they’re thinking about how much they can spend from their portfolios and also kind of constructing the asset allocation of the retirement portfolio. It seems to me that most people would rather be safe than sorry with respect to their retirement plans. For a lot of people, there’s not an opportunity to go back to work once you’ve hung it up. And so most people, in my experience, would rather build in a margin of safety from that standpoint.
Speaker 1: In the FI community, the early retiree-focused community has this idea that, you know, I’m never going to go back to work, even though that’s not true. A lot of people do different types of work that maybe don’t pay them the same, but they still generate a little bit of income. But “I’m never going to go back to work, therefore I have to have this perfect portfolio.” You know, everything has to be perfect. I’m not quite there yet, so I’ll work one more year, or I’m there, but I don’t trust the numbers. I’ll have to do one more, one more year, one more year. Tell us about your good enough investing portfolio, because I think so many people are focused on perfection. What is that? Good is the enemy of perfection?
Speaker 2: Yes. Perfect is the enemy of the good, or something like that.
Speaker 1: Yeah, something like that.
Speaker 2: I have experienced so many optimizers, certainly in my world, in the Bogleheads community, among colleagues in the retirement research community, colleagues at Morningstar. There is this thought that you can optimize all of this stuff. And I think if we take a step back, we have to recognize that it’s all a little bit of a guess, right? That we will only know in hindsight what would have been the right asset allocation for retirement, or the perfect asset allocation, or the perfect withdrawal rate, or the perfect types of stocks that I might hold, or whatever. It’s only going to be apparent when it’s all over. And in the meantime, it’s helpful to remind ourselves this is all a little bit of a guess and just relax about it. Build a plan with some wiggle room built in, but don’t get yourself in fits thinking that you’re going to perfect this, because there really is no perfect portfolio. The sort of dichotomy is the optimizer mindset versus a satisficer mindset. And I’m definitely on team satisficer, where at some point you just have to say, you know what? That’s good enough. I’ve done my best here. I’ve tried to make reasonable assumptions about these things, but I’m never going to be perfect because I don’t even know what perfect is. And I wish people would all kind of ground themselves in that mindset. But it’s an upward climb.
Speaker 1: Yeah. Nobody’s ever going to be perfect because perfect doesn’t exist. There is always going to be somebody that you talk to who is doing something more optimized or better than you are. And that’s okay. They have a different life. I mean, how much time do you spend worrying about optimizing that extra 0.1%? What are you pursuing financial independence for? What are you retiring for?
Speaker 2: For.
Speaker 1: It’s not so you get like an extra $1.50 at the end of this year.
Speaker 2: Exactly. And it’s kind of a cult of faux precision anyway, right? Like even our 3.3% spending rate or whatever, it’s not going to play out that way. There will be surprises along the way. We can give it our best guess, but ultimately we should all be mindful that this is all just really guesses. Yes, market history may repeat itself, but some other thing that we never could have guessed about might pop up, like COVID or whatever. There’s always some wrinkle that no one anticipated.
Speaker 3: This is why it’s so fun, right? The faux precision, I think, is just like the funniest thing about retirement research. It’s absurd because you get this room of academics and they’re just going after each other about what assumption you’re using for return and standard deviation in various asset classes relative to inflation. And the dataset goes back to maybe the 1870s if you want to pick that particular dataset and be pretty broad. It goes back less and less far if you want to do factor tilts like small-cap value. There’s an argument you can only really use from 1971 if you want to use gold. And all of this only overlaps 5 30-year distinct periods from the 1870s if you really want to go back that far. Then you get other people like this famous one from Cederburg, which is the most contested one. I don’t know how you feel about this particular paper, but he’s like, well, it could actually be as low as 2% for a safe withdrawal rate, because when you factor in all the other countries around the world and their 30-year decumulation sequences, now you get into some really wacky places. Then somebody else will beat it up and say, well, if you’re going to compare your situation to Weimar Germany’s events, then that’s not going to happen in the US. This is what I’m trying to get at: there’s a whole bunch of beliefs that set you up for these conditions. I think that this community of researchers, I’m imagining, would say, “Christine, fundamental to your overall position, I think the grounding school of thought that you have is valuations matter and begin to dictate your portfolio to some degree, but much more the withdrawal assumption in there.” And so one more time, can I just dive into that one and hear how you would defend a challenge from one of these other experts in the space saying, no, now you’re cherry-picking that dataset to drive at that fundamental?
Speaker 2: So a couple of things. Our research incorporates the assumption that not only do equity valuations matter in terms of affecting our expectations of what returns might be over the next 25 or 30 years, but we also believe that where fixed income yields are today, or when someone starts retirement, is also a super important input, as well as the rate of inflation. So inflation had been kind of a non-issue, I think, for a lot of retirement planning calculations. Now it’s kind of on the front burner, and, you know, we know from the data that medical inflation, healthcare inflation, tends to be a big factor for older adults, and it tends to hit them harder, hit their budgets harder. So I would say all 3 things ought to be on the dashboard at least. And my bias would be, why would you just say, oh, I’m just going to look backward at market history? Why wouldn’t you, in addition to that, while that’s certainly a great grounding, why wouldn’t you also give some thought to, well, okay, the specific environment that’s prevailing when I’m retiring? Those 3 inputs — where fixed income yields are, where inflation is, where equity valuations are — those all matter too. So my advice is to look backward but also peer forward and attempt to get your arms around what’s reasonable to think about market conditions over my particular drawdown period. And of course, the real unknowable thing that we haven’t even talked about is, we don’t know what these time horizons are, right? That yes, you should be conservative and plan longer, but no one knows that. So, as we talked about, it’s all a little bit of faux precision, I think.
Speaker 3: I’m grappling with this problem. Me and Mindy are grappling with this in very different ways. I feel that the current valuation landscape means, hey, I’m just too concentrated in this particular portion of the market. And so my answer to that was to diversify my equity position into an equal weight index fund just to get rid of that, maybe some factor tilts along with real estate, which is BiggerPockets, right? Real estate. And so Mindy’s response has been to put 80% of her position into the tech complex as part of that. Do you change your equity allocation in response to this, in addition to the overall weights across asset classes? Do you actually change the recommended equity tilt based on current valuations as well?
Speaker 2: No, not really. We hold them constant in this research just for consistency’s sake. So we don’t move around intra-equity asset allocations. We stick with a pretty much static mix. I think, relative to a total market index, we maybe have a little higher weighting in smaller-cap stocks, but not meaningful, and we do hold it constant from year to year. Listening to this though, it did make me think of Cullen Roche. I don’t know if you know him. He’s a writer who I appreciate, and we had him on our podcast within the past year or so when we were talking about all this, and he was like, you know what, you don’t address equity risk with your equity weighting. Like if you’re worried about equities, or if you think that equity returns might be low or whatever, do it with adding non-equity positions to your portfolio, which really does add up to me. So anyway, just food for thought as people think about their retirement portfolios.
Speaker 1: You said you aim for a 90% success rate, so 3.9% is your suggested withdrawal for a 30-year retirement horizon, 3.5% for 35 years, 3.3% for 40+ years. When Bill Bengen ran his numbers looking backwards, and you’re looking forwards, he came up with 4%. So very close to your 3.9%. People will nitpick about that, but whatever. He had a 96% success rate. And I think he said something like 3.3% withdrawal for a 30-year time horizon will give you a 100% success rate, or as close to 100% as possible. And again, his success rate is having money at the end of the 30-year time horizon. Do you have any suggestions that would give more of a closer-to-100% success rate? Because we have had lots of conversations with people in the FI community and they’re like, 4% only gives you a 96% success rate. You know, that’s too liberal for me. I need a little more conservative withdrawal strategy, just in case. And I mean, honestly, those are the people that are never, ever going to be satisfied, and they’re never going to retire, because they can’t fathom an idea that maybe they might run out of money in year 97 or something. Right.
Speaker 2: I love that question, Mindy. And we’ve heard that feedback a lot on our research too. I can’t tell you how many times I’ve spoken about this research, especially to individual investor groups, and heard that same pushback, like, no, I want 100%. The point is that that will lock you into a very low rate of spending, unlivable for a lot of households, that 100% success rate. And it really will probably lead you to significantly underspend during your lifetime. In fact, one system that we test in our research, it’s in play in a product called Income Lab, which is a software program that a lot of financial advisors use to help guide their client withdrawals. And Derek Tharp is one of the researchers who has contributed to that. And the Income Lab approach actually retests success rate every year and makes adjustments based on how the success rate looks. And I forget the specific percentage that’s deemed acceptable before a course correction comes into play, but they let success rate go very low. But the bottom line is that, in their research, success rate is something that you revisit on a regular basis, that you don’t just test your starting success rate, that you’re actually looking at this on an ongoing basis and letting that guide how much you take out. That’s a more sophisticated system, in my opinion, and a preferable system. It’s another one of the flexible spending systems that I would urge people to take a look at.
Speaker 1: I had a conversation with Mr. Money Mustache about this, and he said anybody who has reached early retirement, financial independence, you know, where our audience is really at, anybody who’s reached this point, has done so by pretty much obsessively looking at the numbers and tracking their spending and doing all the things. So they’re not going to reach financial independence and then just change into a whole new person and never look at the market again. And I think that somebody who has decided that they’re going to accept this 96% success rate instead of the 100%, and they have quit their job and now they’re living off of their investments, I think they will continue to constantly revisit, like checking the stock market every day or every week or every month at the most, and will be able to course correct. Like in 2022, where the market was — am I remembering correctly? The market was down like 22% from the year before. Okay, great. Maybe in 2023 I’m gonna not go on all those vacations. And then, you know, the market was up in 2023, kind of crazy, if I recall. I don’t have the chart up in front of me right now, but we have had some big swings, and anybody in our community is going to continually be looking at the numbers and course correcting all the time. I just want people to not let these numbers rule their whole life. What is the point of leaving your job only to be bound to these numbers and, oh, the market went up a dollar, I can spend a little bit more, oh, the market went down 50 cents,
Speaker 2: Right.
Speaker 1: he says, I gotta pull back, I gotta pull back. And, you know, this is an oversimplification, but also it’s not really an oversimplification. There’s some people that get a lot of anxiety around this. And I think that if you’ve reached financial independence and, you know, 4% is too much for you, 3.5%, that’s not a huge difference between 4% and 3.5%. That’s a nominal amount of spending over the course of the year that you’re just not doing.
Speaker 2: Exactly. It’s such an astute observation that, in fact, Jonathan Guyton, who was one of the creators of the guardrail system, makes the point — in my book — that the impulse to spend less when the market is down is like a rare behavioral thing that aligns with what’s good for your portfolio. Usually the things we talk about behaviorally are bad, like selling in a down market or whatever. But this impulse to like, oh, you know what, market’s looking scary, I don’t know what’s going to happen, it’s probably a good time for me to try to spend a little bit less if I possibly can. I firmly believe that most FI people will really be taking that to heart as they think about managing their own plans on an ongoing basis. What got them successful in the first place is going to hold them in good stead going forward.
Speaker 1: I hope so.
Speaker 3: For younger retirees, like in the FIRE crowd, I asked this question the other day: do you want to retire early and withdraw at something close to 4% to 5% and die with zero? Or do you want to retire early in your 30s or 40s and withdraw 3% per year, but be able to ratchet your spending up as your portfolio grows across time? Almost overwhelmingly, people chose the second option. I know there’s some research on this, like Michael Kitces, where at certain points in portfolio growth, you can begin ratcheting up your spending. Do you have a framework that you apply to that question of what’s a portfolio of sufficient size where I can now spend more each year as it grows, relative to some percentage of the portfolio, rather than fixing my spending to inflation at some fixed withdrawal rate, even with guardrails?
Speaker 2: We’ve talked about a couple of the systems. The guardrail system is one I would urge people to check out, but it’s important to note you’ve got to take the good with the bad with that, right? That yes, you can ratchet up spending in a good market environment, but you’re also going to have to take it down in a bad one. And nearly all of the systems, or I would say all of the systems that we tested, have those trade-offs where both things are happening, that it’s not just giving yourself raises, because it will inevitably incorporate some downturns into your retirement spending horizon. So you need to have a plan for what you’ll do during those as well.
Speaker 1: Christine, is there anything else that good enough investors should be keeping in mind as they’re thinking about their retirement investments?
Speaker 2: Yeah, one of them is — and I’m passionate about indexing as a good enough strategy and a pretty darn good investing strategy — where you know that you won’t necessarily have the very best investment strategy at the end of your retirement time horizon, but you will have given yourself above average, maybe much better than above average, odds of success. And to me, that’s one that investors should take to heart as they think about their plans: to not try to overthink the specific investment selections, settle — and I put that in quotes because you’re doing better than settling — but settle for whatever the market’s return will give you, and not spend too much time optimizing or sort of overly strategizing about the specifics of that investment portfolio. To me, you have to remember you’re optimizing 2 things, or you’re looking for good enough in 2 things. One is your investment portfolio, the other is your time-on-earth allocations. And, you know, none of us knows how long we have. And so to me, it’s really valuable to not spend time on things that really probably won’t deliver meaningfully better results over time.
Speaker 1: Yeah, that’s the one thing you can’t buy.
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Speaker 1: What do you set yours at, Scott?
Speaker 3: 95.
Speaker 2: Well, you know, there’s a really important health-wealth effect in this country too, that people who have investment assets, chances are they’ve had access to good quality health care throughout their lifetimes, and that is such a valuable benefit. And so we do see a really, really strong linkage between household level of wealth and longevity in this country.
Speaker 3: Absolutely. I will say that, just by having the flexibility that I now have in my situation, that allowed me to build a home gym and build a workout program and spend the time researching. There’s a whole crap of supplements out there. It takes some time to weed through that and actually understand what works and what doesn’t. We will not talk about that here, we are not fitfluencers. That’s a luxury of early retirement or financial independence, that you can spend the appropriate amount of time on that and build that. And that should, or statistically will, provide dividends, but no one knows what that will end up being. So, well, Christine, where can people find out more about you?
Speaker 2: So I’m a regular on morningstar.com. Morningstar is my employer. My book is called How to Retire. The podcast that I work on is called The Long View, which is an interview-style podcast like this one. It’s a weekly cadence. So those are probably the main venues, and I have mentioned a couple of times I’m also active in the Bogleheads community, so the John C. Bogle Center for Financial Literacy. John Bogle was the founder of Vanguard Group and really the father of modern indexing as we think about it today, and I am active in that community on a volunteer basis.
Speaker 3: What does the Bogleheads community— sorry, I can’t resist anymore. What do they say about the TIPS ladder?
Speaker 2: Love TIPS.
Speaker 3: Okay.
Speaker 2: They love TIPS. So the Bogleheads are generally, despite being indexing enthusiasts, there’s a big optimizer mindset in the Bogleheads community. In fact, someone, I think it was Jackie Cummings Koski, do you know Jackie? Asked, how many engineers do we have here? And I swear it was like half the room raised their hands at our conference. So there is an optimizer mindset, and the optimizers do love TIPS. So yeah, very much a thread in the Bogleheads retirement planning community.
Speaker 1: Will you be at the Bogleheads conference?
Speaker 2: I will. I’ll be like a little blur running around because I’m involved in organizing it. But yeah, it’s been very, very gratifying to see that we’ve actually had to close it to new attendees because we blew through our goals for attendance. And yeah, we have a waitlist right now.
Speaker 1: I was planning on going to the event, and then so many other things happened that I can’t go this year, but next year, 2026, I am at Bogleheads.
Speaker 2: I was just going to say that we, Mindy, tape every session of the Bogleheads conference and we put them on YouTube. So the idea is that everyone should be able to access the educational resources that we provide.
Speaker 1: That is fantastic news, because I was really sad to have to give up my ticket this year and really glad that I won’t have to miss the presentations. Of course, I guess you miss the conversations that you have with other attendees, but seeing the presentations will be really awesome. Okay. Well, thank you for doing that. And where can people find that?
Speaker 2: So that is on the YouTube channel, the Bogleheads YouTube channel. There’s usually a little bit of a lag because it takes us a little while to edit all those videos. So probably sometime in December, we’ll start pushing out those videos from the conference, but they’re all there from 2024. They’ll be there before long for 2025.
Speaker 1: Awesome. Well, Christine, this was a fantastic conversation. I really appreciate your time today, and we will talk to you again soon.
Speaker 2: Thank you both for the wonderful questions. I’ve enjoyed it.
Speaker 3: Yeah, thank you for the wonderful answers.
Speaker 1: All right, Scott, that was a really fantastic and very interesting conversation with Christine Benz from Morningstar. What do you think of her concept of good enough investing?
Speaker 3: I like it a lot. I think Christine is a wonderful researcher in this space. I think she does a great job on this. I think it’s a very Boglehead-friendly, as we discussed, approach to retirement decumulation. I think it’s very defensible for the most part, and I think it fits in this box of the retirement decumulation debate. You can certainly create real challenges, and she was very open about, yeah, of course that’s a challenge to this, a different approach there. And that’s what makes this so interesting to study with an open mind and so dangerous for people who are like, “my guy’s right” in the decumulation space. This is a debate, guys, and there’s a lot of unknowable things that are going on in the space. Even with the most defensible or best assumptions, there are still assumptions and guesses and decisions about what you’re using and how to inform retirement decumulation. It’s a very uncertain field. I think people get a little too passionate about what they think is the right answer. The more I study this, the more I’m like, there’s only decisions people make about their assumptions and the trade-offs that come with those decisions. There’s no right answer. No one will know until the next 30-year or 60-year time horizon passes.
Speaker 1: Yeah, I think the best thing to keep in the back of your mind when you are working on your portfolio and working on your returns and working on your FI number is perfection is the enemy of good. Good enough investing is a really great phrase, and I’m going to start adopting that. But perfection is the enemy of good, and you will never be perfect because perfect doesn’t exist.
Speaker 2: Yep.
Speaker 3: I think it’s fantastic. Just, I want to recap though, to leave this with a parting note, because as we bring on more of these retirement decumulation experts, I found these themes. I don’t know if they’ll be true, but I found these themes as I’ve mapped out all the different arguments. Again, there’s 6 divergence points, right? Which history counts? Are you using US data from 1871, some other slice, something from 1971 when we went off the gold standard? What are you using for your historical dataset to derive your assumption? Are you just doing a backwards or forwards forecast and using consensus forecasts like Christine is incorporating to some degree in her portfolio? How are you deriving the assumptions about future returns? What does safe mean? Karsten Jeske, for example, has a pretty stricter definition of safe in his portfolio. He does not like the reduction in spending. He does not consider that a successful portfolio. Christine does. There’s no right answer there. That’s a worldview that you contain and that informs your model. Bengen has the safe max — what survived every worst historical period. All these guys define safe differently when they’re coming up with these historical models. How your spending glide path is going. Some people like to use this retirement spending smile, or whether they’re going to use guardrails like Guyton and Klinger, and that matters pretty greatly. What your asset portfolio looks like. Risk parity contains a much more complex weave of assets than a TIPS ladder and total market index fund, for example. How long your sequence is going to be. Most, not all, but most prescribe a smaller or lower withdrawal rate for a longer time horizon than for a shorter one. Some folks do not seem to differentiate between those 2 horizons, which I think is interesting. Then the valuation conditioning — does today’s valuations change how you forecast future returns or slice the data? Those are worldview decisions. They’re not right answers. They’re just defensible. That’s what makes this dangerous. People latch on to right answers in this space, and there’s not necessarily right answers. There’s more defensible and less defensible approaches to constructing this, and then a great deal of uncertainty. So just want to couch that in there and say this is going to be a learning experience, and the more you understand the uncertainty in this space, I think the better decisions you’ll make. Good enough is a really good way to phrase what you should be aiming for here.
Speaker 1: Scott, I just had an idea. Why don’t you take every single one of those options and make a calculator so people can run absolutely every single scenario?
Speaker 3: Impossible. I’ve literally tried to do this. We just talked about some other show, but I can go on here and say, okay, now you take that and you want to build a calculator. Oh, then you have to put every state’s tax brackets in there and make sure that’s updated. You have to run a tax engine. You have to understand what the tax lot basis is in all your taxable brokerage accounts, how much receipts you’ve got for your HSA reimbursements. You’ve got to have your return assumptions that are defended and toggled by each of these world-renowned researchers and how they define the return and standard deviation for various things. You got to say, am I going to consider the factor zoo? That’s a whole different thing. You can find an academic paper that says stocks with the letter B in the name perform better than stocks with the letter F. That’s called the factor zoo, where people would back through the historical data and just look, if you do enough of a large sampling, you can find a statistical case for a bizarre combination of things. So then you have that whole space. What do you assume for gold? All that goes through. Then you got to do the spending. It’s impossible. So Boldin, ProjectionLab do a good job with that. Not perfect. I think it’s impossible to do perfect. And even perfect would be an expression of your assumptions about how you frame the problem in the first place. So I’ve had fun nerding out with this. I will publish something eventually for my version of that, but it will only be one version of the way to tackle the problem, and it will be full of holes that you can poke. That’s why it’s just endlessly fascinating to me, as you can tell.
Speaker 1: No, it’s not impossible, Scott. It’s just a really, really, really big data set. So yeah, put every state’s tax bracket in, and do every single HSA thing and dollar amount and do every everything, and then you can get it done super easy.
Speaker 3: So suppose you have one guy who has all their wealth in the 401(k), and then what do you assume for tax brackets going forward? Do you assume they’re going to go up over the next couple years? Do you make that a toggle? How much?
Speaker 1: Assume every single one, Scott.
Speaker 3: Yeah, that’s just one case. What if somebody else has just the taxable brokerage and Roth and no pre-tax? Then that doesn’t apply. So it’s just like, the variable in your situation could be — it’s so fun. It’s a puzzle that is endlessly complex, but also very simple if you just focus on good enough.
Speaker 1: Yeah, so you’ll be able to find that on our resource page under Scott’s Endlessly Complex Monte Carlo System.
Speaker 3: Yeah, the highly technical and complex way to build modest to moderately more wealth in retirement decumulation sequencing for early retirees. So we’ll get there.
Speaker 1: Just rolls right off the tongue.
Speaker 3: That’s right. Should we get out of here, Mindy?
Speaker 1: Yes, we should, Scott. But as always, you can find all of our awesome show partners at biggerpocketsmoney.com/showpartners. FIPro. That’s F-I-P-R-O, like financial independence professionals for you. And you can sign up for our newsletter at biggerpocketsmoney.com/newsletter. All right, that wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench. I am Mindy Jensen saying, “gotta scoot, flute.”
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