How to beat the '4% Rule' of retirement spending

There's a big problem with the 4% rule

of retirement spending. By following it,

you'd have more money than you started

with by the time you end retirement on

average. And for many retirees, that is

not success. That is miserable failure.

Because we save money to enjoy it. And

that's a lot of good times to leave on

the table. But researcher Stefan Shansky

says he has a better way. A new spending

rule that can help you spend more and

make your retirement safer. Let's find

out how it works. You're watching inside

investing.

Hello everyone. Welcome to another

edition of Inside Investing, your guide

to DIY investing with insights from

savvy everyday investors and financial

pros. Presented to you by TDirect

Investing, named Canada's best online

broker in 2026 by Moneysense Magazine.

I'm your host, Rob Moyes, and I'm

excited to explore this new spending

rule that aims to shake up the

retirement planning landscape. We're

going to hear how it works and how

Canadian retirees can put it into

practice. And we want you to get in on

the conversation during our live Q&A

session. Let us know what you think

about this new spending rule and whether

you might consider adopting it. There

are plenty of ways to have your say, so

don't miss your chance to weigh in on

today's topic and have your burning

questions about retirement answered.

Remember, you can submit a question at

any time in the show. Joining us is

Stefan Sharkensky. He's the principal at

Useful Work. He authored the

peer-reviewed research paper, the only

other spending rule article you will

ever need. He also created a retirement

planning tool based on his spending rule

that helps retirees maximize their

spending potential. You can find it over

at the best third.com. Stephan, it's

great to have you with us. Thanks for

taking the time to chat with us.

>> Thank you very much. I'm really glad to

be here.

>> So, I I love this uh new spending rule

that you've come up with. It really

turned some heads in the industry. It

certainly opened uh my eyes and I love

it because it attacks the orthodoxy, if

you will, of the 4% rule with retirement

planning. Uh but for those who aren't

familiar with 4% rule, just can you give

us like a quick overview of what is the

4% rule and and why has it become so

popular?

>> Yeah. Um it it the rule basically says

that if you have a portfolio of a

mixture of stocks and bonds, say 60% or

more stocks, 60 to 80% bond stocks or

so, the rest in bonds, uh and you have a

30year retirement plan, then you can in

your first year you can withdraw 4% of

your starting value. Say if you have a

million dollars in your initial

portfolio, you can withdraw $40,000 your

first year and then every year you can

just increase that $40,000 by inflation

every year and withdraw that amount. And

the rule says that if you follow this

then you are highly highly unlikely to

ever run out of money based on

historical

uh market performance in the United

States.

So, but basically what made this thing

so popular though? Like why did it take

off? I I get that it's like a nice

simple round rule, but is it got to be

more to it than that?

>> Yeah. Well, basically it's a nice simple

round rule. Um and it it was devised in

the mid '9s

um uh by a financial planner, Mr. Bangan

in the United States. And it was really

the first this was at a time when in the

United States 401k plans and IAs were

just coming into prominence and people

needed a way to figure out how to spend

down the money and this was really the

first kind of systematic rule

um that somebody came up with and it

just kind of stuck through inertia even

though it's been criticized very heavily

over the years as really not uh the the

best kind of I am.

>> So, so talk us through some of those,

you know, shortfalls that the 4% rule

can present for retirees.

>> Yeah. Well, there are a number of those.

First of all, it assumes you're going to

be spending constantly, making constant

withdrawals throughout your retirement,

but that's really not consistent with

the way people withdraw money in

retirement. One, spending is not going

to be constant in retirement. Typically,

the typical pattern is people uh reduce

their spending over time as they age.

they have less discretionary spending

over time. So your your just your

spending isn't constant and so your

withdrawals shouldn't be constant.

Furthermore, uh your taxes aren't likely

to be constant as people cycle through

the different types of uh uh accounts

that they have whether from taxable

accounts to uh their retirement accounts

which are taxed differently. They're

after their their taxes aren't going to

be different. So if you follow a

constant withdrawal rule, uh your uh

your after tax spending is going to be

all completely inconsistent with the way

you intend. And then finally, as you

indicated earlier, um because the 4%

rule is designed to be very very safe,

it isn't guaranteed to pre prevent you

from a a really bad market scenario. But

what it is almost guaranteed because it

is designed to almost never uh let you

run out of money. The flip side of that

is that you're leaving an awful lot of

the on the table. You're you're going to

be undersspending. And as you correctly

point out in the median market scenario,

you'd end up with more money than you

started with at the end of retirement.

Your your your heirs will enjoy it, but

you never will. So you'll be under

spending living below your means for

your entire retirement.

>> Yeah. And I think for a lot of retirees

that is just not a satisfying outcome. I

I'm sure the heirs are, you know,

jumping for joy maybe. But uh somewhere

in the middle is probably where we want

to land, right, for most people. So uh

take us through how does your new

spending rule work then?

>> Okay. So the spending rule that is

described in my paper uh your portfolio

consists of of of two assets that you

can think of. Um and you still have both

stocks and bonds but the bonds that you

hold are in inflation indexed bonds uh

that you latter as your your diagram

shows. uh and the paper was written for

uh the US with US investors in mind. So

the inflation protection securities are

called tips. Those are US government

bonds that are indexed for inflation.

And you have what's called a ladder

where you have bonds that will mature

every year going into the future. So

that will create a stable

inflationprotected

source of guaranteed income for

um you 30 years or more. Um so that

along with your um uh government pension

I think in Canada you have CPP and OAS

in the United States we call it social

security. So between your government

pension which is inflation protected and

the tips you have stable guaranteed

certain income and the rest of your

portfolio you put in uh a stock market

fund uh and you withdraw that in from

that in such a way that uh your your

withdrawals will be greater when the

markets are are up and lower when the

markets go down. So that protects you

from uh you just roll with uh the way

the markets go. It's kind of like taking

a getting a bonus income when you're

working for uh a company or your own

business where uh your bonus will be

higher when the company does well and it

will be uh lower uh in in a less good

year. But um

people are accustomed to taking variable

income in that in that sense along with

their their base guaranteed incomes.

>> So in in what way then do you feel that

this spending rule is going to help

address those pitfalls that we talked

about with the 4% rule?

>> Yeah. So because you're uh your flo

you're well one the uh the inflation

index bond port part of the portfolio

that's totally guaranteed. In fact, the

way that uh bond yields in the US are

today, uh the inflation protected bonds,

that's about equivalent to a 4.8% rule.

So even those bonds alone, you can do

better than the 4% rule today. Um and

the uh the variable withdrawals on your

stock portfolio that protects you from

both the uh both the underspending

because it's a way to maximize how much

you can get out of your uh stock

portfolio. And it at the same time it

protects you from ever running out of

money because the mathematical formula

prevents you from running out of money

during the time horizon that you you set

forth.

Yeah.

>> And and Yeah. And just one more thing.

And because of the formula, uh you can

plan ahead uh to to roll with variable

spending that you're likely to have and

you can plan ahead to model your uh

anticipated tax impacts. So you can take

care of that uh the natural variability

that you'll have as well.

>> So a lot more flexibility is what I'm

taking away from this, which which I

think would appeal to a lot of folks.

Uh, I played with your retirement

calculator at the best third.com. Uh,

which I will say, just a quick shout out

to you, uh, probably one of, if not the

best free retirement planning tools that

I I've seen. I had to sort of, uh, you

know, Canadianify it a little bit as

best I could because it is designed for

Americans, but it was it was phenomenal.

So anyway, uh, I I created basically a

example scenario that I think would

apply to a lot of folks. And let's kind

of just quickly run through uh, what

your spending rule is going to be able

to do for somebody in these scenarios.

So, like let's say uh the retiree has a

million dollars in let's let's put it in

taxfree accounts just for simplicity

sake here. They are going to expect to

have a 30-year retirement. Okay? They

want to spend at least 60k in their

go-go years, the first 10 years of their

retirement, at least 50k in the next 10

years, and then 40k in their nogo years,

uh the last 10 years of their

retirement. Let's say they earn index uh

inflation indexed 20k per year or so in

retirement benefits. That's like roughly

the average for a lot of full-time

working Canadians and they want to die

with zero, meaning that the portfolio

gets depleted by the end of it. So,

let's take a look at then what uh your

retirement spending rule could do for

them and and maybe walk us through this

chart that we've created that will show

the breakdown basically of uh how the

income comes through.

>> Yeah. So, um, like you said, you wanted,

uh, $60,000 in secure income the first,

uh, 10 years, then 50,000, then down to

40,000. And so, that, uh, bottom, the

orange line at the bottom, that shows

you the secure base income that you can

get. That's the combination of CPP, OAS,

and your inflation index bond. And then

the uh the other bonds above that you

have the the gray dotted line and then

the darker blue graded uh uh dotted

line. Uh that shows

uh the combination of your secure base

income plus

the range that of uh of of bonus uh that

you could get from the stock portfolio.

And that those lines are based on

historical scenarios in the US market

going back 150 years. And that uh that

uh gray line shows you the historical

minimum scenario that you would you

would see

in the worst possible

to get to to dip below that gray line

for your total base plus bonus income.

you would have to have a market scenario

that's far worse than anything that's

ever been seen in the US market. Um, and

then that darker blue line, that's up to

the median range. So, that's not even a

ceiling. That's the median market

scenario that we've had. Kind of a

typical case. So, uh, with your base

plus bonus total income, you'd really

get not just $60,000,

but say $85,000 in the first 10 years.

and then 75 after that and then

say 65,000 in typical markets and never

less than, you know, more than about

$10,000 more on top of your

your secure base as total income.

>> I mean, this looks pretty incredible.

like this is a this is a powerful

example uh that just shows like how much

more you could be spending than

something like the 4% rule which would

have you at 40k flat per year uh could

potentially let you spend. So I mean

that that's like really incredible

stuff. Uh but there's a couple things

that jump out to me about this. Um one

being that the breakdown of this example

portfolio ends up being something like

35% stocks and then 65% uh inflation

protected bonds. That is like way more

conservative than like a lot of retirees

would hold. They might hold 5050 6040

something like that. How is it that a

much more conservative portfolio at face

value could get that much more spending

out of the million-dollar portfolio in

this example?

>> Yeah, because uh uh one those tips uh uh

are a highly reliable secure base income

uh that uh you uh that's payout is more

than the 4% rule today. It's closer to

4.8. uh plus you're including in that

number the CPP and OAS which is another

20,000. Um and then because you have the

variable withdrawals from your stock

portfolio, you're able to take advantage

of what the market really can offer you

over time if you're willing to accept

some some variability in your in part of

your spending.

>> Yeah. On that note, maybe, you know,

take us through, I guess, what are some

of the potential trade-offs that

somebody would have to, you know,

consider if they were going to use this

spending rule because obviously no

strategy is perfect.

>> No strategy is perfect, but uh with

trade-offs, it's a trade-off compared to

what? Um and um so, you know, if you

could come up with a some people are

uncomfortable with variability. Um and

uh even though the variability is only

part of their spending, uh if you wanted

a pure

um uh uh uh a consistent flat amount of

income, this isn't it. I don't know of a

rule that does that. Uh now, you do

mention the spending rule doesn't

consider taxes and management fees.

That's true of the paper. The paper

intentionally avoids taxes because in

management fees, management fees are

going to be very very low. Uh taxes are

very complicated. The tool that I've

created, the best third that you

mentioned that does consider taxes and

um depending on uh how taxes were

configured uh in the scenario you did.

If it was a tax-free account, then taxes

are not an issue. But the tool does take

into account taxes and the the flexible

application of the spending rule does

does take that into account. Uh but the

downside and as you're correctly

pointing out uh inflation index

investments are limited for Canadian

investors unfortunately.

>> Yes, that is uh that is the rub of the

spending rule because we cannot buy tips

directly from the US government like

American citizens can. The secondary

market options are are generally pretty

limited here. Are there alternatives

that a Canadian retirey could consider

to kind of create that bond ladder of

reliable base spending that you outline?

>> Yeah. Um, so there are inflation index

bonds in uh in Canada uh real return

bonds, RRBs. Unfortunately, the

government is no longer issuing new

ones. Um uh but you do have some for

some years in your portfolio. So use

those to the extent that they are

available. Um, and then other things one

a Canadian can do and unfortunately it's

not inflation protection. Well, if you

have if you have a lot of spending in

the United States, if you spend a lot of

time down here or if you have family

members here that you want to give gifts

to, then you can buy tips in some cases

from Canadian brokerages and you could

use those to protect you from US

inflation. uh uh tips aren't a great uh

protection for Canadian inflation and

certainly there's also currency risk. So

they're they're not a perfect solution

for people who have spending needs in

Canada. Uh so you don't have in you

don't have a really strong uh inflation

protection but you can use uh nominal

you could create a nom uh uh a ladder of

nominal bonds nominal uh Canadian

government bonds or nominal GIC's.

Uh an annuity will also give you a

steady stream of anom of nominal income.

>> Now if you were going to do that

obviously you don't get the inflation

protection aspect of things. So like

what do you think would be a reasonable

assumption for inflation? Obviously, you

can, you know, it's not set in stone.

You could change it as you go. But what

do you think that assumption might be?

>> I think to look at historical inflation

and you want to go back to the early

'7s, not all of history. The early '7s

is when countries went off the gold

standard and we have what we call fiat

money. It's just money backed by uh

government promises. And so the

governments are more the US, Canada, all

around the world, they're more

positioned to use fiscal and monetary

policy to inflate their currency

unfortunately. So I would say 3 to 4% is

probably what we'd be looking for um for

inflation assumptions going forward.

>> Yeah. So definitely a higher assumption

than has historically been the case, but

uh yeah, as we saw in recent history,

you know, inflation can flare up and it

can get pretty ugly and that's not

something that retirees want to deal

with. Um, another thing that really

jumped out to me about your paper that I

thought was really interesting

>> was that you're saying that you think

retirees should consider allocating 100%

of the of the risky part of the

portfolio to stocks rather than some

sort of mix of other assets. Uh, you

have a great graph that kind of spells

out why that is. Can you walk us through

that graph and explain it to us?

>> Yeah. Um so this shows

um the average annual withdrawals

um in different allocations. So out this

is outside the tips part of the

portfolio. Um it shows the typical

um

the classic way people allocate risky

portfolios is with a mixture of stocks

and bonds. 6040 is very common. Uh

sometimes people go higher, sometimes

lower. Um but I looked at under this uh

withdrawal rule the average annual

withdrawals for different mixtures of

stocks and bonds. And uh the blue at the

top is what you could get on average

with 100% stocks. Uh and then the lower

are the lower lines are for lower

allocations of stocks in the portfolio,

more bonds. And what it looks like is at

the very lowest end. So in the worst

cases when you're going to have uh the

worst average withdrawals,

um the the portfolios are basically all

the same. Uh so there's really no

downside protection from putting more

bonds in the uh in in the risky part of

your portfolio. All you would do with

adding bonds to your stocks is reduce

your upside.

>> H that that that's really interesting.

So it's like if you're not getting any

downside uh protection really, you might

as well reach for the highest expected

returns, right?

>> That's right. And again, tips are bonds

or if you have an annuity or nominal

bonds, those are bonds. Uh so your

guaranteed income proportion is still

bonds and that's where your mix of

stocks and bonds are. And in fact, you

pointed out in the scenario you did on

the calculator, it was a pretty

conservative mix of of bonds versus

stocks. So we still hold stocks and

bonds in this methodology. It's just

that the way we withdraw the different

assets is different from the more

traditional approach of of withdrawing

from both stocks and bonds at the same

time in the same way and then

rebalancing. Mhm. So then I I think some

retirees might wonder then like how do I

figure out how much I should be

allocating to one part of the portfolio

or the other part? Do you have any sort

of like rules of thumb or any tips for

them?

>> Yeah. So um it

it it's what you saw when you configured

it in the tool. We don't start with

asset allocation. The the traditional

way is you decide on an asset allocation

based on some risk tolerance quiz. What

you do instead is you decide how much

secure income you want

uh and then you put that into the uh

into the bond port into the bond ladder

portion of the portfolio. So, it really

starts with the outcome you're looking

for and the asset allocation follows

from there as opposed to the traditional

method of starting with the um asset

allocation and then figuring out what

your outcome might be.

>> And and you have like a a chart that you

included in your paper, too, that I want

to walk through. I'm a sucker for

charts, as you can tell, I'm sure. Um

but basically I want you to walk us

through this chart that you created to

kind of help people figure out you know

with what degree of certainty that they

you know might be able to uh allocate

you know one side to the other side.

>> So let's uh let let's show this chart

here. Uh this is uh yeah there we go.

Perfect.

>> Yeah that's the chart. Okay. So this

um this it's honestly it's it's it's

kind of a complicated chart.

um uh maybe less intuitive than some of

the other charts in the paper quite

honestly. Uh but what it does is it

helps you figure out um based on how

confident you want to be in your level

of secure income. So let's say a typical

number is you want to be 90% confident

that you can meet your target base

income. And so the 90% confidence level,

it's the

the darker, excuse me, purple line,

which is the third from the bottom. And

uh this is based on you start with a

million-doll portfolio. And you say uh

one what the the y ais is how much of a

secure withdrawal do you want? And then

you look along the

uh the the curve based on your

confidence level and that shows you on

the x-axis what percentage of stocks

versus tips. So let's say um you want

$30,000

in a withdrawal. You follow that $30,000

line to the 90%

line and that gets you at about

73%.

Stocks versus tip. So if you want to be

90% confident that you'll get $30,000 a

year in secure income, then you go to

about 73% tips. And this is based on

um

a million dollars at your initial value

and the yields on tips that were in

effect at the time that the paper was

was written.

>> Mhm.

>> You'd want to change those. The curves

would change if the yields on tips

change. And of course, if you have a

different starting value, it would it

would change this as well. Um, one last

question I have for you, uh, before we

kind of get to the other part of the

show here, but, uh, do you think that

this new retirement spending rule that

you have, is this more applicable or

more useful for somebody who's on like

the richer end of the retirement scale

or or could this be just as useful for

somebody who has a more modest nest egg

going into retirement?

>> I think it can span the range. Of

course, you need enough assets to be

able to buy uh the tips ladder to the

extent that you want the income from it

and probably some in the um uh to add to

your stock portfolio so you have a

bonus. Uh but uh it could work for uh

people with in a very wide range of

asset levels.

>> Okay. So challenging again that

orthodoxy of 4% rule. I love it. I

appreciate you walking us through the

nuts and bolts. Uh I encourage people

too to like go to the best third.com,

play around with like the parameters and

and just kind of see how the numbers

work out for you. I think it could be

pretty eye opening uh relative to maybe

some of the expectations that you might

have had about what's sustainable and

not in retirement. Uh but in any case,

we have a lot more to get to uh Stefan,

but a quick reminder to our viewers,

this episode is going to be available to

rewatch on the Learning Center in

Webroer and TD Direct Investings YouTube

channel in just a couple days. So look

out for that. Uh before we continue too,

while we're talking about uh socials and

stuff, make sure to follow us on social,

TD Direct Investing. We're on YouTube,

we're on Facebook, we're on Instagram,

so you can scan the QR codes on screen

to check us out. We've got a ton of

great content on there designed to help

level up your investing knowledge and

hey, have a little fun along the way,

too. Uh like I say to our live viewer

Q&A, it's coming up in just a few

minutes. So, if you haven't got your

questions in for Stefan, please do. But

first, let's bring in my colleague Jason

Natk. is going to show us how to build

bond ladders for retirement income in

web broker. Jason, welcome to the

program. Thank you for jumping in for

Caitlyn who's off this week. Uh but it's

great to have you here. Uh break it down

for us. Where can we find fixed income

products like bonds and GIC's and stuff

like that to build bond ladders in the

platform?

>> Yeah, great to be here. Thanks for

having me on the program, Rob. So, yeah,

diversification, that's a buzz word and

it's not just for, you know, your stock

investment portfolio across different

asset classes. It's also fixed incomes,

GIC's. uh that can be important whether

or not you have a long-term investing

horizon or you've got a uh you're more

towards that capital preservations type

of thing. So, let's get into the

platform so we can I really learn how we

can find those different choices that

are for here for us. I want to direct

everybody's attention towards the top of

the page. We have our research tab. Lots

of great information here. We're going

to be looking under investments all the

way down towards the bottom. First,

we've got our GIC rate sheet. By

clicking in through here, we've got lots

of different options. You can choose

either TDGIC's or GIC's from across the

markets of all sorts of different

capabilities and length. We have our

short-term GIC's for for under a year,

long-term GIC's out to a maximum of 5

years. You also have some flexibility

with the cashable GIC's. Sure, the

yields might be a little lower, but you

do get the opportunity to pull it back

in early if need be. And last, but

certainly not least, is your market

linked GIC's. like the like its GIC uh

cousins. It's got that guaranteed

principle with a small rate of

guaranteed return, but you're ti your uh

your yields are going to be tied to the

sector and if it outperforms its

benchmarks, it's a little it's a bit of

a different product, but therefore your

choice all to be invested right in on

the platform. But if we're going to take

a shift over to fixed incomes, back to

research at the top of the page

underneath investment columns, this time

we're going to choose fixed income. This

is your one-stop shop for all things

fixed incomes. You've got your agency

corporate bonds. All the different

levels of government bonds that are here

at different lengths of maturities, even

high yield bonds are going to be here as

well. The one thing I want to point out

to the audience is our fixed income

search. This is a really useful tool

found at the top of the page here. We

can select and put in which type of

fixed income product that you're looking

to find. You can tailor it to find a

minimum yields that you're looking

after, credit ratings, currencies. After

you submit the searches here, you can

actually save the searches. You can come

back and scan for different products

later. You don't need to recreate the

wheel. It's going to tailor this choice

directly what you find suitable for your

own investment decisions and needs. And

and Jay, can you maybe give us like an

example like how could somebody go about

building a bond ladder using the

platform?

>> Yeah, of course. And we make it easy in

the platform as well. Let me walk us

through a couple different ways that we

can do that right back in the uh in the

in the fixed income center within the

platform. So, we just bring oursel back

to the the fixed income site. Want to

first point out this is a point

andclick. This is if somebody's really

looking to make it easy. On the right

hand side, we've got a featured

portfolio section. There's a number of

different ladders that you can choose

from. Just click and you're on your way.

And you can pick and choose the right

investments based on those uh different

segments of the fixed income market. But

if you look if you're looking to really

customize things, you can create the a

bond ladder with really quite easily

right from here as well. I'll start it

I'll start us off quickly, but you can

take it and personalize it on your own.

Under corporate bonds, I'm just going to

select on the the the shortest time

frame, the 0 to 5 years. We can start uh

picking and choosing. If you select

companies along the left hand side, what

we've got an opportunity to do is if we

create a portfolio for oursel, there's a

drop-own menu at the top of the screen.

If we just go ahead and give that a

name, we can save that right into our

fixed income section. And that's going

to if we add these bonds to our

portfolio, we've got those there. Now,

if we come back to our homepage, the

same exercise can be completed by

choosing a different expiration period

for your bond and then and then going

through uh I clicked on the wrong link

here. If we come back in here and click

on our our 10 year our 10-year

corporates, if we just choose another

one at random, we can add that to our

our portfolio that's that's we've

already created for oursel. Once that's

been created, right in this section,

there is a there is a create a ladder

opportunity for us to go ahead and then

with a minimal clicks as possible, we've

got this going. The nice thing as well,

we can also create a report for you. So,

it's going to detail all of the bonds

for you as well as a kind of what you

can expect from an annual return on

these these products. So, it's really

makes it easy, really makes informative,

and just a few clicks, you can be off

and running with the bond ladder of your

choosing.

>> That is a super tool. We appreciate you

walking us through it, making it easy

for us there. Uh Jason and thank you

again for jumping in. TD Direct

Investing senior client education

instructor Jason Natk. And just a

reminder to our viewers, if you want to

learn more about using TD's trading

platform and tools, you can check out

our free live master classes. You can

scan the QR code on screen for a full

list of upcoming events.

All right, Stefan, the time is upon us.

Let's open the floor and take some

questions from our viewers. Are you

ready to get at it?

>> You bet.

>> Okay, we got our first question coming

to us from Melanie. Let's check out what

Melanie wants to know. How many years

should a bond ladder typically cover

within this portfolio strategy?

>> Um, well, for for myself, I would do it

for my entire anticipated lifetime. And

um, I'm somewhat conservative in terms

of what my lifetime would be. I've got a

lot of people in my family who live to

be in their 90s and a few to 100. So,

I'm going to plan out for maybe a

hundred. Um, and so I would want a bond

ladder that goes out that far so I'll

have some secure uh base income. Um, now

with TIPS and I think with most other

government bonds, 30 years is the

maximum. Um, but you can do things to

effectively extend your ladder by say

putting more in the final in the 30th

year of the ladder. So you'll be able to

extend it and um once those bonds mature

uh buy more bonds for the remaining time

of your uh your time horizons.

>> Ah that's a nifty little trick. Uh so

good stuff news you can use. I like it.

Uh let's get to Barry's question.

Barry's uh and others uh want to know

this. Are there any other considerations

Canadian investors should keep in mind

when using the spending rule?

Uh yeah, one thing I would recommend um

is uh the paper uh did all the

historical simulations based on uh the

stock fund being just a US uh total

market fund. Um and that's because

that's where I had the data. I would

have done some analysis with an

international portfolio. Um uh but the

data just isn't isn't there to do the

historical analysis. So I would

recommend for putting this in practice

particularly if you're not a US investor

is to have a more general multi-country

stock fund say a North American fund or

an international global fund.

>> That's one thing. Yeah.

>> Yeah. It always comes back to

diversification in one way or another I

find with everything investing. So uh

there you go. Keep diversification in

mind and take a wider swath. Uh that

makes sense. Uh let's get to our next

question. This one's coming in to us.

Uh, some analysts expect lower market

returns over the next decade. How would

that impact your rule? Great question.

>> Uh, yeah. So, um, you the, uh, so nobody

really knows what the stock market

returns are going to be. Just nobody

knows. Maybe it'll be lower, maybe it'll

be closer to average. We we just don't

know. Um, but if you have a belief that

it's lower than average, you might uh

want to put more in your uh uh bond

portion of the portfolio, your latter

portion of the portfolio than stocks.

Um, the other thing you could do is

choose the a different amortization

rate. And uh this gets more into the

math of what the paper is uh but it's

it's uh for those who are familiar with

the concept of discount rates um it's

the rate at which you withdraw from the

portfolio

um uh and it's based on the historical

long-term average return on stocks 6.9%

is the after is the real that is after

inflation return on the stock market. Um

because personally I have no idea what

the market's going to do in the future.

I just assume that whatever it's done

over the last 150 years is the only

guide that I have to judge the future.

If you think the returns are going to be

lower than that, um low is going to be

substantially lower than average and

you're confident of that. Also, if you

use a um international fund as opposed

to a US-on fund, I would pick a a lower

amortization rate. That'll that would

smooth out your withdrawals. But again,

um the amount you get from your stock

fund each year depends on where the

market is. So, if it's lower returns,

you'll just get less from your stock

portfolio, but you're still not going to

run out during the time horizon you've

selected.

>> Right? That's one of like the beautiful

aspects of the spending rule, like

you're still kind of covered. Uh, and

then it's all kind of gravy from there,

I guess, to some extent. So, but anyway,

a good perspective. Let's get to our

next question coming to us from Amy.

Amy's asking, "How do you view

alternative investments such as

cryptocurrencies and commodity as tools

for managing inflation risk?" Another

great question.

>> Yeah. Um, I personally don't invest in

those. Um the uh cryptocurrency in

particular, my personal view is they're

not backed by anything except the wishes

of the crowd. Commodities are certainly

backed by actual stuff um that has

value. Um and so

uh those historically I think um have

helped with inflation risk. But again,

for the purposes of spending in

retirement,

um they're not the same as

inflationprotected bonds because

inflationprotected bonds have specific

payouts that are protected. Uh

commodities, gold, whatever it is,

they're still volatile assets. though

they don't have for the purposes of

drawing income from during retirement

they don't have the certainty of

principal return and uh interest

payments that bonds have. So for the

purposes of the retirement spending

portfolio I I would not use them for

myself and they don't fit in the

spending rule.

>> Just just adding uh too much volatility

I guess uh to to bank on really. I guess

that okay that that makes sense. Um,

okay. Let's get to our next question.

This one's coming to us from Lauren. How

should withdrawal strategies account for

retirees who don't own a home and may

face higher late life housing costs,

something like a retirement home for

instance?

>> Mhm. Uh so if you anticipate that you

will go into a a retirement community of

some kind

and you have a sense of what those costs

might be, you can build that into your

uh spending plan and configure your bond

ladder accordingly knowing that you'll

have perhaps higher housing expenses in

your later years.

Just like in in the plan that you put

together, the performer plan and the in

and the tool you had your spending go

down over time, if you anticipate higher

housing costs because of a retirement

community, you could have a step up for

part of that time. Um,

also if you're if that is uncertainty

uncertain for you and you just want to

leave a reserve in case you have to go

into a long

uh term care community, uh you can set a

a reserve in your uh in your spending

plan. that is in in the um uh like you

said for the plan that you created on

the tool, you assume that you were going

to die with zero. So, you're spending

down all your all your assets. Well, one

thing you can do, it's both in the paper

and in the in the the best third, you

can set a legacy, you can set a reserve

goal for the end of your plan. Uh, so

it's not it's planning not to spend down

your money and what is left in that

reserve goal, you could use it in the

end of your life or a long-term care

situation. Uh, and fortunately, by the

way, Canadians uh probably spend less on

medical care out of pocket because of

your health care system that we do in

the States. So, this might be less of a

concern for many Canadians, but you can

use that reserve for your end of life um

long-term care needs and whatever is not

used will will pass to your estate.

>> Yeah, lots of uh cool features in the

tool. That being one of them, I would

venture to say that most people around

the developed world probably spend less

than Americans do in healthcare costs,

but that's a topic for another day. Uh

we have time for one more question. This

one's coming to us from Grace. And

others also want to know this. Where can

I find out more about your spending rule

and and the tools?

>> Cool. Great. So, the spending rule

paper, uh, if you just, uh, uh, do a

Google search for my last name, uh, SH R

Ky,

and then F AJ as the second word, F AJ,

the Financial Analyst Journal is the

journal and where the, uh, paper was

published. You'll find links to the

journal and the, uh, the tool is at the

best.com.

uh as uh the best third of your life is

retirement and it's just uh uh one word

the best third no spaces or hyphens or

anything and you'll you'll get to the

tool

>> and Stephan I'm going to do you one

better because if for the people

watching on our broadcast platform I I

gave you links for both of those uh that

you just mentioned there so you can

check them out in the resources section

if you're watching it there. There you

go. Uh in any case uh that's all the

time that we have. We appreciate you

fielding all those questions. Great

stuff. And uh again, I I love this uh

new spending rule that kind of

challenges what I think a lot of

retirees might think was possible in a

lot of ways. Uh so truly uh maybe this

will be the best third of their life if

they can spend more of their money and

uh and not have it sitting there. So

anyway, great stuff. Appreciate the

chat. Uh it was awesome to talk talk

with you.

>> Thank you so much. I really enjoyed

talking with you as well.

>> And of course to our audience, we

appreciate you guys tuning in as always.

Make sure you check out next week's

episode cuz we're going to explore how

your portfolio's asset allocation could

change and should change as you move

through life. Getting this mix right is

one of the most consequential investing

decisions that you can make in your

life. So, you don't want to miss this

one. That's it. That's all the time we

have for this edition of the show from

everyone at Inside Investing. Thanks

again for watching. We'll see you all

next time.

Have more questions? Check out the links

to the right and in the description

below.