The 4% rule is pathetic. In this episode,
I'm going to explain why and answer the question "What is the 4% rule in the financial services
industry?" And you're going to be blown away and you're going to also be disgusted with this 4%
rule that is the standard today in the financial services industry and how you can do far better.
So, my name's Doug Andrew. I've been a financial strategist and a retirement planning specialist
for more than 4 and a half decades. So, I've helped thousands of people prepare for
a comfortable retirement and not outlive their money. The reason why the 4% rule irritates me,
it's unacceptable to me because that rule causes most retirees to outlive their money.
It's not enough to live on. They have to tighten their belt, they have to reduce their lifestyle.
And I'm going to prove this to you mathematically as I explain what it is, what it means to you,
why the financial services industry came out with it and so forth. Are you ready? I'm going
to blow you away with some insight so that you never settle for the 4% rule on your money. So,
the financial services industry came out with this rule because they study investor behavior,
especially for retirees. Now, Dalbar is one of the most common analysts for uh investor behavior
and stock market performance. And Dalbar can take a 20-year period of time because a lot of people
say, "Well, I'll probably be retired for maybe 20 30 years or whatever." And so, they look at these
20-year periods of where people have their money in retirement. And if it's in traditional IRAs and
401(k)s in the market because that's where they've grown their money and nobody told them that at
retirement planning should be totally different than what you did for your retirement planning.
So, they just leave it there because the advisor wants to keep earning money off of
charging fees on that account. So, let's use a million dollars or maybe even a little bit more
than that to illustrate this point. But Dalbar realized that if you bought and held, if you
did not let emotion get involved when the market goes up and goes down 40%, you might at the best
earn an average of about 9.14%. That means a million-dollar nest egg should generate 90,000 a
year of retirement income but you have to pay tax on that so you're only netting 6. In actuality,
the last 24 years the S&P has actually performed only at just less than 6%. If you're earning 6%,
a million dollars would generate 60,000 if you don't want to deplete your nest egg. But 60,000
only net you 40,000 after tax. Well, 40,000 is 4%. But that's not where the 4% rule comes from.
Dalbar found out that people get emotionally involved and when they see the money,
the market go down, when it starts to drop 25 and 30 percent and 40 percent like 2001 and
2002, 2003, 2008. How about March of the year 2020 due to the coronavirus pandemic?
In one single month, 33%. People freak out and they finally sell. "Oh, I got to get my money out.
I got to preserve what I can." And they sell low. And then the market turns around and they wait,
wait, wait, wait. And finally go, "Okay, I'm going to buy back in again." And they buy high.
that's the opposite of what you should do. And the institutional investors know that and they love
it because they take advantage when people panic and sell, they buy. And when people buy up here,
they sell. And that's why they make money. And most Americans, they buy and sell at the wrong
times. And so, Dalbar found out that the average retiree with money in the market only earned
3.49%, 3.5%. So, they came out with the 4% rule. 4% means if you had a million bucks and you pull
out 4%, that's 40,000. But you're only earning 35,000. So, you're going to slowly deplete that
million-dollar nest egg. But at 4% when you're earning 3.5, you won't run out of money based
upon the average L/E. L/E is life expectancy. So, it's called the 4% rule. The financial services
industry says to their advisors, "Don't you dare let any of your clients take out more than 4%
without having them sign a waiver that they will not sue us for outliving their money." You have to
sign a waiver that you won't sue them. Otherwise, you can only take out 4%. That's called the 4%
rule. Let me show you how ridiculous this is in my opinion. Let's say that if you tighten your belt
based on what you're getting at social security maybe a defined benefit pension or whatever
that you could get by on $3,000 a month. That's $36,000 a year when you begin to retire.
Now, inflation is going to cause you to have to have double that in 7 to 10 years to buy the same
gallons of gas and loaves of bread but let's just look at this snapshot in time. So, that's $36,000
a year. When you look at this, most people in America would have to withdraw 50,000 out of an
IRA or 401(k) portfolio after paying tax at 28% to net 36,000 to buy gas and groceries. You got it?
So, they have to pull out 50 grand a year to net 36,000 to live on. What is $50,000 4%
of? $1,250,000 nest egg. Now, I don't know if you're like me but I don't save $1,250,000
to have a measly $300,000 a month retirement. Folks, that's pathetic. That's the 4% rule. Now,
what I teach people to do is, "Hey, no. You don't have to settle for this." I like to get people
at least 5 years before they retire and start to do a strategic rollout from these IRAs or 401(k)s
in the market because wall street was never built to sell, to give you money, to give you income.
When you ask anybody on Wall Street, "When's going to be the best time to sell?" The answer is always
"Never." See, Wall Street was built to never have to give you your money. They want to keep it.
They're growing because they know it's going to go up and down and up and down. It was never designed
to give predictable income. You need to do a strategic rollout to something that's designed to
give predictable safe income streams. My favorite vehicle is called The LASER Fund because it has
averaged 8% even as high as 10% in payouts. In a nutshell, if you have $1,250,000, at an 8% payout,
that's 100,000 a year of tax-free income. Did you hear that? How much better is 100,00 than 36,000.
A lot. Nearly triple, okay? But many times, I teach in my various educational videos on this
channel and I would implore you to search this channel. If you can think of somebody
that needs to hear this because they have been duped into a 4% payout,
have them watch this episode and several others, have them get a free copy of my most
recent best-selling book that I'm going to gift you at the end of this episode.
Because you'll learn that many times, I can tweak this payout up to 10%. I can get 10%. That would
be $125,f000 because 10% of that is 125. I have thousands of people who are getting 10
payouts without depleting their nest egg. This one is actually slowly depleting that.
What would you rather have?125 or 100 versus 36? This is the financial services industry standard.
That's the 4% rule. That's why I say it's pathetic because you could end up with 3 times the income.
And it would be totally tax-free. And you can do it by increasing your liquidity if you need
money for an emergency, safety, so that you don't lose when the market goes down. Earn a
better rate of return and it's tax-free instead of this one being taxable. Sound too good to be true?
Well, you're not the only one that's ever thought that. So, let me show you how you can learn more.
So, if you haven't thought of this already, if in a few years because of inflation or whatever,
you actually need $100,000 net after-tax to live on. Gas, groceries, prescriptions,
whatever. If you need 100,000, how much are you going to have to withdraw out of an IRA, 401(k)
to net 100,000? You're going to have to pull out maybe 146,000; 150,000. In a 33% bracket, you'll
have to pull out 150,000 to net 100,000. Now, if you got a million-dollar nest egg and it's earning
10% which most aren't, they're only earning 3.5. If you were earning 10% and you have to pull out
50% more 150,000 to net 100, that million-dollar nest egg even if it's earning 10% will be gone,
drain dry, depleted in 11 years. In contrast, if you use my favorite vehicle The Laser Fund,
I've been earning 8, 10 percent. I can get a hundred grand a year and it's tax-free.
I don't have to pull out 150 to net 100. I pull out 100 thousand, I net 100(thousand)
because it's tax-free. So, when an IRA or 401(k) would be totally gone in 11 years with the same
rate of return, I still have my million. It will keep generating 100,000 a year of tax-free income.
Let's say another 20 years and me or my wife at age 96 passes away, okay? Now, I got an extra 20
years of 100 grand that's 2 million and I still have the million that I left behind to my spouse.
That's a 3-million-dollar better retirement strategy with the same amount of money. But it's
in a Laser Fund instead of an IRA, 401(k) based upon the pathetic 4% rule. Are you getting it? So,
let me share with you how you can learn more. I mentioned my most recent bestselling book.
It's book number 11, it's called The LASER Fund. LASER is an acronym this stands for liquid assets
safely earning returns. This is 300 pages. It's actually 2 books in one. This one is 200 pages,
14 chapters with all kinds of charts and graphs. If you learn more by stories, you flip it over and
read this one. This is 12 chapters about 100 pages with 62 actual client stories that will help you
understand what I'm talking about. But the Laser Fund is my favorite vehicle. I would recommend 40
to 60 percent of your income be tax-free out of an instrument designed correctly like the Laser Fund.
And you'll begin to see how you can take control ownership of your brighter future. So, when you
go to laserfund.com, you'll simply contribute a nominal amount towards the shipping and handling
and I will pay for the book. I'll fire it out to you. You can begin to study and learn. There's
also other options there to listen and learn watch and learn. Subscribe to this channel.
Share it with your friends and others who need to be empowered with this education. And we would
love to help you gain insights into opportunities that maybe you never knew existed before instead
of following the herd and using the 4% rule like so many Americans are trapped into doing.