Two Retirement Philosophies Will Determine Your Safe Withdrawal Rate

There are two different retirement philosophies that will determine your safe withdrawal rate. It is up to you to decide which retirement philosophy is best for you. There is no right or wrong retirement philosophy.

The first retirement philosophy is to spend all your money before you die. In other words, you wish to accomplish complete portfolio depletion or very close to it upon your death. Your money, which you earned, is mainly there for you to spend. Since you can't take your money with you, you might as well spend it all while alive.

Let's call this the YOLO retirement philosophy.

The second retirement philosophy is to leave a legacy with your estate which will survive long after you are gone. Your legacy may involve providing a perpetual giving machine to charities you care about. It may also include an ongoing donation to your college alma matter or steps to ensure your family business continues to run for years into the future.

Let's call this the Legacy retirement philosophy.

The Retirement Spectrum

Most people are likely somewhere in between. However, the people who closely adopt the first retirement philosophy of spending everything they have before they die seem to be the main critics of the Financial Samurai Safe Withdrawal Rate formula (10-year bond yield X 80%).

Forget about not believing the risk-free rate is intertwined with the returns for all-risk assets. Forget about my formula including a diversification of investments in retirement beyond bonds. Let’s also ignore how my formula is to try and encourage early retirees to earn supplemental retirement income through something meaningful.

For the critics, it is unfathomable to comprehend the idea of creating a perpetual giving machine after death due to different philosophies. We should accept different retirement philosophies given we all have different beliefs. Let's dig deeper.

Understanding Two Retirement Philosophies

At my high school graduation ceremony, James Carville, a political strategist came to speak to us. He concluded his speech by saying, “Leave each place better than you found it.”

While running up and down the public steps for exercise, stop and pick up some litter along the way. There is litter and dog poop on our sidewalks because some people simply don't care.

Instead of giving your two-weeks notice and quitting, give a much longer notice so you can train your replacement. If you find a better replacement, you vastly increase your chances of getting a severance.

This view of “leaving a place better than you found it” has been with me since 1995. However, from 1995 – 2012 I failed to live up to this way of life. Instead, I was focused on accumulating my financial nut as fast as possible so I could get out of Dodge during a Nor'easter.

Although I was paying plenty of taxes to help support this great country, for my 13 years in finance, I don't think I did anything that meaningful with my life. Helping institutional funds get richer was not very rewarding, even if it was to invest people's retirement savings. So I got out.

A Legacy With Financial Samurai

Once I started Financial Samurai in 2009, I finally felt like I was providing some value to society. People started sharing their stories during the financial crisis. Years later, long-time readers have sent words of thanks for helping them improve their finances.

Given the consistent positive feedback, it has made writing for free in the initial years easier. Few people would keep publishing 3X a week if there wasn't positive reinforcement and an innate desire to help others. They would either quit or hire a bunch of staff writers.

Thankfully, years after starting, this site now generates decent income to give me some added motivation once my 10-year anniversary passed. With children, having a small business is like providing career insurance just in case they can't find jobs.

What I Want My Children To Appreciate

Every so often, I think about my mortality. Concern about dying by 60 was one of the reasons why I wanted to get out of the workforce sooner. With Financial Samurai, I realize the words I write today will live long after I'm gone. As a result, I subscribe to the second retirement philosophy of building a legacy.

My hope is that someone I love or trust will continue Financial Samurai after I'm gone. Maybe they can write a few words to help a new generation slice through money's mysteries. At the very least, I'd appreciate having someone updating the archives every so often. There are over 2,500 articles.

In addition, I've been producing more podcast episodes on Apple and Spotify so that my children have a wealth of episodes to listen to should I prematurely pass away. If the FS podcast grows large enough, it could also start regularly generating some income.

Once you feel financially confident, life gets better. Just the fact you know you're on the right financial path feels wonderful. Therefore, I'm pumped Financial Samurai will live on forever so long as the hosting bill is paid!

Related: Why I'll Always Regret Selling My Business For Millions Of Dollars

Building A Legacy For Your Children

Parents want their children to be proud of them. Parents would give anything in the world to help their children be safe, happy, and loved.

Therefore, it is only natural for parents to also subscribe to the second retirement philosophy of leaving a legacy. One of a parent's biggest fears is dying before their children become independent adults.

Two Retirement Philosophies Will Determine Your Safe Withdrawal Rate

My neighbors have three children. Their middle child, a daughter, has cerebral palsy and is non-verbal. She is also a paraplegic and confined to a wheelchair. My neighbors have decided to accumulate as much wealth as possible to generate as much income as possible to take care of their daughter for the rest of her life. Bless their souls.

As parents, we fear what will become of our children after we are gone. Hopefully, we will pass after our children are mature enough to understand the ways of the world.

If you have young children, as we do, having a large enough estate to provide until they become adults is vital. Hence, the importance of having a low retirement withdrawal rate.

The desire to keep building supplemental retirement income is strong when your children are young. So is having a healthy amount of life insurance.

Once your children become independent adults, then you should naturally feel more comfortable about raising your safe withdrawal rate. You may even start thinking about depleting your estate to zero. However, there will always be more people you can help after you're done taking care of your kids.

Related: Three White Tenants, One Asian Landlord: A Story About Opportunity

Leaving A Legacy For Charitable Organizations

Where there is life, there is suffering. Charities exist to help alleviate such suffering for the many unfortunate people who are in their situation through no fault of their own. Roughly 15% of the world's population has some type of disability. That's about 1 billion people.

One charitable organization I support is the Pomeroy Recreational & Rehabilitation Center in San Francisco. The center is where we took our son for swim class. It has a wonderful heated pool.

What I didn't realize until I after I got there was that The Center provides recreational, vocational, and educational opportunities for people with disabilities. Its programs and services “encourage self-expression, promote personal achievement, and lead to greater independence.”

When you see the people who are helping and the people who are being helped, you just want to do what you can to help as well.

Life is unfair. Some are born with good looks and completely healthy bodies. Some are born with Down's Syndrome and a visual impairment through no fault of their own.

As long as we continue to procreate, there will be people born with some disabilities. The never-ending cycle of life therefore requires a never-ending amount of support.

Many people feel propelled to use their financial means to help others who are not as lucky. Therefore, if you want to create a perpetual giving machine to a charity after you die, it's better to have a lower withdrawal rate rather than a more aggressive one. This way, you further increase your chances of giving.

A Belief In The Afterlife

Many people also believe in karma, reincarnation, and/or the afterlife. Perhaps these beliefs about getting judged in the afterlife are why some people also want to leave money to help others after death.

Of course, you can always give away all your money to those in need while you're still alive as well. The people or organizations may be quite adept at making your contributions last for a long time. However, who is the most responsible at spending your money than you?

As we get older, we become more conscious of our mortality. We will naturally begin to wonder what we want to be remembered for. Contemplating our past and our future is all but a certainty.

There will also be a part of us that refuses to accept that our giving is limited to within our short lives. Helping others when we are gone is like getting a second chance for those who feel they focused too much of their wealth on themselves.

The differences in retirement philosophies may very well be determined by cultural backgrounds. So far, I have yet to come across anybody from an Eastern culture that objects to the Financial Samurai Safe Withdrawal Rate formula.

I spent 13 years growing up in Asia. Then I spent another 13 years working in Asian Equities. Therefore, I have an Eastern way of thinking about life, work, family, and death. I haven't properly conformed to the Western way of thinking. I'm not sure I ever will.

Correlation Between Wealth And Safe Withdrawal Rates

Finally, for those people who have a $5 million net worth or greater, the majority I know want to keep giving something after they are gone.

At the extreme, just look at the ultra-rich, like Bill & Melinda Gates, who have created a foundation to try and address serious issues in society. They know many of the things they care about won't be solved in their lifetime.

There seems to be a correlation with the level of wealth you have, the desire to create a legacy, and the safe withdrawal rate.

The more wealth you have to spare, the more you are willing to build a legacy of giving. The greater your wealth, the more comfortable you are with a lower safe withdrawal rate as well.

Examples Of How Wealth Affects Safe Withdrawal Rates

Let's say you have the ideal net worth of $10 million before retiring. You are happy living off $100,000 a year gross in retirement following the Financial Samurai Safe Withdrawal Rate (FSSWR) formula. Your $10 million actually produces $250,000 a year in gross income through a combination of dividend stocks, real estate, and bonds.

Therefore, you are OK living off a 1% safe withdrawal rate while creating a perpetual giving machine with the remaining 1.5% safe withdrawal rate. Once you pass, you've instructed your estate to increase the percentage giving rate to 2.5%.

Your estate will adjust its giving rate based on the FSSWR formula and the current state of the market. If your estate can only generate a 2% yield one year, then the giving percentage will also be adjusted down to 2%.

Conversely, let's say you retire with a net worth of $1 million. Your net worth produces $25,000 a year in income. However, you are happiest living off $70,000 a year. After working hard for so long, you want to live it up in retirement. YOLO.

Therefore, you withdraw at a 7% rate, potentially depleting your portfolio in 30 years. You may have the desire, but not the capacity to give to charities while you are retired. And when you pass, your estate will have nothing left to give.

Embrace Different Retirement Philosophies

Completely depleting my estate by the time I die is not something I want to do. It's too risky to cut things so close, especially due to the complexity of my net worth.

Further, I don't think leaving money to others is a waste at all. I'm already spending enough while living to enjoy my life, especially since I left my day job in 2012. My ultimate goal is to spend money on helping others while still alive and also after death.

For those of you who want to follow a higher withdrawal rate in retirement, despite a significant decline in interest rates, more power to you. Don't let me or others tell you otherwise.

If you don't have children, are still early in your financial journey, don't believe in karma, and can't afford to donate much to charity, then please feel free to spend more money on yourself.

My recommendation is to follow a dynamic safe withdrawal rate in retirement to change with the times. This way, you'll always be logical in your spending.

Spend Your Money As You Wish

Nobody is judging you for wanting to spend all your money before you die. The YOLO economy is likely going to stay for a while post pandemic. It is quite a logical decision to not die with millions. You should start the decumulation phase earlier and spend more money while you're young and healthy.

Therefore, try not to judge people who want to use their money to help others after they die. What difference does it make to you?

Further, if you are actively making money in retirement, ironically, you can either withdraw at a high rate or a low rate. It just depends on how you do the math.

Hopefully more people can realize there is no one set way to withdraw funds in retirement. We all have our different hopes and fears.

Therefore, let's keep an open mind whenever there are new financial concepts from people with different backgrounds in an ever-changing world. If we do, we just might grow our wealth far beyond what we can ever imagine!

Related: Three Things I Learned From My Estate Planning Lawyer Everyone Should Do

Taking Care Of Our Children 

Adopting the Legacy retirement philosophy has made me hyper-vigilant about ensuring our children are taken care of before they become responsible adults. 

It felt great when my wife was able to double her life insurance coverage and match mine for less money. Having a mismatched life insurance coverage amount felt off since we are both equal caretakers. However, my 10-year term life insurance policy is running out in a year and a half.

If I were to renew the policy, the premiums would go way up due to health issues and my older age. I'm dilly dallying. Unfotunately, the longer I wait to renew, the higher the premiums go.  

Not getting a 30-year term life insurance policy 8.5 years ago is one of my biggest mistakes. Don't make my same mistake.

Get more coverage than you think you need and then cancel or lower your coverage if you later realize you don't need as much. Going the other way is a suboptimal move. When you need life insurance coverage the most is often when it will cost the most.  

To get an affordable life insurance quote, take a look at Policygenius. Policygenius is the free life insurance marketplace my wife used to double her coverage and lower her monthly premium. Unfortunately for me, I'm several years too late. 

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Keep Track Of Your Finances In Retirement

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68 thoughts on “Two Retirement Philosophies Will Determine Your Safe Withdrawal Rate”

  1. Paul E Wawrzynski II

    Most of what I have read suggest withdrawal rate of 4% from a portfolio to ensure preservation of principle until death. Market volatile threatens this. Is there any recommendation for a secondary investment as a back -up for a market crash? I ave read where whole life insurance can serve as this vehicle. Thank you

  2. I haven’t thought of what to do once I die or any plans to set up beforehand. This post does get me thinking that maybe a plan has to be set in place in the next 10 years or so.

    I haven’t considered the spend all your money before you die, though. I like the idea of leaving money behind so other people can benefit. Ben Franklin I think made it in his will to put his money in 4% paying bonds for a city to get the proceeds after 100+ years or so. They made a nice windfall that day.

  3. Great post and spot on. I think the problem from your detractors is that they may not understand the fundamentals of finance and how the 10-year yield is connected to risk asset returns.

    It is true there is tremendous group think in the finance community, mostly likely because they are all similar types of people.

    Thanks for encouraging us to think differently.

  4. Ms.Conviviality

    My father is the kindest and most generous person I know. He plans to donate all his wealth to charity when he dies. He was an immigrant to the U.S. and is so grateful that he found a job at a Toyota manufacturing plant and was promoted to quality control inspector when he retired. He said that job allowed him to raise a family and this country gave the four of us kids opportunities to go to college, serve in the military, and build successful lives. He said that this country has given our family so much and he wants to give back in return.

  5. This is a really well thought out answer regarding legacy. I currently spend a relatively modest amount compared to my net worth even with two young kids. At this point, I am investing for others because I can’t possibly spend what I’m worth in my lifetime. My wealth will be going to my heirs and charity, so why kill myself trying to make money.

    That being said, I am invested aggressively (high risk/high reward/low effort). Wouldn’t it be great to leave a huge amount for a charity? Maybe the kids will get something, too, but I’m hoping they will be even more successful than me if I did my job correctly. If I mess it up, I’ll die with a small net worth, but at least I tried.

    1. The inability to comfortably spend more money after decades of being frugal or setting ones Waze is really such a conundrum, despite an increase in net worth.

      However, it does feel easier to spend money on other people.

  6. You hit the nail on the head, you think from an Eastern point of view and therefore will always be at adds with the “American” way of thinking. Many of us Asians came to the USA poor, many already had degrees and came for higher studies but we all have one thing in common, we want to better our lives for our families. Sometimes those families include, parents, grandparents, brothers and sisters. We will always save and leave assets for our heirs, regardless of our financial status.
    The western philosophy is, each man/woman to herself, do spend your childrens’ inheritance because they have no right to it, they can earn their own money.
    I’ve lived in the USA/Canada much longer than you and am thoroughly “westernized”, yet I’m defined by my DNA and thousands of years of culture/religion cannot be dismissed in a few decades of being in the USA.
    While I don’t always agree with you, I enjoy your article and after research, often put some of your ideas in practice.

    1. No, allow me to give you some other views on “western philosophy“. Many Americans had ancestors live through the great depression, and many others also had great wealth accumulation only to see it wasted by their children. They both want the best for their children and grandchildren. My family comes from entrepreneurs and as our family tree grew, every generation had to start with no expectations of inheritance or entitlement. Including my extended family, we had modest inheritances IF ANY. Your culture might embed generational wealth as a virtue, but history has shown downfalls to that approach. This has driven many families including mine to place value on self reliance. It has paid dividends to my brothers and me.

  7. It’s pretty clear that most people are somewhere in between the two philosophies. Some of that has to do with the phase of life they are in (life has many chapters). Personally, I tilt to the “YOLO” side but I do plan to give my two sons help at stages in their life. But they will ALWAYS have skin in the game. Starting with loans to pay some of their school debt.

    And I am also among the people who completely disagree with your safe withdrawal rate, even if you later clarified that it is only for the first years of retirement. Too many other investment approaches are available that don’t handcuff investors to paltry returns.

    1. Once you retire, make sure you retire to something. That’s the other point of myself with drawl rule. To actually not retire and do nothing, but have a purpose that also pays you money.

      Without a purpose, retirement is really melancholy.

  8. Sam–

    More accurately, you want to consider converting to permanent life insurance. Whole life is a type of permanent life insurance, the only design available until the 1970s. Since then, many others have been introduced that offer more transparency, flexibility, options and exposure to equity than whole life does. Whole life is a solid design but you might consider these other, newer designs.
    Equity exposure can lower your premiums or raise your face amount but you want to have long enough time to weather volatility. Newer designs typically make premium payments or the amount of payment optional, but you do have to be sure your policy has enough cash value in it to remain in force and review it from time to time, like a 401K plan or IRA. And they can offer guarantees and avoid tax impacts if cash value gets too low and your policy lapses (which happens when people purchase the policy then forget it, or no longer feel the need for keeping it and allow it to lapse.)
    Get insurance advice from advisors as sophisticated as you are with the personal finance advice you offer in Samurai. Don’t view it as simply a product to be quickly chosen and put away.


  9. When you have two (or more) good ideas, it is fine to incorporate both by splitting the estate. This decision isn’t binary, like running a yellow light.

  10. “Leave enough that our loved ones never starve, but not enough so they stop trying to fulfill their potential.” This is a good philosophy for many. Really enjoy this conversation and the different perspectives.

  11. What do you think about the two philosophies of retirement that may affect your safe withdrawal rate? Definitely aiming for the legacy side of things. Charity will be ours as we have no kids and while we love our nieces and nephews, my rich grandparents on the one side largely thought each generation building their own wealth was the better way to go.

    Do you think there is a correlation with wealth and safety withdrawal rates?
    For sure. While I’m more comfortable with a 3.25% withdrawal rate and still expect to leave plenty to charity, the nitty gritty is a bit different. 3.25% to start but once my wife and I take social security (we do think it will still be around and we’re not retiring that early) it will be a lot lower than 3.25%.

    Why not work something you enjoy doing in retirement in order to lower your safe withdrawal rate?
    Absolutely. We work for non-profits now and even when we become financially independent, it is likely that we will keep working at least part-time.

  12. The Social w

    Great post FS. The comments by most folks are worth a read too.

    For me, I believe we are here for a good time, not for a long time. That good time is made better when we leave a place better than we found it. So I am more on the YOLO side (though at 48 my net worth is only about where your charts indicate I should be.)

    If we only leave our children $50,000 in an index fund and it grows untouched for 30 years they will have a nice cushion. I also believe in doing things both with and for them while I am alive but I see no reason to leave a large amount upon my death. Their lives are incumbent upon them after a certain point – they need to know that I provide a backstop but that I also won’t be around forever.

    My parents died extremely poor and rather than have anything from them I would have much preferred that they had some savings to live off. Social Security makes for a paltry existence anywhere in this country. Enjoy your hard earned money as you see fit. Plan to have some at the end- just not most of it. That’s my thought.

  13. I’m a 1% withdrawal rate person, actually zero percent, but it will be 1% if or when I start withdrawal, but not to be safe, I just don’t have the capacity to spend more than that. I can live large on not much money in my LCOL area. I do think saying 1% is a reasonable upper limit with a straight face is kind of cruel though. Few people in even this rich nation will ever be able to amass that kind of wealth so you are telling almost everyone they are in deep stuff. The other thing is the models that generate the safe withdrawal rate only attack the corpus of the portfolio a small percentage of the time, generally at the SWR you’ll end up with much more money than you started with. Saying that’s a YOLO attitude is misleading because you really can have your cake and eat it with a data based SWR. I expect to hand down at least twice what I have now, and based on modeling it could be eight times as much.

  14. I think one of the things people can’t get around is reversing the formula to figure out how much of a net worth to have before retiring. However, you literally discuss about the safe withdrawal rate as the safe withdrawal rate first, and not as a measure for a net worth target.

    It’s boggling how inflexible some people are when it comes to financial concepts and new ways of thinking. Keep up the good work!

    1. Yes, my emphasis of the FSSWR formula is exactly as described, a safe withdrawal rate formula in retirement. Is it super conservative? Absolutely. Can the inverse be used to come up with a blue sky net worth target? It can.

      However, my main message is to us the FSSWR formula during the initial few years of retirement, b/c those years are quite uncertain and often a little nerve-wracking. I want to encourage people to find a purpose in retirement and earn supplemental income as well. This way, they can afford to live off a lower SWR.

      I’ve tried to give examples in my safe withdrawal rate post and others, but they see to fall on deaf ears for those who aren’t able to accept my idea.

      1. Having money and dying.
        No one talks about this because it is embarrassing. Each of my sons will inherit 2million. One will be grateful and responsibly use the money for his family
        The other son will be disappointed. He will think of ten reasons why he should inherit more than his brother. He probably will never talk to his brother.
        This is why we don’t talk about it. It hurts to know I have a son who will never be happy with his inheritance.
        At times I think I should give this son nothing. But then guilt gets me.
        The point I am making is we work hard, we saved for decades and then we give the money to an ingrate. Where is the logic in this?

        1. I’m sure a charity that actually uses the money for good and truly helps those who need if will appreciate it significantly more. This is my plan, but not because of an ungrateful child, I just think giving is the right thing to do vs a windfall.

        2. I think the logic involved is you have to believe in hope. People and circumstances change. People grow up and realize how much they missed out on by being selfish. They meet someone who changes their life and perspective. Life deals them a blow that shakes them back into reality. There are a number of things in the world that can impact people. One thing for sure is few people actually stay the same through the years. Keep the faith and hope that your son will find the right way back to becoming more like his brother.

        3. That’s a heartbreaking problem but, since the one son is going to be unhappy no matter what he gets, you may as well take that into consideration.

          I would give at least 3/4 to the happy son, and arrange for the rest to go into a a trust that will give the second son just enough to stay off of welfare until the money gives out . . . or he does.

          Anything left over when he passes can go to a nice animal shelter or some such.

  15. I’m definitely a yolo. But not because I want to spend heavily on myself and give everyone else the middle finger, but because I want to give generously while I’m alive.

    My wife and I currently give 10% of our income and hope to continue increasing that percentage. We also plan to give our kids inheritance while we are alive. We haven’t decided when but somewhere between 25-40. Our thought process is that giving them an inheritance before midlife will have a bigger impact on their lives. But we will have to be cautious and play it by ear as giving too early has its pitfalls.

    There’s a middle ground. I think the way you painted the picture of a yolo seems a bit much. It’s a riskier approach due to the risk of running out of money but could be just as impactful.

    1. Yes, the two retirement philosophies are at two extremes. In reality, I think a lot of people are more in the middle.

      You are right about helping our children financially before mid life and having a greater impact.

  16. I inherited about USD 1.3 million from my parents. The majority of this money was inherited by my father. So, I want to leave at least that much, inflation adjusted, to my children. It would be unreasonable to say that I should plan to spend all the money. If I turn out to need to do that, that’s OK, but that shouldn’t be the plan. If you earned all the money yourself then sure you should feel you can spend it. My cultural background is Jewish. My wife is Chinese.

    Here in Australia I think the tax incentives favor giving money to charity while you are still alive as there are no estate or inheritance taxes. Alternatively, I suppose you could set up a trust which your children could direct to give donations and they could benefit from the tax deductions if they are also beneficiaries of the trust. They would donate just enough to eliminate the tax bill of the trust.

    BTW I think US charitable foundations need to pay out at least 5% of assets a year to have a tax free status. That is what applies to university endowments etc.

    1. May I ask how old you were and how did you feel about inheriting $1.3 million? I’m wondering if there is a dollar threshold where inheriting over that feels like too much, or the size of the inheritance versus one’s existing net worth. If the inheritance is, let’s say, greater than 50% of one’s existing net worth, then it might not feel right to keep it.

      Sorry, I know it’s a sensitive topic and getting an inheritance from one’s parents it’s not a good thing. I’m just wondering how to think about these type of things in the future and what to do with this type of money if ever. Thanks

      1. I was 53 (now I’m 56) – just over two years ago. It increased our net worth by about 80% and since then we’ve added more than 20% to the total net worth. Around USD 3.75 million now. My brother got the same amount and each grandchild got about USD 20k. I don’t feel anything negative about it at all. I knew for a long time that this was likely and I helped manage my mother’s money. I tried to get her to spend more than she did while she was still well. I might have taken a bit more financial risk knowing that I was likely (but not certain) to get this big contribution towards our retirement down the track. It feels normal to me, especially as my father also got an inheritance later in life (his half sister contested the inheritance from their mother for a long time…). Especially because of that my father talked a lot about he wanted to treat his two children equally in every way. Both my brother and I are largely saving and investing the inheritances. He did take a trip to visit us in Australia… but we both live in the same houses (ours is valued at about USD 600k) and we still have our 16 year old Ford car (we don’t drive much).

        1. Makes sense to feel normal if you’ve been managing their estate for a while.

          I wonder how we can encourage our parents to spend more of their estate if their children are already financially set.

          In your case, 80% is a big boost. But in another reader example, adding $2M to a $8 million net worth is not as big of a difference.

      2. Dr. Remoulak

        Hey Sam, I know I’m not the one who you asked the question to, but just thought I’d provide a perspective given how much I’ve reflected on my own situation. I inherited about $2M in my mid-40’s nearly 5 years ago, and at the time it made up about 25% of my NW. Have never felt guilty about receiving it (my parents were both first generation Americans and worked incredibly hard for what they accumulated and they wanted their children to have it), but much like the OP, I see myself simply as a steward of what they gave me and have no intention to spend it (we live perfectly comfortably, but not lavishly, on about 20% of my income). I would feel very guilty if I just blew it on myself and my family after seeing how hard they worked and sacrificed all those years.

        I plan to leave my children a significant inheritance after I die (with the hope they will take a similar approach to be a steward and provide for their heirs), but don’t plan to provide them with too much assistance during my lifetime beyond paying for college unless they really find themselves in a desperate situation as young adults (as you’ve discussed many times, there is so much value and satisfaction in getting through the struggles and making it largely on your own). I also expect to be in a position to leave a significant amount to charity as well, much to figure out as far as that goes, and often struggle between the balance of donating more now vs. end of life.

        1. Thanks for sharing. What is your thought process about not giving your children while you are still living, given the money will be more impactful to them while younger and you can see the benefits of your giving?

          With a $10+ million net worth, it seems like buying them a house or something could be really beneficial with lots left over.

          Thx. No judgement. Just curious given the net worth amount currently and I’m the future with more growth.

          1. Dr. Remoulak

            Thanks Sam, No judgment taken at all :), actually really appreciate being able to have the discussion with someone in a similar situation who clearly also spends lots of time thinking about these things.

            My thought process is simply because of the value, lessons, and satisfaction I think they will benefit from by having to save and invest for a down payment, managing a mortgage and other financial obligations, etc. I believe that had my parents done that for me I wouldn’t have been as driven to succeed on my own, which ironically I’ve found much more gratifying than the actual results (hard to shake that middle class mindset!). Of course I’ll absolutely be there if they really need the help, and I can definitely see us indulging them (and God willing, our future grandchildren) with many fully paid vacations so we can see them create great experiences and memories for their families (hopefully they’ll even let us tag along once in a while too! :)

            1. Yes! Wonderful vacations! What could be better spent than spending on a great experience with family? If this damn pandemic can hurry up and move on so we can all be free again, I’d really appreciate it!

              I’m definitely going to spend a lot of money on wonderful vacations, food, etc on my parents.

              Let us pray our loved ones all stay healthy and alive until this pandemic is over.

              1. Dr. Remoulak

                Well said! Seems like things are moving in the right direction as vaccinations are ramping up; staying cautiously optimistic that we’ll all be able to get out and about much more this summer.

                And thanks for all you do with your blog (I’ve been a regular reader for 5+ years now and have recommended it to many in my professional and personal circles who I know enjoy it as well). I’m in NJ but in normal times am in the Bay area for work several times/year, would be fun to express my thanks by treating you to a sushi lunch (and a few cold Sapporo’s!). Wishing health and happiness to you, your family and the entire FS community.

  17. Sam, I love the concept of a $10M net worth and happily living on $100k. I hope to be in that situation myself. That being said, I haven’t found a good retirement calculator for my situation. Everyone I’ve run into takes into account my current salary, but won’t let me forecast a need of >50% of current income in retirement. I understand the reasoning behind this, but it doesn’t fit my situation. I’d tone my situation down to 10-15% of my current income for a more accurate representation. This is really due to a few factors, 1. I have very high income, 2. I have no mortgage now and plan to never have one again. 3. I would be very well off on that 10-15%.

    Got any ideas?

  18. Sam,

    Have you looked at the Endowment Approach to retirement and withdrawal? University endowments are typically set up to withdraw between 5 and 5.5% of their gross value each year. The idea is that even if they never get another contribution, the real value of their withdrawals should never decline, ….look at the Harvard or Yale endowment and their withdrawal rate.

    I’m stating that with 10 million dollars invested, you should be able to withdraw 5% of the year end value of your portfolio every year and never run out of money, and be able to leave a legacy with a value equal to or greater than the original 10 million adjusted for inflation.

    1. Hi Jay,

      I’m not sure if comparing an endowment’s approach to an individual’s estate planning approach is apples to apples given there seems to be an insatiable appetite for paying big bucks for college.

      But I have studied Yale’s endowment in detail:

      Now if I can just find some way for people to pay me $55,000 a year + 7% inflation every year, I’d be set for life! :)

  19. Yeah 100% valid points. I think I fall somewhere in between. I would like to leave something to my kids, but I don’t want them to end up with a huge estate. I suppose the plan would be to fund their kids 529s or whatever they may be called at that time, fund the future generations and then give the rest away to charity. But it is something that my wife and I haven’t exactly settled on, or planned for quite yet.

      1. Yeah for sure. There will be more clarity for how to direct the trust as we get older. For now, I think it is managing a safe withdrawal rate and seeing if we can continue to grow our net worth while being retired. But I am new to this whole early retirement thing :)

  20. Matt Phillips

    When I read your post “The Ideal Net Worth Amount For Retirement?” my initial thought regarding the safe withdrawal rate was that it is a bit conservative. I have always assumed that a perpetual $250,000 passive income would require around $5 – 6.25M.

    Reading your blog has forced me to reevaluate that assumption and admit that I’ll most likely need to build a larger nest egg than initially planned in order to reach my goals. Most of your readers have been extremely fortunate the past few years, and that can skew future expectations.

    My net worth has nearly tripled since I started tracking it closely in January 2015; growing at an annualized rate of 19.5%. It’s hard to imagine when the party ends, but it’s good that you’re pushing back at the old “rule of thumb” 4-5% figures when the risk-free rate of return is completely disconnected from the historical precedent.

    Seems like we’ve been operating under assumptions that were true when treasury yields were 4% or greater.

    1. Nice job tripling your net worth over the past five years!

      One of the issues is that we’re all drunk on stupendous investment returns. I don’t think the party will end in 2021. However, we should prepare to lose lots of money for a couple years as well.

      I’ve got readers who say they are YOLOing 100% equities with their $200K investment portfolio. That’s fine, especially when you are making good money and young. But if you’ve got $2 million and you’re in your 50s or 60s… I don’t think it’s fine.

  21. Great post, Sam!
    Another way of initiating or creating a perpetual giving machine is to fund or co-fund an endowment at your (or any) university. My university’s program only has a minimum $25k investment to create a fully endowed fund in their foundation.
    What you write about the unfairness of life struck a chord with me. A friend started a non-profit legal firm to help reduce the cost of adoption in order create a higher rate of permanence for foster kids and orphans. They estimate that there are over 100k children across the nation waiting for their forever home before they age-out of the foster system. A great option to leave some legacy money to help with the perpetual unfairness of life.

  22. My dad recently setup a nice sized trust for my brother as part of his estate planning. We are now in our 40s, so have already established careers, families and incomes. Neither of us expected it, but it was a nice suprise. The income it generates currently (due to low interest/dividend rates), isn’t enough to change our lives but does provide an extra financial cushion. For example, my wife had to cut her hours during the pandemic and its helped make up some of that income. I like his approach and want to take a similar one with my son.

    1. That’s nice of your dad. Would you have rather he set it up in your 20s or 30s? Or perhaps he didn’t have enough funds then.

      I’m sure your dad feels proud of what he has done. I assume you may do the same for your children?

    2. 40s sound about the right time. Set up a large trust any earlier and young adults can easily lose motivation to make it themselves.

  23. This post had it’s dark moments, its lighter moments, and its deep moments.
    What you said about your children rings true.

    What is work, at the end of the day; are their wives and children proud of them? What exactly do we build? What do we sell? Does it matter? What do we contribute to the world, and what do we contribute to our family.

    Unfortunately with the financial services industry as large as it is in America, yet somehow most American’s being unprepared for retirement who is being served? The answer is obvious. Is my child proud I beat the market by x%, or do they care that I just closed a huge deal.

    YOLO or legacy, when your kids think of you, you’d like them to be proud of what you do.

    You got out and started helping people. Hats off to you.

    Well thought out Sam.

    1. Thanks Rob. I appreciate you touching on the various emotions of this post and the realities of life.

      The feedback from my FSSWR formula was so charged up that I really wanted to dig deeper. And I truly believe cultural and philosophical differences are the reasons.

      The feedback helped me realize default assumptions are not what everybody believes. This is one of the powers of writing. Self-discovery

  24. If William Bengen (4% rule creator who is still working), the professors of the Trinity Study, Wade Pfau, Michael Kitces, and other PF bloggers supporting a 4% withdrawal rate are not all white men, do you think there would be greater acceptance of your new safe withdrawal rate proposal?

    1. Yes, they all come from similar backgrounds. It’s just the way it is. And realizing the difference in my background helps explain why I think differently about retirement.

      Once you think beyond this life time, it’s a logical conclusion to find ways to make your estate last longer.

  25. Wow this is spot on. You’re so right about the cultural aspect and the 2 differing philosophies. I can totally see that now. I’m definitely not a YOLO type of retirement planner. I want to have more than I need so that I know my kids will be taken care of and that I can give back to others as well.

  26. First of all, you never want to be in a position where you wonder if your savings will run out before your life ends. Easy to have happen if you are intent on spending it all and then have some financial setbacks, or just manage to avoid the grim reaper longer than you thought you would.

    Secondly, there is a lot of power/freedom in having a large net worth, whether you ever spend it or not. It leaves you free to take some risks in life, rather than always having to play it safe. It also opens doors and helps keep other doors from being closed.

    Thirdly, what I see in the rise of automation, and other social trends, leading to the proportion of earned income shifting strongly towards capital based earnings at the cost of wage based earnings, suggests that income inequality is going to increase and, whether you view it as a problem now, it will be a problem at some point, and upper mobility, despite many inspirational examples, will greatly decrease.

    Given the choice, I would much rather our children, and especially our grandchildren, are on the “have” side to start with, as opposed to the “have-not” side. I’d rather no one was on the have-not side but I don’t see that happening and no, socialism isn’t an answer.

    And, if you really have no one to leave it to, there are certainly charities that need it and that would help you make a lasting mark on the world.

    1. Just curious if you’ve thought of the second order effects. The type of people starting on the “have” side may be prone to problems seemingly bizarre to those starting on the “have-not”s.

      Definitely don’t want my grand children starving, but what level of suffering builds character? I agree socialism isn’t the answer but in that case, then we need to make sure economic mobility is a possibility or capitalism isn’t working – it’s just weighted socialism. (ie rich stay rich poor stay poor)

      Expensive drugs, joyriding in sports cars, and an unwillingness to work hard are things I worry about if too much is given to my children. Maybe self driving cars will make one of those problems go away, but the other two weigh on me.

      Will they lose that hustle? Moreover is there no way to provide for them while still endowing the value of earning.

  27. One thing to be careful of is not letting your kids fail or struggle along the way. My parents who are now in their late 70’s have always “saved” my two siblings and now they are both 50 year old snowflakes, and they worry about them being taken care of after they are gone. What they perceived to be generosity, has turned them both into financial incompetent and dependent adults that will struggle when my parents pass away even though they’ll receive a nice inheritance.

    My parents literally both cried to me at Christmas again this year about how they are still a constant problem. They’d prefer to not ruffle feathers than actually let them figure life out on their own, it is pretty sad because they thought they were helping out of love but giving too much ruined their lives.

    1. Sounds like my neighbor. She is 56 and her dad has been paying her mortgage since 2011. Her siblings pick up other expenses since they are well off. Nothing wrong with her, has 2 adopted kids from Korea, divorced her equally loser husband 7 years ago. Few years ago she said her dad “made ” her get a job…. she works at a preschool for $9/ hr. She used to be a dental assistant! Genuinely feel bad for her kids.

    2. Sorry to hear. And your siblings must not feel great being about to create an independent life for themselves at 50.

      Being uncomfortable and suffering is good! To an extent. The pain does indeed propel many people to try and figure things out on their own.

      What do you think would have been a better solution? How about asking your parents to stop bailing them out? Have you talked to them about their estate?

      Related post:

      1. Thanks for the comment Sam, yes over the past 5 years I’ve sat down with my parents a number of time to review their estate, helped them get a trust created and talk about what they want. I’ve successfully convinced them to start living it up a bit more and not worry if there is anything left to give us kids. Their situation is rare because he’s retired with an incredibly good pension of $200k/year. They are still saving money lol! They are such loving great parents it just breaks their heart they get taken advantage of by my two siblings.

        What they could have done differently is when they recognized their inability to handle finances or hold a job, to stop bailing them out when they were 25. My parents have purchased multiple homes for each of them, and currently they both live within 2 miles of my parents. I moved out at 18 and live 800 miles away but am the only one with a normal relationship with them. They should have let them get kicked out and have to figure things out, too much coddling, they needed to have a zero tolerance for the repeated screw ups because they now realize there are no consequences to their actions. Now if your kids are responsible and can handle it, I see no issue with helping them out.

        1. One thing I’m wondering is maybe your parents love their children’s company?

          Perhaps it was an unstated condition that they would buy houses for them if they lived relatively close by?

          I think i’m going to be the parent who wants to continuously be involved in my children’s lives as adults. I dream of a day where I can tell my son to come over and have a beer with me on a sunny day on the deck. I really love to hang out and also impart wisdom (hope I’m not too annoying to my kids).

          1. They most definitely do enjoy their company and seeing their grandkids, but sadly buying a home nearby was definitely not because of some unstated condition. I agree with you on having family close for the right reasons, it can bring a lot of joy into your life.

  28. First and foremost, I want to try and always be there for my children, even after I am gone. They are the reasons why I don’t touch any of my retirement principal. I’ve set up my estate in a revocable living trust as insurance for them. Hopefully by the time I pass away, my children will be good people.

    Thank you for sharing this very true point of view. The people who do not have children just don’t understand why parents love and desire to protect their children no matter what and no matter how old they get.

  29. Holy crap! You are spot on regarding the cultural differences as the reason for some people vehemently opposed to your safe withdrawal rate proposal!

    In my culture (Chinese), honoring our ancestors in the afterlife is extremely important (e.g. Tomb Sweeping Festival). Therefore, as soon as you stretch your life beyond yours alone, then of course you want to be more conservative and lower your withdrawal rate for future generations.

    Thank you for making this connection! I’m going to assume that the angriest people against your FSSWR formula are white and/or don’t have kids.

    1. Omg. I’ve waited and no one responded. I assume that Asian people are the only people who are good with money, or the only people who would like to give a perpetual giving machine. How could a good old fashion whitey even fathom such a thing. We’re to busy cooking catfish and dating our cousins.

      Please, please understand we’re all different. Do not lump us into the category of difference therefore we’re wrong. We all have different views. I don’t assume because you’re Chinese you’re wrong. Please don’t assume because I’m white I’m wrong.

      1. The reality is, most of us are somewhere in between.

        This post tries to understand my harshest critics about really low in the safe which all right. For the people who can see my point of view, the cultural differences is not as big.

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