Ben Mathew: The Lifecycle Model vs. Safe Withdrawal Rates (SWR) | Rational Reminder 340

Meet with PWL Capital: https://pages.pwlcapital.com/en-ca/co...

What drives the best financial planning decisions? In this episode, Ben Felix and Mark McGrath sit down with Ben Mathew, a PhD in economics from the University of Chicago and author of Economics: The Remarkable Story of How the Economy Works. The discussion explores the lifecycle model of economics, a powerful yet underutilized framework for financial planning, and contrasts it with traditional approaches like safe withdrawal rates (SWR). Ben Mathew shares insights into the lifecycle model, its origins, and its practical applications in aligning financial decisions with personal goals over a lifetime. We also dig into Ben’s innovative financial planning tool, TPAW (Total Portfolio Allocation and Withdrawal) Planner, designed to bring the lifecycle model into practice. While the discussion delves into the complexities of financial planning, it’s packed with actionable insights for listeners seeking smarter, evidence-based strategies. Join us for a deep dive into the lifecycle model and discover how it compares to traditional safe withdrawal rates.

Timestamps:

0:00:00 Intro
0:03:20 The main problem financial planning aims to solve
0:07:47 How effective simple rules of thumb (like the 4% rule) are for long-term financial planning
0:12:37 Why more people aren't using the lifecycle model
0:16:46 The basic premise of the lifecycle model
0:21:15 How withdrawals in the lifecycle model relate to amortization
0:25:38 How amortization-based withdrawals change when risk is added
0:31:25 With amortization-based variable withdrawals, how spending changes if the portfolio drops 10%
0:37:43 The amount variability in spending seen in historical simulations
0:43:51 How spending variability can be tailored to someone's preferences
0:50:55 How quickly spending recovers after a market crash
0:55:13 What the lifecycle model says about asset allocation
1:05:02 How advice changes if we assume we have limited information about how expected returns vary through time
1:11:51 How asset allocation in the model changes based on the time horizon of the goal being funded
1:17:38 How asset allocation in the model changes with wealth
1:21:02 How the Safe Withdrawal Rate (SWR) methodology works
1:25:18 The problems with the SWR approach
1:37:36 How the probability of success metric that drives SWR relates to the utility function in economics
1:42:55 How a variable withdrawal strategy using SWR differs from Amortization Based Withdrawals
1:49:32 Ben discusses his online Total Portfolio Allocation and Withdrawal (TPAW) tool
1:54:04 Ben defines success in his life

Links From Today’s Episode:

Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/t....
Rational Reminder Website — https://rationalreminder.ca/
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Benjamin Felix — https://pwlcapital.com/our-team/
Benjamin on X — https://x.com/benjaminwfelix
Benjamin on LinkedIn —   / benjaminwfelix  
Cameron Passmore — https://pwlcapital.com/our-team/
Cameron on X — https://x.com/CameronPassmore
Cameron on LinkedIn —   / cameronpassmore  
Mark McGrath on LinkedIn —   / markmcgrathcfp  
Mark McGrath on X — https://x.com/MarkMcGrathCFP
Ben Mathew — http://www.benmatheweconomics.com/
Ben Mathew on LinkedIn —   / bmathecon  
TPAW Planner — tpawplanner.com
Bogleheads — https://www.bogleheads.org/wiki/Main_...

Books From Today’s Episode:

Economics: The Remarkable Story of How the Economy Works — https://www.amazon.com/Economics-Rema...
The Missing Billionaires: A Guide to Better Financial Decisions — https://www.amazon.com/Missing-Billio...