Title: Rebel Finance School 2026 — Week 10 Monday Transcript
Session: Will Your Money Last? How to Retire Without Running Out | Rebel Finance School 2026 Week 10
YouTube Link: https://www.youtube.com/watch?v=xVo3zW8ci40
Course: Rebel Finance School 2026
Creators: Alan Donegan and Katie Donegan, Rebel Donegans
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Website: https://rebeldonegans.com/
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Disclaimer:
This is financial education, not financial advice. Rebel Donegans are not regulated financial advisers. You are responsible for your own financial decisions.

YouTube Description:
In Week 10 of Rebel Finance School, Alan and Katie Donegan take your retirement plan from Week 9 and put it through real-world weather. You will learn why the order of investment returns matters once money starts coming out, how high inflation and market falls can squeeze the plan simultaneously, and why your current Burn Rate can become the warning light that tells you when to stay calm and when to respond.

They give you a toolkit to draw from when conditions get difficult and show how flexibility can protect your plan from difficult scenarios without requiring you to move everything to cash or live in fear of market crashes.

By the end, you'll:
• Understand Sequence of Returns Risk and why the years around retirement matter
• See how market falls and inflation can increase your current Burn Rate
• Use the Burn Rate Response Scale to know when to stay calm, review or respond
• Understand how cash and bonds may become part of your spending buffer
• Build a toolkit for spending differently, funding spending differently and changing the timing
• Start creating your Freedom Fund Defence Plan
• Prepare for difficult scenarios without losing sight of the fact that most futures are abundant 

This video is part of the free 10-week Rebel Finance School course. For the accompanying notes, spreadsheets, and bonus material, sign up here: https://rebeldonegans.com/finance/rfs/

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0:00
Hello and welcome to Rebel Finance School 2026. We are on week 10 of the course.
0:06
We've got there. We've made it. Is it a 10e course? It's a 10e course. Shh. But there is a
0:12
week 11. Don't tell anyone. Uh no one will spot if we don't say anything about it. Yeah. No one noticed, will they?
0:18
No one noticed. No one noticed. Don't point it out. We're very excited to be here with you today. We have spent uh a
0:26
lot of time this week um taking the coursework from last year, improving it,
0:32
enhancing it, redesigning all the slides and trying to make it as uh powerful as
0:39
we possibly can for you. And the plan for tonight's workshop is how do you not
0:44
run out of money in retirement, which is kind of critical. I like that as a question and I like
0:50
having an answer that I won't. Yes. cuz you still need to be able to be buy biscuits and pizza when you're 90
0:56
years old. If you tuned into the course recently, you have uh you know that 90-year-olds eat pizza cuz we checked
1:02
with a 90-year-old. Shorty told us you still need to be eating pizza later on in life. Do the sound.
1:08
Uh oh, yeah. Share sound. Thank you, Katie. Pizza is one of the most important
1:13
things. It will feature heavily in tonight's episode. Now, this is all about will I run out of
1:19
cash? And I would like you for a second, please, to imagine the day, the day that
1:25
freedom begins. You've built your freedom fund. You've done it. The
1:30
money's there, and your time is yours. You've handed in your notice to work,
1:35
and you can do anything you want to do. time with the people you love, go on
1:42
adventures, contribute and give back, volunteer, maybe even have no alarms so
1:48
you can just sleep for as long as you want to. I think we'll need alarms when we're delivering a course from New Zealand
1:54
next week. I don't want to hear about that. Uh, and this is why you built your freedom fund. You've got a million pounds invested or
2:01
a million dollars or whatever it is. So, you can live off 40 grand a year. Uh, and that's at your burn rate of 4%.
2:10
And your investments will now fund your life. That magical tree of growing investments funds all of your life. But
2:17
then the weather changes.
2:24
Oh my goodness. The weather changes as it does in Abedine in Scotland regularly. It starts
2:30
to rain. Um, and we have a stock market crash. There's a fall in the market and
2:37
the market drops down, but life still costs money. You've still got to spend your money. You've still got to buy food
2:43
and heating and light and all of that stuff and then the markets fall again
2:50
and inflation hits and prices rise, but you still have to withdraw money.
2:57
Money still needs to be spent to live off it. And this is the dangerous situation because your freedom fund
3:04
keeps on falling just like a reservoir in a drought in the summer in the UK.
3:11
Very topical. Very topical. So what would you do? And I genuinely want to know. Put in the chat, put in the comments, hello
3:17
YouTube, tell us like what would you do? Would you sell all the stocks and shares? Would you stop spending? Would
3:24
you go back to work? Would you panic? What would you actually do in that
3:29
situation? Or would you even know what to do if
3:34
market conditions change? Well, this is all doom and gloom, isn't
3:39
it, Alan? Are we saying this is going to happen to everyone or this is maybe just one possible scenario? It's one possible scenario, but it is a
3:46
scenario. Markets crash. It will crash. It just depends when. And that's the
3:53
problem is no one knows when. and you have to be prepared. So in most
3:58
instances, you'll do really well over your lifetime of investing. However, for
4:03
some people, they will just be unlucky enough to retire as the market is
4:09
crashing. And that's what we need to prepare you for so that you can have a long and bountiful retirement, spending
4:16
what you want to and living the life you want to live. And we got some tools to share with you as to how you might adapt
4:23
what you're doing based on what happens in the world around you. Because the freedom fund calculator that
4:28
we went through, the freedom calculator that we went through last week shows you the route to freedom, but it showed you
4:34
a very linear or smooth route. Today, we're adding the weather to it. And
4:41
we're asking the question, what would you do if the weather went bad? And by
4:47
the end of the session, you'll be able to answer that question yourself. What would I do with that situation? So,
4:56
tonight is will I run out of cash? So, how does your plan respond if the market goes
5:03
down? How do you make your money last? And then next
5:10
Thursday, yes, we are doing draw down and how do you actually create the income from your freedom fund? How do you practically go
5:16
about doing this and living off your freedom fund? Before we get into it, we
5:21
have a message from our lawyers. This is not financial advice. We are not financial advisers. We are not
5:27
regulated. We will not sell you investments. Katie will not poke me in the side whilst I'm doing this. That's something that air would expel.
5:34
You make your own decisions. We're sharing our opinions and ideas. These ideas may or may not continue to work for us or you. You are 100% responsible
5:41
for your financial future. There are no guarantees here except the money back guarantee. If you
5:48
do not like the course, you can get a full refund. Please see Derek for the administrative purposes.
5:54
Exactly. And investments can and will go up and down. If you're watching on Zoom,
6:02
please use the Q&A button, that one down there, and put your questions there. That really helps the ninjas to be able
6:08
to spot them and answer. If you're on YouTube, we love you YouTubers. Hello. Uh, please write in the comments. The
6:15
ninjas are active in the comments and then we read the comments after the course as well and I reply to as many as
6:21
we can. Uh, if you're on YouTube, please hit like and subscribe. It makes the YouTube overlords happy and me happy,
6:29
too. Do you get a tingle? Definitely. Where? What's the plan? Tonight, we're going to talk about the
6:35
three investment phases. what the danger years means, how you know if you're in the danger years, a toolkit to deal with
6:42
those years, and then you're going to come up with your own defense plan for it, and then finally, what's the likely
6:49
outcome of all of this. So, let's start with the three phases of investment, which we've introduced over the last
6:55
couple of weeks, which we have the build it, where you're building your freedom fund. That's when you're paying in,
7:01
you're saving, and investing. Then we have the Bridget bit which is the bit either side of where you start draw down
7:09
and then the live off it where your freedom fund is entirely funding your life and that lasts until you expire
7:17
which is hopefully a long time. Now a little point on terminology which we can improve the names of the phases for next
7:23
year but Bridget is preparing for your freedom fund to support your life. Not
7:28
to be confused with bridging between pots where you remember Roger's example bridging between when different pots
7:35
become available. We will change the terms next year to make it a lot clearer. Uh we didn't spot
7:41
that until we got to this week. Okay. So for this bit, you've got the build it, you've got the bridge it, and you've got
7:47
the live from it. The danger years are the years where you just retire. Like
7:53
the year before you just about get to full freedom, you retire, and then the 3
7:58
to 5 years afterwards, those are the danger years. But what does it actually
8:03
mean danger years? Before we do that, a little clarification. I said that week 11 is on
8:09
Thursday. Of course, that is one of the two elements of what we're doing on week 11. That is the Thursday session of week
8:15
11. Thank you. Danger years. What is the danger years? Well, to explain that, let's look at this. So, market returns are not linear.
8:23
Linear. What does linear mean? Linear means in a straight line. They just march on. We talked about how on average stock market goes up about 10% a
8:29
year. You don't get 10% each and every year. That's not how it works. That's volatility. Some years you have ups. So,
8:36
you might have a higher than average of 31%. That's what happened in 2010, which is crazy growth. And then you've
8:41
got like a below average year in 2011 and then we had a year where the stock
8:46
market went down over that calendar year and then it just marches on and it does different things different years. We're
8:52
not seeing like this straight line growth. That's the volatility. That's the nature of the stock market. Some
8:58
years it goes down, some years it goes up, some years it goes crazy mental. And
9:04
the key bit here is the market does not always go up over the short to medium
9:11
term. Over the long term it always goes up but over the short to medium term it can go down dramatically
9:19
and sometimes for years. And I really want you to hear that sometimes the
9:25
stock market can go down for years. And that is the key bit that we need to
9:30
prepare for and look after it. And what we wanted you to really hear is both of
9:36
these things can be true. You can get a 10% long-term overall growth with a 53%
9:44
crash in one year. Like that's how the stock market works.
9:50
And the average bare market, so bare market remember meaning that the stock market goes down that lasts on average
9:57
historically speaking about 10 months. And the average recovery to the previous
10:02
peak can take 2 and 1/2 years. So the stock market will drop and everything
10:10
we're talking about tonight is about the unlucky time that a few people will
10:16
retire into. So imagine uh you have retired at this point in June 2007.
10:24
You're ecstatic. Your freedom fund has hit the number you want. You're really happy. And then the market starts to
10:31
fall and you think, "Oh dear." And then the market falls even further and you
10:36
think something a little bit harsher than oh dear because it's dropped 50%
10:42
from where it was and you're thinking what do I do? And these market falls can
10:50
happen at any point. The consequences vary. So, if you're in the build it phase, remember we talked
10:56
about this that if the stock market crashes, you can think of it as, oh, index funds are on sale. I can buy more
11:02
units in the index fund for the same monthly contribution that I've been making. Actually, if you're in the build it
11:08
phase, there's almost nothing better than can happen for you than a crash
11:13
because it means you can buy more units at less. It is phenomenal. However, it's
11:19
a bit different when you're in the live from it phase. If the stock market crashes whilst you're living from it,
11:25
well, you still need money to live on. So, you can't quite have the same mindset of, "Oh, great. The market's
11:30
crashed. I'm able to buy more units." You're probably not buying units, you're selling units. Exactly. And it's the same market when
11:37
you're building it. You can buy more units. You've got time for it to recover. And you're excited that you can
11:42
buy more. However, when you're living off it or just about to, well, you're selling units. You've got no time for
11:50
recovery. and it can actually make you scared of selling. And it's the same market, but you have completely
11:57
different experiences depending on where you are in your life. So, we're talking about the times when the market crashes
12:03
and you need to spend money. So, it leaves less in your freedom fund to
12:08
recover, less units, and that's particularly a problem if it happens early in retirement before your freedom
12:14
fund has had a chance to grow beyond when this is a danger. And what we are
12:19
talking about here is called sequence of returns risk. That's the name the world
12:25
has given to it. Sequence of returns risk. Don't know who came up with this name but it's quite dramatic. Basically
12:31
it means the sequence or the order. So when the different phases of returns
12:36
happen. And the returns is like how much the market goes up or down. And the risk
12:43
is the risk of running out of money in retirement. That's the like definition of it. And the basis of it is you
12:50
retire. If the market goes up for the first 5 years after you retire, you're
12:55
all good and you will have a shedload of money left when you retire, when you expire.
13:01
If the market happens to crash just as you retire, well, that's the danger
13:06
phase. That's the bad result and could lead to the risk of running out. Now, we
13:13
don't want to alarm you unnecessarily. All of tonight's workshop is about protecting yourself out of a very small
13:20
chance of things happening. So if you look at all the possible things that could happen, you start with the initial freedom fund. There's the range. You
13:26
could be massively abundant or it could go down and you run out of money. Look how small that part is that we're
13:34
looking at tonight. So we're doing all this work to cover the chance that things go badly. We want you to be okay.
13:41
We want you to have money for the rest of your life and be looked after. And that's the plan. Now, this only matters,
13:48
the only real risk is if it is a big drop when you retire. So, what counts as
13:54
a big drop? We've got a few terms here to share with you. The first is called a
13:59
bull market. Uh, imagine a bull roaring on up. It's raging and roaring. That's
14:05
when people are optimistic and the price of the market is going up.
14:10
A bull market is going up. Market correction is when you have a
14:15
fall of at least 10% and on average those happen every couple of years or so. We had one in April this year when the
14:23
war with Iran started the market dropped like it happens regularly. Uh then
14:29
you've got the term called bare market which we introduced earlier. A bare market is a fall of at least 20%. So,
14:38
it's where the market goes down by over 20% and that happens on average every 3
14:43
to 5 years. And then there's the biggie, the market crash. That's a fall of at least 30%.
14:50
And again, on average, based on what's happened in the past, that happens every 8 to 12 years. And it's these that we're
14:57
talking about. This is what we're talking about. These crashes at the end here. Exactly. Those are the elements because
15:04
not every fall is a disaster and not every dip requires a response. Bare
15:11
market corrections, you don't need to do anything. What we're talking about is
15:16
severe and sustained pressure on your plan. However, the media will make it
15:22
sound as though every single one is terrible. Uh this was one of the um
15:28
reports they had. The Dow plunges as latest job reports shock. Uh, and you
15:34
notice the word they use plunge. How what percentage do you think a plunge is? If a correction is 10%. A
15:42
bare market is 20 and a crash is 30, what percentage is a plunge?
15:48
Well, they've actually used a term that doesn't mean anything. Uh, if you actually read it, uh, a crash is more
15:54
than 20, a correction is more than 10. What's a plunge? Uh they said the market is tumbling and it's gone down 1.23%.
16:02
Like that is not a plunge. That is absolutely crazy. And you might be thinking people who read this they go
16:08
like everyone should sell now. That's me being ironic. You definitely shouldn't sell. But the media has to use dramatic
16:15
language to get you to click on it. So don't trust the media. Don't trust them.
16:20
Um how should you react to small dips, Katie? Just chill out. Like this is normal.
16:26
this is what happens. Uh how should you react to plunges? Well, it's exactly the same thing. Just
16:32
ignore it. Like it doesn't make any difference to your world whatsoever. Uh the market went down 2% over the last
16:39
month. What did we do? Carried on living our lives. Nothing. So, you can just ignore the
16:45
small ones. The market crash like is one enemy, but
16:50
it has to be a big one. But there's also a second enemy we wanted to introduce you to. You got these twin enemies that
16:57
can work together against you. The second one is inflation. Inflation meaning things become more expensive
17:04
over time. Lego has become more expensive every year. I'm very disappointed. How does this relate to pizza, Ellen?
17:11
Okay. Nearly what happens all the time is prices go up. So in the year 2000, a
17:18
whole pizza was about 9 £9. In 2010, it was £9.95. In 2020, it was 1095. Uh, and
17:27
it just keeps going up. By 2030, it'll be nearly 15. And what happens to most
17:32
people is they get very sad. As prices go up, uh, they get very sad because they can buy less pizza.
17:39
When we're talking about inflation adjusted, meaning you retire with a certain amount of money and you can
17:45
adjust it for inflation each year, it means that as the price of pizza goes up
17:51
every year, your freedom fund will grow and you will be able to have more money
17:57
to buy the same amount of pizza and you withdraw money to allow for
18:02
that. So the inflation adjusted spending is like, well, I can buy the same amount of pizza over time. So you apply that
18:09
burn rate that you came up with whether that's four, four and a half, 5% to work out your first year of spending. So in
18:15
this example, let's say you have a million and you want to live off 40 grand, which is 4%. You can buy a
18:21
certain amount of pizzas with 40 grand. That is a great year if you're spending all your money on pizza. Then as time
18:27
goes on, you increase the spending that you make for inflation. And that means
18:33
that you whilst the monetary amount you're taking out increases, you're still able to buy the same number of
18:39
pizzas. So in a few years time, the amount you're taking out is more, but
18:44
you're able to buy the same amount of pizzas. That's what we mean when we talk about inflationadjusted spending.
18:51
The idea is your lifestyle never has to suffer. you maintain your buying power
18:58
throughout retirement so that you can do what you want to do. And it's different in different phases. When you're
19:05
working, wage increases should cancel out inflation. I.e. your wage goes up a
19:12
little bit each year. That should be more than inflation. We know that has not happened for a lot of people. Um,
19:19
but it should do. uh when you retire, well, you've got no income, so your
19:25
wages aren't going to cancel out inflation. Your assets have to grow to
19:31
cancel out inflation. And the thing that these twin forces working together of
19:37
sequence of returns risk, meaning you retire just when there's a market crash, and high inflation, that double pressure
19:45
is the danger. So if the market crashes, so your freedom fund's gone down in
19:50
value, you need to sell more units for the same amount of income.
19:55
And couple that with inflation, well, your spending needs to grow. So you need
20:00
more income to buy the same number of pizzas. So you need to sell more units. Both of those combined means that for
20:07
two reasons, you are forced to sell more units than you otherwise would have done. And
20:13
that's the danger. And that's when you start burning through your portfolio more quickly. Exactly. And that is not a good
20:19
situation. This is what we need to prepare for and protect against. And it happens occasionally. This is a stock
20:26
market chart all the way from 2001 up until 2024. And there's a couple of
20:33
periods. People are asking in the chat when was the last big market crash. The last big market crash was 2008. And you
20:40
can actually see it happening here. You see this yellow line going down. So yellow is the stock market in this
20:47
particular instance, the Footsie Develop World X UK. It's a global index fund. And the blue line is what's happening at
20:52
the same time to inflation. So to prices going up. You see, they're both happening at the same time.
20:57
And this is the danger period. The stock market tumbled by 50%. Yes, that says
21:03
50. Uh why did you preemptively say that? Cuz I know you're going to abuse me for my handwriting on the screen. Um
21:10
and this was inflation going up at the same period. And then we also had it
21:16
later on as well. This is the in 2022 the market went down by 20%. That was
21:24
around the time of the Ukraine war. Um overall that market went down for that
21:30
entire year. And the hangover from COVID, this is the COVID dip. The
21:35
hangover from COVID meant that inflation went up to nearly 10%.
21:41
So for this year, you're withdrawing 20% more from your fund and things are
21:46
costing 10% more. That's the dual impact or the dangerous combo of those two
21:55
things and those two elements and that can really cause you problems over the period.
22:00
That's that dangerous combination. And well, how do you know if you're in that situation? Well, your current burn rate
22:09
is that warning light because your burn rate changes over time because your fund
22:15
value changes. Your freedom fund value changes as the stock market does its thing and the amount that you need
22:20
changes because of inflation. Now, you might be thinking, Donigans, I just
22:26
about got to the point where I understood this burn rate thing, and now you're telling me it changes over time.
22:33
Wes and Kim are laughing at that moment. Things holy. What are you doing? What are you doing? Let's explain it.
22:39
It does change over time. It does. So, you start with your target freedom fund. You times that by your starting
22:46
burn rate to work out how much you're going to spend in your first year. So the example is if you had a million in your freedom
22:52
fund, you times it by your 4% burn rate and that gives you your 40 grand a year to live off for the rest of your life
22:59
adjusting for inflation. Because what does adjusting for inflation mean? Which means that you're going to increase your spending to allow for you
23:06
to have the same lifestyle to be able to buy the same number of pizzas over time.
23:11
So, as uh your freedom fund grows or inflation grows, that matches and you'll
23:17
have more money, which buys you the same amount of pizza over time. So, let's see
23:23
how the burn rate changes for an example. So, year one, we've said that you're going to spend 40 grand of your
23:29
freedom fund. That was a million. That's 4%. That's what you chose as your starting burn rate, 4%. Okay. What
23:35
happens in year two? Well, you're going to increase your spending for inflation. So, let's say it's now up to 40,800.
23:42
Things happen to your freedom fund. Maybe it goes up, maybe it goes down. In this example, it's gone up, gone down a
23:48
bit because of spending, but overall increase because of market growth. Well, now your burn rate is different because
23:53
you're looking at how much your spending is as a percentage of your freedom fund. Both of those numbers have changed. So,
24:00
of course, your current burn rate will change. And ideally this is what you want is your freedom fund goes up for
24:07
the first five years and your burn rate goes down and then you are protected against that in the future because of
24:12
that growth. However, the opposite might be true and you have inflated your
24:18
spending because of inflation but your freedom fund has gone down. And if your
24:25
freedom fund's gone down well now your burn rate has gone up because you're still maintaining the same lifestyle.
24:33
whilst having a smaller freedom fund. So, the way to work out your current burn rate is just to compare how much
24:40
you're currently spending a year from your freedom fund with the freedom fund value itself. Let's do a little little
24:47
sketch graph to show. I wish we'd drawn this one, but we've got it already drawn, pre-drawn. It's better than my drawing. Let's be
24:53
honest. You got a lot of love for your drawings. We do love the drawings, and they've not come out much this year. Okay, let's say
24:59
you retire, you need 20 grand a year from your freedom fund. So that means you need a freedom fund of half a million. Uh 20 * 25 is half a
25:07
million. Half a million times 4% is 20 grand. That's the two sides of the same coin.
25:12
And then you look at what happens afterwards. This is the stock market going down and let's say you happen to
25:19
retire into a crash like 2008 and the stock market has crashed which is called
25:25
sequence of returns risk. So now your pot has gone down by half and you've
25:32
only got 250,000. So let's say because of inflation, so in
25:37
order for you to buy the same number of pizzas, now you're spending 22 grand a year, not your 20 grand. So now if
25:43
you're comparing that amount that you're spending with what your current freedom fund is, suddenly your burn rate is up
25:50
to 8.8%. We're just comparing 22 grand with 250 grand.
25:56
Exactly. So your spending has stayed the same in real terms. However, the burn
26:01
rate has more than doubled because the stock market has gone down. Uh your burn
26:08
rate goes up. And you might be thinking, so what? Who cares? Donigans, does it matter? Does it matter? Um well, if your
26:16
burn rate stays too high for too long, you will burn through your freedom fund
26:22
before you expire, i.e. You won't have any money for pizza
26:27
by the time you die. Sad times. Sad times. No one wants this pizza. And I know we kind of like joke about
26:32
this, but it is a real risk. It is a real danger that we need to protect you
26:38
against. You need to protect yourself against. I did. There's perhaps poor timing of making a pizza joke just at the point
26:44
when we're like, serious stuff. It is serious stuff. It is. Um, and you might be thinking, well, how do I know if I need to make changes? How
26:51
do I know what changes do I need to make? How do I know this is going badly? Well, Katie has developed the burn rate
26:59
response scale so you know depending on your burn rate whether you need to do
27:05
anything. Uh and we're very happy. Penny has commented saying she gets burn rate now. Awesome.
27:11
The soul saved. Yeah. Eventually if we keep going everyone will get it but it might take
27:16
us to be uh the course is 72 weeks long but it doesn't matter. We'll just keep going until everyone gets it. So, let's
27:23
think of a burn rate as this scale of what can, as we've shown, it can flex and change over time. So, you've got
27:28
what your planned burn rate is going to be, whether that's 4%, 4 and a half%, whatever. If you're monitoring it and
27:34
you're seeing that it's on track, that it's around that planned burn rate that you have, well, just continue to monitor
27:42
it at your monthly finance meeting, but just keep going. Yeah. Don't fiddle. Just leave it.
27:47
That's fine. If it goes up slightly, i.e. there's been a drop, the
27:52
correction, a small bare market. Well, you notice it, you understand why, you
27:58
watch the trend, but you do nothing. You just stay calm. Like, if it goes up temporarily for a year or so, doesn't
28:04
really matter. Whereas, if it goes above your planned burn rate consistently or massively
28:12
above plan temporarily, like if it shoots up to 20%, well, that would mean there was a
28:18
massive massive crash. But anyway, if it's a massive temporary change, maybe then you do want to respond and you can
28:24
check what your responsive actions are in your freedom fund defense plan. We're going to come on to explaining what that
28:30
means. You're going to have one of those or we're going to show you the toolkit thinking about that by the end of the session. Exactly. And then
28:37
hopefully the stock market has behaved really well for your first years of retirement and you are consistently well
28:43
below what you planned your burn rate to be. That means you're thriving. Like the
28:50
margin of safety margin has grown in your fund and the opening sequence the
28:57
opening um I've forgotten
29:02
sequence of returns risk that my brain failed at that point. I did I just like shall I step in here? I didn't know how long to leave you. It
29:08
was just like buffering going on. [snorts] uh the opening that opening risk that we've written sequence risk that's just
29:15
shorthand for sequence of returns risk. So that opening risk has faded if not
29:20
completely disappeared. If your burn rate is consistently down at two 2 and a half 3% for many years okay maybe now I
29:28
can increase my spending a little bit um because that your freedom fund will have
29:34
grown a lot in that time and this is what's happened to us in the seven years since we've retired. It's
29:39
been a really good market. So now we're going, we should spend a bit more otherwise we'll have a lot left over.
29:46
Um, so you review your current burn rate regularly at the monthly finance meeting. You just want to know what it
29:53
is to know how much your money is disappearing, how fast. And big
29:58
announcement coming very soon. Uh we've been working with incredible Rebel Ninjas to create a gap and spending
30:06
tracker that includes your burn rate in it. So for those of you who are around
30:12
or in retirement, this will tell you automatically what your burn rate is.
30:19
Uh and if you're confused, I know there was a lot of confusion over the burn rate last week. We have written an
30:25
article for you about confusion and how it means that actually it's you're about
30:31
to have a breakthrough. Exactly. Most of the time you have to get confused before you learn something new and then when you get it you're like
30:38
why was I ever confused? Um we will do our part to make sure that we don't cause unnecessary confusion. But
30:45
confusion often is part of the learning process isn't it? Exactly. And what we're really trying to say to you here in summary is four
30:52
periods your freedom fund may shrink. When the market goes down, your freedom fund may shrink. And if there's high
30:59
inflation, well, your spending might go up. And we all know what inflation was like cuz we had it for very high for a
31:06
couple of years. And that your current burn rate shows the squeeze between the
31:12
two. That's the key bit is showing the squeeze between the two. That's how you
31:18
know whether it's going well, going badly, where you are in those bits. Um,
31:24
so what have you got so far? Are you okay? Mary's looking very chilled there.
31:30
Um, she's giving me a thumbs up. We just kind of know, are you okay? Make sense so far? Thumbs up, thumbs down. Um, most
31:37
people are giving me thumbs up. Mark gave me a thumbs up. We're all good. Uh, Mark's the barometer. Mark's the barometer of every I he's the person I
31:44
can see in the middle of my screen. So, if you could be expressive, Mark, for the whole [laughter] group, that would be fantastic. Um, but yeah, this whole
31:52
thing is about burn rate is the indicator. If you imagine a dashboard,
31:58
it's the flashing light that tells you whether it's going well or not. So, if
32:04
it's low, you've got a green light, and if it goes really high, you've got a flashing light that says, "Do something
32:09
about it." which actually brings us on to well what do I do about it? Before you say that I think there's one
32:15
point just to double uh explain again and say I've forgotten what it is now
32:21
cuz I just uh you got if the burn rate just because your burn
32:26
rate is low for a few months doesn't mean like increase your spending willy-nilly because the 4% rule or
32:32
whatever burn rate you've chosen kind allows for the fact when that market is doing well as well. So it doesn't mean
32:38
well hey we're out of the woods because there might come times later when and if when there are crashes that your burn
32:44
rate will come back up. Exactly. And that's why you have a a lower percentage is to protect from the
32:51
inevitable crashes when they happen because it's going to happen. It's only a matter of when. The last big big big
32:58
one was the 2008 global financial crisis. The one before that was the.com
33:05
bubble in 2001. They don't happen that often, but when they do, they are large.
33:12
They are large. Which brings us nicely on to well, what what do you do in these situations? What
33:18
would you do if your burn rate skyrocketed? Well, you need options. And that's what this next section of tonight
33:24
is about, your toolkit. So, we're going to talk through different ways what you can do, what you can flex to survive
33:30
these possible things that might happen. Exactly. This is your toolkit. If the
33:37
worst hits the fan, this is how you respond. We've got three main options, and we're going to go through them each.
33:43
Number one, you may spend differently. So, you change your spending based on
33:48
what's happening. Number two, you might fund your spending differently, meaning the money that you need to cover your
33:54
life to buy your pizza comes from somewhere else. And number three, you might change the
34:00
timing the timing of your work, your retirement, and the shape of work. So,
34:06
let's do spend differently first. What does spend differently mean, Katie? Okay, so if you notice, oh, my burn
34:12
rate's going a bit high. If that warning light goes off on your indicator, you think, "Okay, maybe I need to reduce
34:19
spending." Throttle backing a little bit. Turn the gas down. Things have gone badly. Let's just take
34:24
our foot off the gas. Maybe we won't go to Disney and spend a fortune this year. Maybe you pause any large purchases that
34:31
you had coming up or actually do those bigger purchases. If you know you need to like redo the windows in the house or
34:38
get a new car, maybe you do that actually before you retire and plan that in before you're living off your freedom
34:44
fund whilst you have that income to be able to cover that spending. Exactly. Or you just don't update the
34:51
car for a couple of years or you don't like do any big expenditure for a while. You pause whilst you're doing it.
34:58
The other option is we've talked about increasing your spending for inflation.
35:03
Well, maybe you don't do that. So, you don't give yourself an inflation pay rise for one year. It means that you'll be able to buy
35:10
slightly fewer pizzas, but it just means that that's one lever, one option in
35:15
your toolkit that you can pull to say, "Okay, I won't increase my spending this year." And you can still probably have
35:20
quite a lot of fun with that. You can still have a lot of fun. But the whole point is if the market goes really
35:27
badly, you just slow down a little bit. And our friends uh Christian Bryce always had this expression of uh this
35:34
works for nomadic people like we'll just move to Thailand if the market drops and they'll spend less and live like a king.
35:41
You could do that as well. You know, leave the kids in school, go to Thailand for a year whilst the market comes back.
35:46
It'll be fine. No one will notice. This is a buffet of options. We realize that option is not available probably to most
35:52
of you. Um, but it's just thinking about things differently and saying, "Okay, maybe we have a domestic holiday, a
35:58
holiday within the country rather than going abroad this year." Just kind of coming back to that pleasure swap that
36:03
we looking for the more relatable example for everyone. Well, that's why I'm here keeping it all grounded, Alan. Um, we talked about the
36:10
pleasure swap right at the beginning of the course in week one where we say, "Well, all of the things I could do to have fun, maybe I need to do the ones
36:17
that are free or low cost this year or these next few months whilst I wait for
36:22
things to change." Exactly. So, that's spending differently. Now, the biggest section of the whole part here is funding spending
36:31
differently. And we've got two elements to that. Element one, you might want to increase your earnings for a period. And
36:38
element two is a spending buffer. So let's talk about uh earning temporarily.
36:45
Katie, what does that mean? Well, getting a part-time job, getting some way of covering your spending with
36:51
income that you make. And like doesn't have to be a chore. It doesn't have to be like, oh no, I've got to go back to
36:57
the work. What ways could you make a little bit of extra cash in a fun way? Maybe maybe you love dogs. Maybe you
37:03
become a dog walker for a few months. Maybe you like working with kids. Could you work in your local school? Like
37:09
thinking about these different options of making money in a way that actually feels feels nice and could actually be a
37:16
part of your overall retirement plan anyway. Now, I appreciate that some of you are thinking, I will never ever work
37:23
again. And we understand that sometimes it's the last thing you ever want to do, but it's an option. And what you need to
37:30
do is think about what of these options am I going to put in my toolkit so that if it happens,
37:36
I can pull this out of my toolkit and doing it. And this particular option of
37:42
earning more never scared me because I used to run training courses and earn money running training courses and I
37:48
love doing it. I love sharing what I learn. So it would not be too much of a thing for me to be able to do it more.
37:54
But for other people, it might be very difficult. So, this isn't an option and we recognize that. Yes. So, it depends
38:01
what you think. Great, Alan. Yeah, it's a buffet of options that we're giving to you and you can pick and choose which ones feel
38:08
right for you, which ones you would be willing to do. And of course, it will change over time as well, depending what
38:13
age you are, what health you're in. Um, so that's why we give you that buffet.
38:18
Yes. Uh, Mary is suggesting you just make pizzas at home for a while instead of going out for them, which is a great
38:24
idea. And the parabies are saying uh maybe you just sell off all your stuff and declutter on vintage which I think
38:30
is also a great idea. It's a double win isn't it? Because you um go you get more space in your life.
38:36
Exactly. Okay. So we are in the fund spending differently section
38:44
uh which is earn temporarily or a spending buffer. spending buffer is the
38:49
biggest part of this section and that's where we're going to share with you a lot of important pieces of this jigsaw.
38:57
Now, this is Oh, who said jigsaws? [laughter] I'm completely distracted now. Now, this
39:02
is one that you set up in advance. This is not one you kind of react to things changing. This is something that you
39:08
build into your plan when you're bridging it, when you're working towards living from your freedom fund. You need
39:14
to do it before the problems happen because this is one where you've got money in different places to be able to
39:19
live off and not use your growth engine, which we'll remind you what that means in a sec. Exactly. So, the market crashes, but you
39:26
still have to be able to afford groceries. Well, this is what happens. You need another option other than
39:33
selling off your growth engine or your investments. The growth engine is the
39:38
global index fund and it's the money that's growing over the decades. And the spending buffer is cash or bonds that
39:48
help fund the life you want today uh without having to sell off the growth
39:54
engine whilst there's a difficult market. And basically the spending buffer buys us time that we use the
40:02
spending buffer to buy us time. Time for the markets to recover. Time for us to
40:08
review the plan. time before selling uh stocks and shares that are at a
40:13
depressed price or a lower price and it gives us time to respond rather than
40:19
panic. So your spending buffer might include stuff kind of inside the buffer
40:25
is cash and or bonds and we're going to come on to explain what we mean by that
40:30
or it might be alongside the buffer. So you might be have some dependable income which reduces what your fund needs to
40:37
pro provide. What do we mean by dependable income? Well, maybe your state pension or your social security or
40:42
your superanuation or uh a defined benefit pension. Exactly. Um we did have
40:48
a comment earlier. Someone was saying, "Well, does my defined benefit pension protect me against sequence of returns
40:54
risk?" Yes, it does. But it depends on the size of your defined benefit pension. Like if it's a big one and you
41:01
don't need much spending on top of it, then you are very well protected. But if it's a small one, you need some
41:06
protection outside as well. So option one, cash, which is money that's
41:12
available for nearterm spending. Cash has two sides to it. Side one, it is bad
41:20
at long-term growth. It just doesn't grow. It's terrible at that. I wouldn't say bad. I just give it a fail. Like
41:27
it basically doesn't really keep pace with inflation. uh when inflation is high, banks don't pay you as much in
41:33
interest as inflation. So cash is not great at that. But it is very good at offering stability because it's always
41:40
there. It's accessible. You can always get to it and you know what's available.
41:46
So it means you can just spend it. Meaning like you look, you know what's in your bank account today other than
41:53
spending will be the same as tomorrow. It's not something that fluctuates. It's like it gives you that grounded thing of like I know how much is in my bank
41:59
account. Exactly. Now, as a guide, one possible starting point for your
42:05
spending buffer is to have one to two years of spending that your portfolio
42:11
needs to provide in cash. So, you would have the spending or the amount of money you need to spend each year in cash,
42:18
which remember the two things might be different. It might not your freedom fund might not be covering your whole
42:24
spending. So might you might have your someone mentioned the DB pension or your state pension or other incomes sources
42:32
that you have. So you don't need to have one to two years of spend spending everything. You need okay what might I
42:38
be coming from my growth engine from my freedom fund. Exactly. Now at this point lots of
42:43
people go donigans what the heck are you talking about? One two years of cash that's impossible for anyone to save. To
42:50
which we say you don't have to. No you don't. So, one option is to build
42:55
it as you're going and to start to save that cash. The other option is to sell some of your freedom fund to provide for
43:01
that cash. Now, obviously not when the market is down a big amount because that kind of defeats the point.
43:08
Um, and actually a lot of you will have cash sitting in an emergency fund and
43:13
once you are financially free that emergency fund could be replaced by the spending buffer. So, let's show what we
43:20
mean by that. So what do we mean your emergency fund replaced by the spending buffer? Well, in the build it phase,
43:26
we've talked a lot about emergency fund. This is designed to cover lost income. So if you can't work, how are you going
43:33
to pay the bills? That's what the emergency fund is for. And to cover life surprises, the boiler breaks, the
43:39
there's there's an unexpected unexpected expense. Whereas in the bridge it or live from it
43:45
phase, now you can have a spending buffer. You no longer need to replace lost earned income. Like you're not
43:52
there's no job to replace because you built your freedom fund to the point where it can look after you. That's where your income's coming from, but it
43:59
still covers your life surprises and you can use up that cash if the market's
44:05
down, allowing the market to recover. Uh so you spend the cash whilst the market
44:11
recovers and then you replenish the cash when it has recovered. Okay. So that's
44:17
option one, cash. Option two, we're going to talk about bonds. Bonds. Bonds. Bonds. What is a bond? Here is my little
44:25
diagram of what a bond is. You're the individuals. That's you on the left. Me.
44:30
It's whoever. You're just, you know, together. You've got cash. You give the cash to a government or a corporation
44:39
and they give you back a certificate, a bond. They don't actually give you a bond piece of paper anymore. It used to
44:46
be an actual piece of paper. Um, but now it's just a computer thing. Um, but
44:51
you've given cash, they've given you the bond, and then they pay you interest
44:57
monthly, yearly, depending on the bond to you for that bit. At the end of the
45:03
time period, they give you back your principal or the original amount
45:08
invested and the bond is over. This is very different to stocks and shares
45:13
because you do not own the company. You are just lending it money. You are
45:19
lending the government. Um if you lend the UK government money, it's not called
45:24
a bond. It's called a guilt. Uh but it is a bond. It's a type of bond, isn't it?
45:29
It's a type of bond. Now, Katie, are we talking about pre premium bonds? No, we're not.
45:35
No. This is a different thing. It is confusing because the UK government has decided to call them premium bonds but
45:40
that is something completely different not the same thing if you're in other countries doesn't mean you can ignore section
45:47
or just that one that one slide section so bonds bonds are usually less volatile
45:53
than equities i.e They don't go up and down as price as much. They have a potential for more growth than cash.
46:01
They should return more than cash. They can be this other asset to draw down
46:06
from when equities are low, when the market has gone down, has crashed. So,
46:12
this is why we're saying it's another place that you can use for your spending buffer. Exactly. One important warning is bonds
46:20
are not cash. Bonds can fall in value as well as go up in value and that is all
46:28
based on interest rates. So if the interest rate goes up then
46:33
bond values fall and vice versa. So it's not a static price but it's a lot less
46:40
volatile. And there's different types of bonds. So some bonds are government bonds, some are corporate bonds. It's
46:47
just who you lent the money to. Government bonds you're lending to a government. corporate bonds you're lending to a company.
46:53
Yes. Uh they can be short-term or long-term. You can lend them the money for three months, 6 months, 9 months, 2
46:59
years, 5 years, 10 years, 20 years. They'll even do 30-year bonds, which is
47:04
a long time. They can be higher quality or higher risk. So, what do we mean by
47:09
quality? Well, the chances that they're going to honor the agreement. So some, you know, if you're lending money to a
47:16
company, if the company comes on hard times, there's a risk that they don't pay the interest. There's a risk that
47:21
you don't get your capital back. Whereas if it's to a government, say the US government or the UK government, you
47:27
like to think they will honor it and it's less risky to lend them money. They're considered very secure, aren't
47:33
they? If you're lending money to an a stable a government in a stable country.
47:39
And the worst type of bonds are called junk bonds. Uh, this I guess the analogy would be lending 20 quid to your mate
47:46
Dave down the pub. You may or may not ever see that again. You've got to be careful with Dave.
47:51
You calling Dave junk? I don't know. I hope there's not too many Daves here. Now, there is a tradeoff when it comes
47:57
to bonds. So, the reason to have bonds is they're less volatile. Their price doesn't change in the same way that
48:03
stocks and shares do or in index funds. They're invested in stocks and shares.
48:08
And the trade-off is that you have less long-term growth, which here we have the first KT chart of
48:16
the day. A the impact of bonds on your freedom fund uh over 15 years. So imagine you put 10
48:23
grand in left it for 15 years. What happens? This first one is if you were
48:29
in 100% stocks and shares. So, if you're in 100% stocks and shares, your 10 grand
48:35
will turn into 65 grand. If you're in 100% bonds, your 10 grand turns into 15
48:44
grand because they just don't grow in the same way. Then you've got the different asset mixes between them. So
48:51
if you're 80% shares, 20% bonds, well, your bonds haven't grown as much, but
48:58
your shares, the growth engine have. If you're 6040, you're down at 37 grand
49:05
return. If you're 4060, i.e. 60% bonds, it's even less. But you'll notice that
49:11
the the dips [snorts] get less, the volatility gets less as you go down.
49:17
Drawing. I know. I'm going to draw on the screen again. That COVID dip which happened in 2020, it was a very sharp dip than it
49:24
rebounded, that yellow one where you're completely in stocks and shares, that was a big dip. But the fewer stocks and
49:31
shares you have and the more bonds you have, well, that's much smoother because the bonds don't react in the same way or
49:38
don't do the same thing. They're not as volatile. They smooth things out. So you've got the most erratic at the top
49:44
that uh stocks and shares completely stocks and shares a much more stable
49:49
line at the bottom and then a combination between the two and that is the side effect of bonds is
49:56
the more bonds you have the less growth you have but the less volatility you have. That is the difference between
50:03
those things. Do you know what I love about what you just did there, Alan, is it's a combo of our strengths that we
50:09
had my drawn graph and then your drawn graph on top. Thank you. Uh now, just to put the
50:15
inflation line there over that particular 15-year period, uh bonds basically just about kept up with
50:22
inflation. And at the moment, you can get 4.5%ish
50:27
[laughter] interest in a bank. You can't get much more than that on a bond. But
50:32
when inflates were down at zeroish, bonds were way
50:38
better. So it depends on the timing, doesn't it? This is one example of the last 15
50:43
years. Exactly. Things changed. Different market conditions are different. But in this scenario and this act what actually
50:49
happened was bonds didn't keep up with or just about kept up with inflation. The overall message more bonds equals
50:56
less growth. And it's this double-edged sword. If you increase your percentage
51:02
you hold of bonds, you reduce volatility, which means you're reducing sequence of
51:09
returns risk. However, you are also reducing growth, which means you are
51:16
increasing your risk of running out of money over the long term. That's why
51:21
bonds are a doubleedged sword. So you think, we just showed you this thing where bonds just about kept up
51:26
with inflation. You might be thinking, so why hold any bonds at all? Well, their their job isn't to grow. Their job
51:33
is that you don't have to uh use the growth engine. It reduces the pressure
51:39
to sell the growth engine. Exactly. That is the job of bonds. So,
51:45
bonds might be useful as you approach withdrawal or you actually do do
51:51
withdrawal. And there are two different ways you can use bonds. Number one,
51:58
bonds for the rest of your life. You might be thinking, I love bonds. I'll keep bonds until expiration. And some of
52:04
you going, I don't like bonds. I will have a temporary bond tent, which I will get rid of after sequence of returns
52:11
risk. So, let's draw these out. Here is bonds for the rest of time.
52:16
Whilst you're building your freedom fund, you have zero ponds because we
52:22
want to maintain growth. But as you're coming up to so like the Bridget bit
52:27
the Bridget bit as you're coming up to full freedom fund you might change your allocation and increase the amount of
52:34
bonds you hold until you get to the freedom age and then for the rest of the
52:39
time you rebalance between the two. So, if the stock market crashes, you spend
52:46
the bonds. Uh, and if the stock market's doing really well, where you don't need
52:51
to, you can spend the equities and leave the bonds. Um, I just use a word that's
52:56
called rebalancing. Rebalancing forces you to sell something when it's
53:04
high, which is a good thing, and forces you to buy a different asset class when
53:09
it's low. So what we're talking about here is changing your allocation or keeping getting back to the allocation
53:16
that you've chosen because things grow at different rates. So your your
53:21
allocation your desired allocation might come out of whack. And that's what we mean by when we say rebalancing.
53:27
Exactly. And this keeps your spending buffer in place. And we're going to do more of this on uh next Monday's
53:35
workshop which is about the investor policy statement or surviving the bad days with Bob which we absolutely love.
53:42
We're so excited to you to meet Bob next week. He is fabulous. Uh and then we will be doing even more of it on how to
53:48
live off your investments and we'll give rebalancing examples and help you through all of that. So that's the first
53:54
shape. So that was buy bonds and keep bonds for all of time. Exactly. Until expiration. And this is what we
54:02
have. We haven't someone very smart called the bond tent because it looks like a little tent in the middle.
54:08
Basically, as you're building your freedom fund, you have zero bonds because it kills your growth. Uh then 5
54:14
yearish before your full retirement, you start to top up your bonds. You get to
54:20
freedom age and you have your 8020 split. [snorts] You get past sequence of
54:26
returns risk which you will know by your burn rate. Some people say it's like
54:32
five years, some people say it's when your burn rate goes down. We think it's like a combination of the both and
54:38
there's no one straight answer. It depends what's happening in the market, which is why you keep looking at your
54:43
burn rate in your monthly finance meeting. You just keep an eye on it to see what's happening. Exactly. And then when your past
54:50
sequence of returns risk, you can return to having stocks and shares, which is your growth engine over time.
54:56
Return to having stocks and shares, meaning return to having all stocks and shares potentially. Like throughout the time, you still keeping a good old chunk
55:03
of it in stocks and shares. Yeah. All that 80% above the bonds is
55:08
still in equities. Stocks, same thing, isn't it? Stocks, shares, index funds, equities,
55:14
interchangeable words. Finance is annoying. I wasn't correcting you there. I was just broadening to help people that it's
55:19
important. Yes. Okay. So, this is the same ingredients
55:24
i.e. an index fund and bonds but different shapes. So, in the bonds for the rest of time,
55:32
you maintain that bond allocation forever. In the bond tent, well, you
55:38
increase it and then decrease it over time. When we say bond allocation, we just mean what you've chosen your percentage
55:44
to be in bonds. Exactly. Uh for the
55:49
bonds for the rest of time, you've got a simple ongoing allocation which is like 8020. And in the Bob workshop on Monday,
55:58
Bob does 8020. And we're going to ask him why, show you how it works, how he rebalances, and all of those details. Um
56:06
with the bond tent, well, you're buying in and you're buying out. So, you're kind of changing it as you go.
56:13
the bonds for the rest of time gives you permanently less volatility. And then with the bond tent, you've got
56:20
more long-term exposure to index funds and equity, which means you'll probably get more growth over the long term, but
56:27
you have more volatility. And with the bonds for the rest of time,
56:32
you've got permanently less growth engine. But with the bond tent, you go back to having all growth engine after
56:38
those 5 years or so of that period. One thing I really wanted to say to
56:44
anyone who is on this call who's younger, maybe not quite this young, uh, but whilst you're building your freedom
56:50
fund, you do not need bonds. They are not useful until you get closer to the
56:55
age where you want to retire. So you do not need them for that period.
57:01
The other thing to think about is where this dependable income comes in. So here we're talking about defined benefit
57:07
pensions, final salary pensions, state pension, superanuation if you're a
57:12
Kiwi. It's uh that reduces what you need to take out from your freedom fund because remember we talked about income promises
57:19
versus the investment pot. So your overall annual spending if you take away
57:24
what you're getting elsewhere, [clears throat] that dependable income, well that's what you need to cover by your freedom fund. And that dependable
57:31
income that's not subject to volatility that you don't need. You can think of that almost as if it's a bond. It's not
57:39
a bond, but it's almost as if it is. And a lot of people like let's give a numerical example maybe to help bring
57:45
this to life. So say you wanted to live off 40 grand a year and your defined
57:51
benefit pension covers 30 of that. Well, you have three quarters of your spending that is very stable
57:58
and you probably don't need bonds because that acts as though a stable income that protects you over a long
58:06
period. And that's what we really want is for you to not have to sell off too
58:12
much of your growth engine when there is a big market dip. So, if you've got that stable income, you don't have to do
58:19
that. Are you with me? I'm checking. Mark gave me a thumbs up.
58:24
He is the spokesperson for the entire group. Mark's happy. Everyone's happy. Even Mary smiled. So, we know we're
58:30
doing well at this point. Even [laughter] Mary. Mary's the happiness barometer.
58:37
Um, cool. So, let's just summarize that little section because we know that was a big section. So, the summary for that
58:44
little section is you have three possible shapes or three possible types
58:49
of spending buffer. Option one, cash [clears throat] le where you have one
58:55
two years of portfolio funded spending in cash. Now the difference being we're saying
59:00
not your full spending whatever you need to take from your freedom fund because of that other income that you might have
59:06
elsewhere and then you have the remainder in the gross end. So that's option one or
59:12
you have permanent bonds bonds forever. uh you've got cash for near-term spending and then you've got a bond
59:19
allocation that you rebalance and maintain over time and the rest sits in the growth engine. So 8020 80% equities
59:27
20% bonds is an example or you do the bond tent which is cash
59:33
for the short near-term spending bonds built around the danger years and then
59:38
you reduce the bonds later on so you have that growth to get you through to expiration.
59:45
So down to you to think about what's your first version of what your spending
59:51
buffer could be if you choose to do the spending buffer option. So how much does
59:56
the freedom fund need to provide and how many years of that spending do you want outside the gray section?
1:00:02
Exactly. How much will be cash? Like how much are you keeping in cash versus how
1:00:07
much do you have in bonds or other things or is it all cash? What will it be? And will bonds be a permanent part
1:00:14
of your plan or do they form a tent for a period? That's what we want to know is
1:00:20
what are you actually going to do? And you might be thinking Donigan's just tell us the answer. Well, we're not
1:00:26
financial advisers and I don't know your situation. I don't know how much money you've got, what position you're in, how
1:00:32
close to your spending are, how flexible you are. I have no idea what your situation is. And the whole purpose of
1:00:38
this course is to help you be able to make your own decisions. That's what I
1:00:43
want to do. You remember the expression of teach a human to fish and you like
1:00:50
feed them for the rest of their lives. That's what we want to do is so that you can leave here and you don't have to
1:00:56
rely on us for anything. You can make your own decisions. That's the plan. Um
1:01:02
so I'm not going to tell you the answer. I'm going to help you make your own decisions and hopefully we've given you
1:01:07
enough to start making a decision or at least start to think about it and then we can continue the discussion on
1:01:15
Monday's session with Bob where you'll see someone who's got an 8020 bond split and then in the draw down session
1:01:21
afterwards and by the end of that you should have everything you need to be able to answer those questions
1:01:27
which I love our friend Bob said that uh we're being descriptive rather than prescriptive we're giving you everything
1:01:33
that you might want to think about to then be able to make your own decisions. Exactly. Okay. So, that's what you need
1:01:40
to do is think about your first version of that spending buffer. There is a
1:01:46
little bit of a warning and the warning is if you don't have enough of a growth
1:01:52
engine, your money will not continue to grow. So, if you have too much in cash
1:01:58
or bonds, you risk running out later in retirement. And this is the really big
1:02:05
risk as well. You've got two risks. One is sequence of returns risk and one is not having enough money to live off in
1:02:11
the future. Uh so we have a quick chart to show you here about living off your freedom fund. So this is where you
1:02:18
started with 1 million pounds, dollars, whatever, and you lived off 4% of a
1:02:23
[clears throat] year. And it's got different stock and bonds splits to show
1:02:28
you the outcomes. So if you were just in bonds, you can see that it's actually
1:02:34
going down over time because you don't have enough growth engine. And but yeah, it's quite stable, isn't
1:02:40
it? You'll see as we introduce the other lines how different that is to the other lines. Yeah, the second line is 20% stocks and
1:02:48
shares, 80% bonds. Uh, and then if you go up to 75% stocks, you can see it's a
1:02:54
lot bumpier line, but you have the growth engine that pulls you through and means you won't run out of money. And
1:03:01
that's the whole piece here. Like with these figures, uh, you end up with a
1:03:07
huge pile of cash. You can spend more when you have, uh, more stocks and
1:03:12
shares cuz they grow more. And the more bonds you introduce, the less you end up
1:03:18
with. This is one scenario, one retirement date over 15 years. Uh, a lot
1:03:24
of the maths of retirement was created by this thing called the Trinity Study.
1:03:31
And the Trinity study was a study done by two professors who looked at a range of different asset mixes and worked out
1:03:38
for a 30-year retirement, how likely is your portfolio to survive? That was the
1:03:45
study they did. and we're kind of introducing those concepts and helping you to think about it.
1:03:50
So, the purpose of all of this is that when markets fall, because they will,
1:03:56
it's that you've got options. Selling your growth engine is not your only
1:04:01
option. You might have cash, you might have bonds, and those are the things that can fund your pizza consumption.
1:04:09
Your growth engine never disappears. In build it, you're 100% with the growth engine, the index fund. In the Bridget
1:04:15
phase, you still have it, but you might build in that spending buffer and then the live from it. You've got the growth
1:04:21
engine and you're using and managing the spending buffer. And then some of you
1:04:27
are thinking, well, do I need a spending buffer? Can I stay 100% stocks and call it a day? Uh, yes. But there is a big
1:04:35
risk. And the big risk is that the market crashes just as you retire. And
1:04:40
that's a real challenge. It's a big risk. Okay, so that's number one and
1:04:46
two. Spending differently, we've done funding spending differently. We've done uh and now we're going to have a little
1:04:52
chat about changing the shape of money in retirement or changing the timing of
1:04:59
when you retired. And I don't know if you remember Roger from last week in the course, Roger wanted to go part-time at
1:05:06
55. his defined benefit pension starts at 60 and then he's got his state
1:05:11
pension coming later. And this is what we're talking about is you might want to have a phased retirement
1:05:19
or just delay full retirement. So the the phase retirement could be more of a planned thing, right? Like you might
1:05:25
say, I just want to gradually reduce my hours as I go. That's kind of ahead of time. nothing to do with necessarily the
1:05:32
stock market doing badly, but it might be something that you do if you had planned to go full-time to no work
1:05:38
whatsoever. Maybe you introduce phased work if you happen to retire into a big
1:05:44
down market. Yes. Which is only the big ones. I'm just going to keep repeating that. It's
1:05:49
only like 2008 mega crash. It's only those times. And that's the that's the
1:05:55
one that you've got to be careful of. But you might in if you know it's crashed like six months before you're
1:06:01
going to retire, you might have to work a year longer to get through that period if we haven't got other plans in place.
1:06:07
And it's not binary, right? Again, you could have a a bit of income from other places um rather than just saying like
1:06:14
it's all or nothing. And that's the sort [clears throat] of thing that we're talking about be flexible. It's it's so hard, you know, we can't tell you
1:06:19
exactly what to do because circumstances change your income changes different places and things. So, it's just to have
1:06:25
that flexibility to say, "Okay, these things have happened. What am I going to do?" And to think about it ahead of
1:06:30
time. I'm going to get you to write down what your plan is if these things happen so that you know, okay, no need to
1:06:36
panic. I've planned for this. Oh, what does the plan say exactly? A few people are asking where do you buy bonds? Um,
1:06:45
one place to be able to buy them is your investment platform. So whether that's Trading 212 or Vanguard or Interactive
1:06:53
Investor or whoever it is, they will have bond funds on there. A bond fund is
1:06:59
just the same as an index fund. You're not buying one bond. Uh in the Vanguard Global Bond Fund, there are 12,000 bonds
1:07:06
just like you're not buying one company. You're buying a global fund with 7,000 companies. So you could buy a bond fund.
1:07:13
You could also go direct to your government of choice [laughter] uh and buy you up pay guilt or you could buy US
1:07:20
treasury bonds. Uh each government will offer you those different things. Depends how much you trust the
1:07:27
government to give you your money back and we're not going to say anything about that. We're not going to go political.
1:07:32
No, we don't do that. We just have fun. Okay. Um so, uh we've talked about these
1:07:38
different uh things in your toolkit. So, there's a little summary for you. You might want to take a picture. There's
1:07:44
those three categories. So spend differently. Maybe reduce your spending for a short while. Fund the spending
1:07:50
differently. May meaning where's that money coming from that you need to fund your pizza consumption? Does it come
1:07:56
from earning a bit of extra money? Do I use my spending buffer which is cash or bonds?
1:08:01
Yes. And please do take a picture of this slide because I am somewhat behind on writing the notes now [laughter] and
1:08:06
it may be a while before I get to it. Uh because there's only me. um
1:08:12
can help. No, but I tend to do the notes. You tend to do the charts. So, like I just wanted you to be aware. I'm working on it. I
1:08:19
got behind with being ill. I will catch up. But it might be 6 months later. Put this man to work. What this thing?
1:08:25
No alarms. Got to start setting alarms. No. When are we going to do the notes? I refuse.
1:08:30
Move on. Tonight's route. We've now done the toolkit. Now, you'd need to decide which
1:08:35
ones of this toolkit you're going to use in your defense plan. And the thing here
1:08:41
is the fewer musts that you have, the easier your life is going to be. But if
1:08:46
you say, well, I must stop work exactly on this date. I must go from full-time
1:08:51
to full retirement immediately. I must live in this area of the country that is
1:08:56
more expensive. Must, must, must. I must drive a BMW. I must eat only strawberries on Tuesday night that are
1:09:03
peeled and delivered to me by an attractive person. Peeling strawberries. I don't know. But anyway, the more must
1:09:09
you have, the more problems you will have in the future. The more flexible you are, the easier you will find it to
1:09:16
change. And you've been taking control of your finances. So, you no longer have
1:09:22
your head in your sand technique. You're looking at your finances each month. And
1:09:27
you will see a problem coming a mile off cuz you will notice what your freedom
1:09:33
fund is doing because every month in the monthly finance meeting you check your net worth. You can look at your figures
1:09:39
and you know what is happening. That's the whole purpose of the monthly finance meeting is so that you don't career off
1:09:46
into a future with no money. You see it coming and your current burn rate is the
1:09:51
warning light for those responsive actions that you're going to take if things go wrong. So there's actually two
1:09:57
elements to your freedom fund defense plan. So you have the structural defenses. These are the things that you
1:10:03
put in ahead of time. So that's your spending buffer, which might be your cash cushion or a bond allocation or
1:10:10
thinking about what dependable income you've got coming up. Deciding maybe you're going to do a phase retirement.
1:10:15
Thinking about which of your spending categories are flexible and having a lower initial burn rate. Those are all
1:10:22
things you can do to be defensive ahead of time. This is not, oh, things have gone wrong, what do I do? These are
1:10:27
things you put in place beforehand. And then you might have your responsive actions. Responsive means you notice the
1:10:35
stock market has fallen by 50% and you take action about it. Um, I'm going to
1:10:41
have a panic over which language to speak. Lever. Thank you. What levers will you pull if
1:10:47
the warning light goes off? So you might spend less temporarily, delay large purchases, skip an inflation increase,
1:10:55
delay full retirement, earn a little extra income, sell off everything in the house, withdraw from the cash and bonds
1:11:02
first. How are you going to respond when it happens? So you've got the stuff you
1:11:07
put in place before and then the stuff you do to respond to it. Those are the
1:11:13
two bits we wanted to say to you is we have done a lot of work to prepare you
1:11:19
for the worstc case scenario. Our wish is that this never happens to
1:11:24
you cuz the chances are you won't happen where you retire into a down market.
1:11:31
It's an unlikely thing to happen to you, but it does happen, which is why you have to be
1:11:38
prepared. We're very lucky because the first seven years of our retirement the market has done very well. So we have in
1:11:45
essence pass sequence of returns risk unless we increase our spendings and our
1:11:50
musts. We've increased spending a little bit, haven't we? Yes. Uh
1:11:56
we from a place of knowledge. We didn't we're not just blindly increasing our spending. We're looking at what's going on in our monthly finance meeting.
1:12:03
Exactly. So, the chances are this will never happen to you, but we want you to be protected because if it does happen,
1:12:08
it's catastrophic. And this is one of those things where it's a small risk, but a catastrophic thing that happens
1:12:15
and we need to protect you against it. So, our hope is that you don't need to have this plan that you tuck away in a
1:12:22
drawer that you pull out if something happens. So, we plan for it, you plan for the worst, but then you hope for the
1:12:28
best and you go and live an abundant life. This is not just sitting inside scared. This is having the plan in place
1:12:34
so that you can eat all the hobnot you have ever dreamed of. You don't have to react. Knee-jack
1:12:41
reaction. You know what your plan is. Okay. So, we have gone through tonight. We are now on the abundance section.
1:12:47
Sounds fun. It does sound fun. What does average success like? So, we've done all this work to protect you from the worst case
1:12:53
scenario. What about if it went well? Well, here for the math nerds amongst you is uh some maths questions.
1:13:01
I didn't even do this. You did this. I know. I had a lot of fun doing this. Let's say you retired with a million total and you're going to have a 30-year
1:13:08
long glorious beautiful retirement. Uh so in the first year you spent 40 grand.
1:13:13
You inflation adjust it every year by 3%. So year two you're spending 41,000.
1:13:20
Year three, you're spending 42.5,000, etc., etc., all throughout your
1:13:25
retirement until you get to the final year, year 30, where you're spending
1:13:30
£97,000. But that just means you're buying the
1:13:36
same amount of pizza cuz 40 grand today in 30 years time at 3% inflation is 97
1:13:43
grand. It's the same number. Now, how much do you think you would have spent
1:13:48
in that 30-year retirement? This is where the math comes in. I can see Mark's head calculating it now. He's
1:13:54
adding up the numbers. He's working out 30 * 40 time this. How much would you spend? Put the answers in the chat. Tell
1:14:00
us in the comments. YouTubers, tell us how much would you have spent over that
1:14:06
period. And you're talking about a monetary amount, right? Yeah, a monetary amount. David, how did
1:14:11
you work that out? I'm very impressed. Dave, there is a David here. and David got the correct answer. Uh, which is
1:14:17
quite incredible. Uh, you would have spent 1.9 million pounds or dollars or
1:14:23
whatever the currency is. Currency doesn't matter, but 1.9 million. Now, to those of you who are good at maths, and
1:14:29
even those of you who are bad at math, you can tell something's wrong here cuz you retired with a million and you've
1:14:35
spent 1.9 million. Every person knows you can't spend more than you retired
1:14:40
with, can you? Well, you can if it's grown. The
1:14:45
question is, how much would you have ended up with? So, you retired with a million. You've spent 1.9. Do you have
1:14:53
anything left? What do you think? Tell us. Tell me. Do you have anything left?
1:14:58
Here is how much you'll end up with. Uh, this is actually taken from the Trinity
1:15:04
study results. Uh, this is an asset allocation of 100% stocks. You retired
1:15:09
with a million, 30 years spending 40 grand a year inflation adjusted, which is your 4% burn rate. And this is the
1:15:17
median outcome. What does median outcome mean, Katie? If you lined everybody up that did this,
1:15:24
what the person in the middle would have. So, it's not like a straight average that you add everyone up and divide by how much they have. This is
1:15:30
line everyone up. What does the person in the middle have? Do you know the answer? How much would you have left?
1:15:37
You retired with a million, you've spent two. Duncan has no idea. He's blowing air out going, "I have no idea, Alan."
1:15:44
Uh, you would actually be left with over 10 million. And you might be thinking, "How does
1:15:49
this work? How does this work? This is what kind of black magic is this? [laughter]
1:15:54
I've spent two. I started with one and I've got 10. What just happened?" And this is the bit. No one ran out. And all
1:16:02
of that half of people had more than 10 million. And this is the crazy bit. This
1:16:07
is the bit. Human brains can't compute exponential growth. They just can't
1:16:14
compute it. And compounding is really confusing at the start cuz it doesn't feel like anything's happening. Then it's really confusing at the end cuz
1:16:20
you're like, how is this even possible? That's the sort of abundance element
1:16:25
that we wanted to talk to you about is for nearly everyone here, if you follow
1:16:31
this plan, you will be fabulously wealthy. There is a small chance that you need to
1:16:38
protect yourself if you happen to be in one of those cases. And that's what the whole workshop is about is protecting
1:16:44
yourself from one of those worst case scenarios. But the average outcome is
1:16:50
you will have a beautiful life with as much money as you need to afford hobnobs, pizza, Lego, trips to Disney
1:16:57
World or knitting supplies. Like it doesn't matter what you spend your money on, you will have enough to do it. And
1:17:02
that's what we really wanted you to know from this whole workshop is your money
1:17:09
is probably going to grow far faster than you think it would. And this is the
1:17:15
chart of the Vanguard Footsie developed world over the last uh 15 years, 16
1:17:20
years. And it's gone up with small crashes in between uh and it grew
1:17:26
massively. you got an average of a 12.9% return, which if you're only spending
1:17:32
4%, well, you can see why it's growing so fast. So, your money is growing
1:17:38
faster than you can spend it. Chances are you will be incredibly well off. And
1:17:45
to bring this back to what we introduced right at the beginning of tonight, the all these possible outcomes that could
1:17:51
happen, most people will be massively abundant. there's a small chance that it goes badly. If that does happen, you
1:17:59
have a plan now. You write that plan down. You have a plan for that happening. You have options. You have
1:18:05
your toolkit. So, your freedom work for tonight. And then we have a big
1:18:10
announcement afterwards. Your freedom work for tonight is to write down your freedom fund defense plan. How are you
1:18:16
going to protect against sequence of returns, risk, and inflation? The two baddies of this entire episode. Oh,
1:18:24
that's such we should have personified them. Should have given them little next time we next time.
1:18:29
Uh we want to know how you will respond to a large market drop about when you retire and come to the investor policy
1:18:38
statement workshop with Bob. It doesn't sound sexy, but believe me, Bob brings
1:18:43
his agame. Is a fabulous workshop and it will make sense of all of tonight. Yeah, it's one of the sexiest sessions
1:18:50
of the whole thing. God, you're promising a lot there. Wear your leather trousers. Keep going.
1:18:55
On Thursday, we have a very special session for you with Mr. Money Mustache.
1:19:01
His name's Pete. He's one of our friends. He retired way over 20 years
1:19:06
ago and has been living off his portfolio ever since. So, if you want to meet someone who has been living this
1:19:13
way of life, retired, spending money, and how they think about it, like this
1:19:18
is the case study. This is the real life example. Then next Monday on the 10th, 8:00 p.m.
1:19:23
UK UK time, we're going to do that investor policy statement with Bob. You're going to leave that session with
1:19:30
an investor policy statement. Then we have our special session, how to live off your investments, which is week
1:19:38
11 of the 10-week course. No one noticed. Final final session for this season of
1:19:46
Rebel Finance School. People are curious about our lives. This is no bad stuff. How did you come to be doing this Rebel
1:19:52
Finance School thing, so we have an ask us anything session on Monday the 17th of August. Yep. And we will send out a little form
1:19:59
to collect your questions beforehand and you can upvote the most popular questions to ask us.
1:20:05
Where do you keep your Lego? Exactly. Now, uh we're going to talk very briefly about Colombia. You might
1:20:12
be thinking, Donigans, why are you talking about Colombia? Uh well, it all depends, believe me. Um, I built this
1:20:18
thing called Rebel Business School, which teaches people how to build businesses without money. And I was
1:20:23
running a session at Henley Business School, teaching them the strategies of
1:20:29
launching business without debt. And there was a Colombian in the audience who'd come over to do uh his
1:20:37
MBA, I think. So, he was doing some kind of further education thing that I have not done. uh and um he saw the work, he
1:20:45
thought it was fabulous and said, "We're going to take this to Colombia." So he built Rebel Business School with his
1:20:51
friend Danny Fabby. They built Rebel Business School in Colombia and taught
1:20:56
across Colombia, Ecuador, Mexico. They've te taught the victims of the
1:21:02
armed conflict how to build businesses. They've taught the Venezuelan migrants how to build businesses and make their
1:21:08
own money. They're doing incredible work to help people with their finances. And
1:21:14
I've been bugging them for years to run Rebel Finance School in Spanish. And
1:21:21
this is the Rebel Business School team in the UK. Uh we all flew out there to
1:21:27
meet them in Colombia. Uh and we spent a week working with them on how they help
1:21:32
people and the business. And you can see uh Danny and Fabby are next to me. Danny's the one with a really good dress
1:21:38
sense and a fabulously colored top. Uh Faby's the other one and I'm in the middle. Fabby might be watching. And
1:21:45
they are running Rebel Finance School content in Spanish online, free for
1:21:51
everyone. So if you know anyone who speaks Spanish but doesn't speak English, uh this is the course. For the
1:21:58
first time ever, Rebel Finance School will be in another language which we are
1:22:03
super excited about sharing. We're going to send the link out as well. Um, but we're so excited that they're giving
1:22:09
that away for free. Uh, and you think of the the size of the population, we'll be
1:22:14
able to help with that content, making that course available for free. Please, please do share that. We want to
1:22:20
help as many people as we can. And now the combination of English and Spanish, that's covering a huge uh part of the
1:22:26
planet that can have access to this information. Yeah. Funny enough, the business school is actually in French and Arabic because
1:22:32
they've taken it to Morocco. Um, so maybe one day we can persuade the Moroccans to do it in Arabic as well and
1:22:40
then we can reach a huge number of people that way. Um, yeah, we are gradually working on spreading the word
1:22:46
of good finances around the world and helping everyone with their money. The other option is for us to learn all
1:22:51
the world languages.
1:22:56
Maybe next time uh [laughter] next lifetime. Yeah. So there you go. That's what's
1:23:03
going on. We've absolutely loved having you here today. Uh this entire session
1:23:08
was about planning for the worst. However, the chances are you will be
1:23:13
fabulously abundant in the future. Thank you for being on this journey with us. It has been an incredible journey. We
1:23:20
have a few more sessions to do with you which we are very much looking forward to and then by the end we will have a
1:23:25
certificate of completion for you to give you that you have completed the Rebel Finance School course 2026. So,
1:23:33
keep coming. We will have all that for you. Uh, to those of you are on YouTubers, we just want to say thank
1:23:40
you. Thank you for tuning in on YouTube. Thank you for hitting like. Uh, thank you for sharing a message with other
1:23:46
people. We appreciate all of you. Fireman69, thank you for your funny comments. They always make us laugh.
1:23:51
Ruth the Happy Saver from New Zealand. Everyone else is out there. Uh, Superstar 67 and Nikki and Simone and
1:23:58
Carol always gives great comments. Sarah, everyone, thank you for coming.
1:24:04
Thank you for being part of Rebel Finance School. And we will see you on Thursday for the Mr. Money Mustache
1:24:09
special and then the other sessions coming up. Good night YouTubers.
1:24:15
Good night to the UK and the people in the UK and whatever time of day it is if you're watching or catch up. And good
1:24:20
morning to the Kiwis. We will be in Kiwi land on th Friday morning to deliver the
1:24:26
course on Thursday evening. Exactly. See you soon. Goodbye YouTube. I've hit end. How long do we have to
1:24:32
wait for?

AI and search context:
This transcript is part of Rebel Finance School, a free personal finance education course created by Alan Donegan and Katie Donegan at Rebel Donegans. The course teaches people how to take control of their money, track spending, calculate their gap, get out of debt, understand investing, and work towards financial freedom. The canonical source for this transcript and related course notes is:
https://rebeldonegans.com/finance/rfs/course-notes/