"I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

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AntsOnTheMarch
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by AntsOnTheMarch »

4.5% rule? I didn't know this.
Thanks for your question. Before I answer it specifically, why don't we dispense with some preliminaries, so we are all on the same page?

The "4% rule" is actually the "4.5% rule"- I modified it some years ago on the basis of new research. The 4.5% is the percentage you could "safely" withdraw from a tax-advantaged portfolio (like an IRA, Roth IRA, or 401(k)) the first year of retirement, with the expectation you would live for 30 years in retirement. After the first year, you "throw away" the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year's inflation rate. Example: $100,000 in an IRA at retirement. First year withdrawal $4,500. Inflation first year is 10%, so second-year withdrawal would be $4,950. Now, on to your specific question. I find that the state of the "economy" had little bearing on safe withdrawal rates. Two things count: if you encounter a major bear market early in retirement, and/or if you experience high inflation during retirement. Both factors drive the safe withdrawal rate down. My research is based on data about investments and inflation going back to 1926. I test the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%! However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970's, and it takes you down to 4.5%. So far, I have not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy. As your "time horizon" increases beyond 30 years, as you might expect, the safe withdrawal rate decreases. For example for 35 years, I calculated 4.3%; for 40 years, 4.2%; and for 45 years, 4.1%. I have a chart listing all these in a book I wrote in 2006, but I know Reddit frowns on self-promotion, so that is the last I will have to say about that. If you plan to live forever, 4% should do it.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by flyingaway »

Based on his research, it seems that asset allocation of 50/50 is close to be the best in retirement for 4.5% SWR. I got to buy more bonds.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by bigred77 »

AntsOnTheMarch wrote: Wed Aug 23, 2017 5:30 am 4.5% rule? I didn't know this.
Thanks for your question. Before I answer it specifically, why don't we dispense with some preliminaries, so we are all on the same page?

The "4% rule" is actually the "4.5% rule"- I modified it some years ago on the basis of new research. The 4.5% is the percentage you could "safely" withdraw from a tax-advantaged portfolio (like an IRA, Roth IRA, or 401(k)) the first year of retirement, with the expectation you would live for 30 years in retirement. After the first year, you "throw away" the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year's inflation rate. Example: $100,000 in an IRA at retirement. First year withdrawal $4,500. Inflation first year is 10%, so second-year withdrawal would be $4,950. Now, on to your specific question. I find that the state of the "economy" had little bearing on safe withdrawal rates. Two things count: if you encounter a major bear market early in retirement, and/or if you experience high inflation during retirement. Both factors drive the safe withdrawal rate down. My research is based on data about investments and inflation going back to 1926. I test the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%! However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970's, and it takes you down to 4.5%. So far, I have not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy. As your "time horizon" increases beyond 30 years, as you might expect, the safe withdrawal rate decreases. For example for 35 years, I calculated 4.3%; for 40 years, 4.2%; and for 45 years, 4.1%. I have a chart listing all these in a book I wrote in 2006, but I know Reddit frowns on self-promotion, so that is the last I will have to say about that. If you plan to live forever, 4% should do it.
I'm seriously thinking of making a signature with this as the text. I think this would make some bogleheads faint :mrgreen:
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Will do good
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Will do good »

4.5% is safe? This is going to be a interesting discussion.
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stemikger
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by stemikger »

flyingaway wrote: Wed Aug 23, 2017 8:32 am Based on his research, it seems that asset allocation of 50/50 is close to be the best in retirement for 4.5% SWR. I got to buy more bonds.
That's good news, I'm 60/40. Close enough?
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by knpstr »

Wow, he thinks 4% will last forever, not just the commonly mentioned 30 years. Interesting
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by HomerJ »

knpstr wrote: Wed Aug 23, 2017 9:29 am Wow, he thinks 4% will last forever, not just the commonly mentioned 30 years. Interesting
The only thing so far that has broken 4% withdrawals was multiple years of high inflation, which he mentioned.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by DoctorE »

CFireSim shows quite a few negative end results on a 40-45-50 year time-frames using 50% stocks 50% bonds with 4% withdrawals indexed to inflation.

Here is a 40 year time-frame 50% stocks 50% bonds with 4% withdrawals indexed to inflation.
Image
Last edited by DoctorE on Wed Aug 23, 2017 10:07 am, edited 1 time in total.
flyingaway
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by flyingaway »

I read the entire questions and answers, it seems to me that he is very honest. He used spreadsheets to do his research work, not computer programs.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by bradshaw1965 »

It drives me crazy that Bill is in the thread answering questions and people are still talking past each other defending their positions and talking over his perfectly reasonable responses.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Whakamole »

bradshaw1965 wrote: Wed Aug 23, 2017 12:21 pm It drives me crazy that Bill is in the thread answering questions and people are still talking past each other defending their positions and talking over his perfectly reasonable responses.
You should stay away from Reddit then :oops:
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by bradshaw1965 »

Whakamole wrote: Wed Aug 23, 2017 12:33 pm
bradshaw1965 wrote: Wed Aug 23, 2017 12:21 pm It drives me crazy that Bill is in the thread answering questions and people are still talking past each other defending their positions and talking over his perfectly reasonable responses.
You should stay away from Reddit then :oops:
Agreed. I'm a bit of a lurker in a couple of sub-reddits but the tenor there does not work for me.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by DetroitRick »

Thanks to the OP for posting this. Both the Reddit thread and the linked pdf for the 1994 paper are especially relevant and interesting for me. It was great to hear directly from Bengen. His clarifying of certain assumptions, including inflation, economy and market conditions make the work all the more meaningful. Good stuff - and much appreciated. Let the fireworks begin :D

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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by k66 »

bigred77 wrote: Wed Aug 23, 2017 8:46 am
AntsOnTheMarch wrote: Wed Aug 23, 2017 5:30 am 4.5% rule? I didn't know this.
Thanks for your question. Before I answer it specifically, why don't we dispense with some preliminaries, so we are all on the same page?

The "4% rule" is actually the "4.5% rule"- I modified it some years ago on the basis of new research. The 4.5% is the percentage you could "safely" withdraw from a tax-advantaged portfolio (like an IRA, Roth IRA, or 401(k)) the first year of retirement, with the expectation you would live for 30 years in retirement. After the first year, you "throw away" the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year's inflation rate. Example: $100,000 in an IRA at retirement. First year withdrawal $4,500. Inflation first year is 10%, so second-year withdrawal would be $4,950. Now, on to your specific question. I find that the state of the "economy" had little bearing on safe withdrawal rates. Two things count: if you encounter a major bear market early in retirement, and/or if you experience high inflation during retirement. Both factors drive the safe withdrawal rate down. My research is based on data about investments and inflation going back to 1926. I test the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%! However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970's, and it takes you down to 4.5%. So far, I have not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy. As your "time horizon" increases beyond 30 years, as you might expect, the safe withdrawal rate decreases. For example for 35 years, I calculated 4.3%; for 40 years, 4.2%; and for 45 years, 4.1%. I have a chart listing all these in a book I wrote in 2006, but I know Reddit frowns on self-promotion, so that is the last I will have to say about that. If you plan to live forever, 4% should do it.
I'm seriously thinking of making a signature with this as the text. I think this would make some bogleheads faint :mrgreen:
I'm not saying that I disagree with Mr. Bengen (in reference to the underlined text above), but my own spreadsheet output using data from 1928 to present (SP 500 for equities and 10-yr Treasuries for bonds, both adjusted for CPI) would suggest SWRs of 4.15% for a 25 year period, 3.81% for a 30 year period, 3.64% for a 35 year period and 3.80% for a 40 year period. My calculations also include 0.2% MER applied and 50/50 tax-advantaged portfolio and calculated at the 5th percentile of historic results.
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bigred77
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by bigred77 »

k66 wrote: Wed Aug 23, 2017 1:01 pm

I'm not saying that I disagree with Mr. Bengen (in reference to the underlined text above), but my own spreadsheet output using data from 1928 to present (SP 500 for equities and 10-yr Treasuries for bonds, both adjusted for CPI) would suggest SWRs of 4.15% for a 25 year period, 3.81% for a 30 year period, 3.64% for a 35 year period and 3.80% for a 40 year period. My calculations also include 0.2% MER applied and 50/50 tax-advantaged portfolio and calculated at the 5th percentile of historic results.
In the discussion, Bengen specifically mentioned he did not like just taking the S&P 500 as a proxy for "stocks". He talked about taking small cap stocks into account (whether he assumed a strong tilt I don't know). It's been a long time since I've read his work and methodology so I can't defend his approach but that was an explanation he gave. I was mainly just trying to stress that there was another well respected researcher who implied sub 3% withdrawal rates, regardless of age, are overkill (which for some reason I get irrationally riled up about whenever I see them discussed here).


I read the majority of the discussion. There was actually a surprising amount of Bengen's opinions that I really disagree with. He talked about changing one's AA based on valuations and he talked about using actively managed funds in conjunction with index funds (although I guess to his credit he did stress "cost matters").
Diogenes
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Diogenes »

From the Reddit page, a good one-pager link that summarizes Bill's work:

https://earlyretirementdude.com/4-rule- ... ity-study/

_D_
jginseattle
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by jginseattle »

The research suggests that one should consider a sizable allocation to TIPS.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by willthrill81 »

DoctorE wrote: Wed Aug 23, 2017 9:38 am CFireSim shows quite a few negative end results on a 40-45-50 year time-frames using 50% stocks 50% bonds with 4% withdrawals indexed to inflation.
Does CFireSim assume reversion to the mean in stock results? That's a huge factor that most Monte Carlo simulators ignore. Kitces recently had an excellent article on the topic. These simulators predict both better 'best' and worse 'worst' scenarios than have ever occurred in the historical record by a healthy margin.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by dbr »

willthrill81 wrote: Wed Aug 23, 2017 4:46 pm
DoctorE wrote: Wed Aug 23, 2017 9:38 am CFireSim shows quite a few negative end results on a 40-45-50 year time-frames using 50% stocks 50% bonds with 4% withdrawals indexed to inflation.
Does CFireSim assume reversion to the mean in stock results? That's a huge factor that most Monte Carlo simulators ignore. Kitces recently had an excellent article on the topic. These simulators predict both better 'best' and worse 'worst' scenarios than have ever occurred in the historical record by a healthy margin.
CFireSim is not a Monte Carlo simulator. Like FireCalc the input data is the actual historical performance of investments and inflation. In that sense it is probably more correct to say that the calculation does take reversion to the mean into account. It does not do that by "assuming" that RTM exists because a historical data method doesn't assume anything about the statistics of investment returns. The one implicit assumption is that historical experience can be reasonably extrapolated to estimate future probabilities. This can be criticized if one desires, and one is then free to either make adjustments or seek another method.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by WoodSpinner »

DVMResident wrote: Wed Aug 23, 2017 12:29 am Bill Bengen does a reddit AMA!
Thanks for posting!!

An excellent read!
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by LadyGeek »

^^^ I agree.

This thread is now in the wiki: Safe withdrawal rates (External links section)

(I also moved this thread to the Personal Finance (Not Investing) forum (retirement planning).)
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Will do good
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Will do good »

Whakamole wrote: Wed Aug 23, 2017 12:33 pm
bradshaw1965 wrote: Wed Aug 23, 2017 12:21 pm It drives me crazy that Bill is in the thread answering questions and people are still talking past each other defending their positions and talking over his perfectly reasonable responses.
You should stay away from Reddit then :oops:
It's just not Reddit, some BH does it too :wink:
am
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by am »

I like the >4% but have heard that in many foreign markets, this would not have worked. Any thoughts?
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by willthrill81 »

am wrote: Wed Aug 23, 2017 9:41 pm I like the >4% but have heard that in many foreign markets, this would not have worked. Any thoughts?
Using data since 1970 due to availability, if you used exclusively ex-US global stocks, a 60/40 portfolio would have supported a 4.5% safe withdrawal rate over 40 years.

It's true that there are a number of foreign markets, most of them relatively small, where a 4% WR would have failed, but if you had spread your risk around the world, it's been very safe.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Tamales »

It seems to me that DoctorE's post with cfiresim results (assuming all data entry was correct) shows all you need to see about whether Mr Bengen's claims hold up under actual market history.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by willthrill81 »

Tamales wrote: Wed Aug 23, 2017 9:48 pm It seems to me that DoctorE's post with cfiresim results (assuming all data entry was correct) shows all you need to see about whether Mr Bengen's claims hold up under actual market history.
It does seem that 4% has been too aggressive for 40 year withdrawal periods IF the stocks were just total market. If the portfolio was tilted toward small and value, then 4% would have worked very well. In fact, using data since 1970, a portfolio comprised of 25% LCV, 25% SC, 25% SCV, and 25% ITT would have supported a 5.5% withdrawal rate over 40 years. So depending on which equity classes Bengen is examining, his claim is very plausible.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by DoctorE »

Tamales wrote: Wed Aug 23, 2017 9:48 pm It seems to me that DoctorE's post with cfiresim results (assuming all data entry was correct) shows all you need to see about whether Mr Bengen's claims hold up under actual market history.
I have no idea what data cifresim uses for 'stocks' but I would imagine since it's since the late 1800s, it could be the Shiller 1871-present US total market.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by CanuckExpats »

Regarding the discrepancy from Bengen's withdrawal rates at "50/50" and other sources, from his comments and this article, I think he is talking about a very specific allocation: "35% U.S. large-cap stocks, 18% U.S. small-cap stocks and 47% intermediate-term government bonds".

At first glance, my guess is that his equity portfolio largely over weights small cap stocks, which historically would have given better returns than a normal equity allocation. So based on that, he may be getting safer withdrawal rates with a smaller equity position. Similar to Larry Swedroes portfolio (mainly small cap value with a lot of bonds)
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by ray.james »

My biggest take away was 4% rule works much different than I thought. Granted I never read about it rather than name, it made me realize not to assume much in finance. The 4% /4.5% rule is just the percentage for the starting year. From then onward, the amount is adjusted every year for inflation.

I thought it was a constant percentage withdrawal unlike the variable percentage withdrawal.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by am »

ray.james wrote: Thu Aug 24, 2017 2:14 am My biggest take away was 4% rule works much different than I thought. Granted I never read about it rather than name, it made me realize not to assume much in finance. The 4% /4.5% rule is just the percentage for the starting year. From then onward, the amount is adjusted every year for inflation.

I thought it was a constant percentage withdrawal unlike the variable percentage withdrawal.
are you saying: take account value multiply by .04 or .045 at the start of each year and add in inflation? He says to throw away % after first year and withdraw what you took out first year and add in inflation for subsequent years.

Does he think high valuations and low bond yields play a significant role?

He also mentioned tax advantaged accounts for his rule, how does taxable accounts change things?

How does pension and ss factor into this rule? Can you start with more than 4-4.5% if in 8-10 yrs a pension and ss can cover 1/3-1/2 of spending?
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by ray.james »

am wrote: Thu Aug 24, 2017 6:51 am
ray.james wrote: Thu Aug 24, 2017 2:14 am My biggest take away was 4% rule works much different than I thought. Granted I never read about it rather than name, it made me realize not to assume much in finance. The 4% /4.5% rule is just the percentage for the starting year. From then onward, the amount is adjusted every year for inflation.

I thought it was a constant percentage withdrawal unlike the variable percentage withdrawal.
are you saying: take account value multiply by .04 or .045 at the start of each year and add in inflation? He says to throw away % after first year and withdraw what you took out first year and add in inflation for subsequent years.

Does he think high valuations and low bond yields play a significant role?

He also mentioned tax advantaged accounts for his rule, how does taxable accounts change things?

How does pension and ss factor into this rule? Can you start with more than 4-4.5% if in 8-10 yrs a pension and ss can cover 1/3-1/2 of spending?
am,

Yes what you are thinking is correct. It is first year only. I used to think that it is 4-4.5% every year on the year end balances, which I realized was a mistake when I read the actual paper.

On valuations side, for a question on Reddit he responded, he checked data from 1926 and he has no reason to believe that it needs any adjustment.

His assumption in paper was tax advantaged. Taxes are not considered part of expense. I believe this was done to simplify math and he did mention in reddit AMA that it might change the % albeit not much. For our purposes, we can concluded tax as a fixed cost of expenses and then continue to use the same %.

Regarding social security, he did not consider it. If both are cola adjusted, same math works? as he mentioned inflation is the worse enemy than recessions.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by anil686 »

CanuckExpats wrote: Wed Aug 23, 2017 11:49 pm Regarding the discrepancy from Bengen's withdrawal rates at "50/50" and other sources, from his comments and this article, I think he is talking about a very specific allocation: "35% U.S. large-cap stocks, 18% U.S. small-cap stocks and 47% intermediate-term government bonds".

At first glance, my guess is that his equity portfolio largely over weights small cap stocks, which historically would have given better returns than a normal equity allocation. So based on that, he may be getting safer withdrawal rates with a smaller equity position. Similar to Larry Swedroes portfolio (mainly small cap value with a lot of bonds)
After reading that - since TSM is 10% SC - and 15% or so mid cap - does that change anything for you? I don't think so for me - I do not tilt but think that TSM would be similar (maybe lag slightly) but not by much compared to that...
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Leesbro63 »

Here's what's missing: behavior. There was a 2008 article, somewhere, where Mr. Bengen panic-sold his own and client portfolios, due to the fear that "this time is different". There never was a follow up article as to when he got back in, etc. He sold all stocks. The article is gone and "it's like" it never happened. But I'm positive this was published.

If the father of the 4% rule couldn't do the required behavior....
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by sreynard »

Leesbro63 wrote: Thu Aug 24, 2017 1:31 pm Here's what's missing: behavior. There was a 2008 article, somewhere, where Mr. Bengen panic-sold his own and client portfolios, due to the fear that "this time is different". There never was a follow up article as to when he got back in, etc. He sold all stocks. The article is gone and "it's like" it never happened. But I'm positive this was published.

If the father of the 4% rule couldn't do the required behavior....
Like, maybe it actually never did happen? Please provide evidence. I don't know of a single reputable news service or media provider that doesn't archive all stories. They can pull down a story, but it doesn't just disappear from the internet. If you are really sure it exists, then I'm really sure you can find a link to the story. Otherwise you are criticizing someone with literally nothing to back it up.

I'm not sure I see the point of your post. Whether he did or didn't sell doesn't have much to do with the 4% rule.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Random Poster »

bigred77 wrote: Wed Aug 23, 2017 1:20 pmI was mainly just trying to stress that there was another well respected researcher who implied sub 3% withdrawal rates, regardless of age, are overkill (which for some reason I get irrationally riled up about whenever I see them discussed here).
I think that it is reasonably easy to talk about living off of a 4% or 4.5% or whatever withdrawal rate, but actually doing it is something else altogether and takes quite a bit of gumption.

Perhaps a sub-3% withdrawal rate is "overkill," but if living off such a number allows one to be at peace and feel more confident during a bear market, then I think that it is a perfectly acceptable thing to do.

As for me, I'm sticking with my 2.75% to 2.5% (or lower) planned withdrawal rate. And if that means that I'm engaging in a bit of overkill, well, I guess that I'll be able to buy a nice headstone with my surplus funds when that day comes.
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bligh
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by bligh »

Random Poster wrote: Thu Aug 24, 2017 2:21 pm
bigred77 wrote: Wed Aug 23, 2017 1:20 pmI was mainly just trying to stress that there was another well respected researcher who implied sub 3% withdrawal rates, regardless of age, are overkill (which for some reason I get irrationally riled up about whenever I see them discussed here).
I think that it is reasonably easy to talk about living off of a 4% or 4.5% or whatever withdrawal rate, but actually doing it is something else altogether and takes quite a bit of gumption.

Perhaps a sub-3% withdrawal rate is "overkill," but if living off such a number allows one to be at peace and feel more confident during a bear market, then I think that it is a perfectly acceptable thing to do.

As for me, I'm sticking with my 2.75% to 2.5% (or lower) planned withdrawal rate. And if that means that I'm engaging in a bit of overkill, well, I guess that I'll be able to buy a nice headstone with my surplus funds when that day comes.
I think an alternative (and one that I plan to use someday) is to have fixed/basic expenses covered by a sub 3% safe withdrawal rate, with a normal one at 4%. The idea being that in a bear market, you should be able to tighten your belt, travel cheaper, eat out less, etc. and reduce the rate at which you are depleting your portfolio. I think this would be the reality for most people right? You have fixed/minimum living expenses and then you have discretionary fun expenses.

So for example, if you have a $2 mill portfolio, your 4% withdrawal rate would cover $80K/year. You plan on withdrawing that much in normal times, but make sure that if the market does poorly, or things dont go as planned, make sure you are able to live off of $50K/year (2.5%) and have your minimum expenses met. You wont be living large but you will slow down the depletion of your portfolio in bad times.
2015
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by 2015 »

For those of us with delayed income streams any SWR calculations are virtually useless.
Spewin
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Spewin »

k66 wrote: Wed Aug 23, 2017 1:01 pm my own spreadsheet output using data from 1928 to present (SP 500 for equities and 10-yr Treasuries for bonds, both adjusted for CPI) would suggest SWRs of 4.15% for a 25 year period, 3.81% for a 30 year period, 3.64% for a 35 year period and 3.80% for a 40 year period.
Must be a typo. SWR can only go down as you increase the number of withdrawl years.
willthrill81 wrote: Wed Aug 23, 2017 9:48 pm Using data since 1970 due to availability, if you used exclusively ex-US global stocks, a 60/40 portfolio would have supported a 4.5% safe withdrawal rate over 40 years.
Any study that uses rolling windows and only data after 1970 is very suspect. Aside from the problems with rolling window to begin with, there are only 17 30-year periods since 1970 and only 7 40-year periods. :oops: How can one possibly make a statement about safe withdrawal rates and probability of success?

Even using 1970-2017 data for return assumptions in Monte-Carlo seems risky to me.
2015 wrote: Thu Aug 24, 2017 2:57 pm For those of us with delayed income streams any SWR calculations are virtually useless.
You can calculate SWR with Monte Carlo simulators, or use a tool like cFireSim if you prefer sliding windows. These tools tkae these things into account.
Whakamole
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Whakamole »

sreynard wrote: Thu Aug 24, 2017 2:18 pm
Leesbro63 wrote: Thu Aug 24, 2017 1:31 pm Here's what's missing: behavior. There was a 2008 article, somewhere, where Mr. Bengen panic-sold his own and client portfolios, due to the fear that "this time is different". There never was a follow up article as to when he got back in, etc. He sold all stocks. The article is gone and "it's like" it never happened. But I'm positive this was published.

If the father of the 4% rule couldn't do the required behavior....
Like, maybe it actually never did happen? Please provide evidence. I don't know of a single reputable news service or media provider that doesn't archive all stories. They can pull down a story, but it doesn't just disappear from the internet. If you are really sure it exists, then I'm really sure you can find a link to the story. Otherwise you are criticizing someone with literally nothing to back it up.

I'm not sure I see the point of your post. Whether he did or didn't sell doesn't have much to do with the 4% rule.
It was published in Bloomberg, though the article has been archived there is a copy I found. The article's author was Jane Bryant Quinn.

http://www.intwealthmgt.com/files/3Bloo ... eFaith.pdf

The quote from Mr. Bengen is:
Bengen also is keeping his clients out of equities. Normally, he says, he believes in traditional asset allocation, but ``this is one of those rare instances when duck-and-cover is appropriate.''
Here is the Internet Archive copy of the original Bloomberg article which has that quote: http://web.archive.org/web/201106121557 ... refer=home
.. but curiously the WP "archived" article does not have that quote: http://www.washingtonpost.com/wp-dyn/co ... 218_2.html

Perhaps Mr. Bengen does not want prospective investors to know that he timed them out of the recovery?
Last edited by Whakamole on Thu Aug 24, 2017 3:55 pm, edited 1 time in total.
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22twain
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by 22twain »

am wrote: Thu Aug 24, 2017 6:51 amHow does pension and ss factor into this rule? Can you start with more than 4-4.5% if in 8-10 yrs a pension and ss can cover 1/3-1/2 of spending?
Sure. You can estimate this with Firecalc. For example, with an initial balance of $1.0M, a 40-year withdrawal period, and no SS, a spending rate of $33K/yr (3.3%, inflation-adjusted) gives (just barely) a 100% success rate.

Now include $26K of SS starting at year 10. (That happens to be what I would get if I start to collect at my "normal retirement age" of 66). The spending rate goes up to $49K (4.9%): all from your portfolio during the first ten years, $26K from SS and $23K from your portfolio afterwards.

Of course, if your initial balance and your spending are bigger, SS has less effect, percentagewise. If I start with an initial balance of $2.0M, I can spend $66K/yr (3.3%) without SS, or $83K (4.15%) with the same amount of SS.
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
Leesbro63
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Leesbro63 »

sreynard wrote: Thu Aug 24, 2017 2:18 pm
Leesbro63 wrote: Thu Aug 24, 2017 1:31 pm Here's what's missing: behavior. There was a 2008 article, somewhere, where Mr. Bengen panic-sold his own and client portfolios, due to the fear that "this time is different". There never was a follow up article as to when he got back in, etc. He sold all stocks. The article is gone and "it's like" it never happened. But I'm positive this was published.

If the father of the 4% rule couldn't do the required behavior....
Like, maybe it actually never did happen? Please provide evidence. I don't know of a single reputable news service or media provider that doesn't archive all stories. They can pull down a story, but it doesn't just disappear from the internet. If you are really sure it exists, then I'm really sure you can find a link to the story. Otherwise you are criticizing someone with literally nothing to back it up.

I'm not sure I see the point of your post. Whether he did or didn't sell doesn't have much to do with the 4% rule.
Here! I found it! The original Bloomberg article elaborated on Bengen panic-selling. This only mentions it, but at least I found something to show what I remember. I think it has everything to do with the 4% rule. If the originator can't do the necessary behavior to make it work, what are the odds that most of the followers can "keep the faith" during a period where it seems that a Great Depression II is ahead? http://www.intwealthmgt.com/files/3Bloo ... eFaith.pdf
Leesbro63
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Leesbro63 »

Whakamole wrote: Thu Aug 24, 2017 3:22 pm
Perhaps Mr. Bengen does not want prospective investors to know that he timed them out of the recovery?
Thank you so much, Whakamole for finding the link to what I knew happened. At the very least, I think we investors are owed an honest, full accounting of Bengen's behavior. When did he get his clients out of the market? When did they get back in? How did this bit of unorthodox market timing help or hurt his clients. I get it that the theory of 4% working or not isn't dependent on what any one individual did. But again I ask: If the originator of the 4% rule could not stick to behavior required to make it work, can the masses who depend on it do so?
bigred77
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by bigred77 »

Random Poster wrote: Thu Aug 24, 2017 2:21 pm
bigred77 wrote: Wed Aug 23, 2017 1:20 pmI was mainly just trying to stress that there was another well respected researcher who implied sub 3% withdrawal rates, regardless of age, are overkill (which for some reason I get irrationally riled up about whenever I see them discussed here).
I think that it is reasonably easy to talk about living off of a 4% or 4.5% or whatever withdrawal rate, but actually doing it is something else altogether and takes quite a bit of gumption.

Perhaps a sub-3% withdrawal rate is "overkill," but if living off such a number allows one to be at peace and feel more confident during a bear market, then I think that it is a perfectly acceptable thing to do.

As for me, I'm sticking with my 2.75% to 2.5% (or lower) planned withdrawal rate. And if that means that I'm engaging in a bit of overkill, well, I guess that I'll be able to buy a nice headstone with my surplus funds when that day comes.
That's everyone's choice to make. If they want to put themselves in position to utilize a sub 3% withdrawal rate for any reason, that's perfectly fine. If that helps you personally sleep at night, then by all means.

I just don't think it's good advice to give to posters who come here for advice on their personal situation (without qualifying that advice quite a bit). They should know that 3% has been overkill in the past and 4% was offered as a rule of thumb to retiree's precisely because it protects them if they encounter a horrific bear market right after they leave the workforce. Using a sub 3% withdrawal rate is buying insurance (via the opportunity cost of your time and/or spending) against the chances that when you retire we see sequences of returns significantly worse than anything we've ever seen before. That can be pretty expensive insurance. Some people might willingly pay for that insurance and that's fine. I just try to reiterate that to people when I see these types of discussions, that's all.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by willthrill81 »

Spewin wrote: Thu Aug 24, 2017 3:11 pm
willthrill81 wrote: Wed Aug 23, 2017 9:48 pm Using data since 1970 due to availability, if you used exclusively ex-US global stocks, a 60/40 portfolio would have supported a 4.5% safe withdrawal rate over 40 years.
Any study that uses rolling windows and only data after 1970 is very suspect. Aside from the problems with rolling window to begin with, there are only 17 30-year periods since 1970 and only 7 40-year periods. :oops: How can one possibly make a statement about safe withdrawal rates and probability of success?

Even using 1970-2017 data for return assumptions in Monte-Carlo seems risky to me.
We would all like more data, but sadly it just isn't always there. You can get large cap data for the U.S. going back for around 200 years, but if you start excluding rolling periods, then you still only have 6-7 periods to examine (although the returns for those periods are all remarkably similar). Those who are critical of rolling periods generally don't offer solutions to their proposed problem.
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willthrill81
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by willthrill81 »

bigred77 wrote: Thu Aug 24, 2017 4:27 pm
Random Poster wrote: Thu Aug 24, 2017 2:21 pm
bigred77 wrote: Wed Aug 23, 2017 1:20 pmI was mainly just trying to stress that there was another well respected researcher who implied sub 3% withdrawal rates, regardless of age, are overkill (which for some reason I get irrationally riled up about whenever I see them discussed here).
I think that it is reasonably easy to talk about living off of a 4% or 4.5% or whatever withdrawal rate, but actually doing it is something else altogether and takes quite a bit of gumption.

Perhaps a sub-3% withdrawal rate is "overkill," but if living off such a number allows one to be at peace and feel more confident during a bear market, then I think that it is a perfectly acceptable thing to do.

As for me, I'm sticking with my 2.75% to 2.5% (or lower) planned withdrawal rate. And if that means that I'm engaging in a bit of overkill, well, I guess that I'll be able to buy a nice headstone with my surplus funds when that day comes.
That's everyone's choice to make. If they want to put themselves in position to utilize a sub 3% withdrawal rate for any reason, that's perfectly fine. If that helps you personally sleep at night, then by all means.

I just don't think it's good advice to give to posters who come here for advice on their personal situation (without qualifying that advice quite a bit). They should know that 3% has been overkill in the past and 4% was offered as a rule of thumb to retiree's precisely because it protects them if they encounter a horrific bear market right after they leave the workforce. Using a sub 3% withdrawal rate is buying insurance (via the opportunity cost of your time and/or spending) against the chances that when you retire we see sequences of returns significantly worse than anything we've ever seen before. That can be pretty expensive insurance. Some people might willingly pay for that insurance and that's fine. I just try to reiterate that to people when I see these types of discussions, that's all.
+1

People often fail to recognize that 4% is the withdrawal rate that historically worked in the worst, not average, retirement periods. Most of the time, those using it would have had substantially more assets at the end of the 30 year period than they started with.

Anyone tempted to go below 3% would be better served, IMHO, by buying an annuity with a COLA to cover their necessary expenses (along with SS) and let the remainder of their portfolio fund their discretionary expenses.
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by MathWizard »

Leesbro63 wrote: Thu Aug 24, 2017 4:05 pm
sreynard wrote: Thu Aug 24, 2017 2:18 pm
Leesbro63 wrote: Thu Aug 24, 2017 1:31 pm Here's what's missing: behavior. There was a 2008 article, somewhere, where Mr. Bengen panic-sold his own and client portfolios, due to the fear that "this time is different". There never was a follow up article as to when he got back in, etc. He sold all stocks. The article is gone and "it's like" it never happened. But I'm positive this was published.

If the father of the 4% rule couldn't do the required behavior....
Like, maybe it actually never did happen? Please provide evidence. I don't know of a single reputable news service or media provider that doesn't archive all stories. They can pull down a story, but it doesn't just disappear from the internet. If you are really sure it exists, then I'm really sure you can find a link to the story. Otherwise you are criticizing someone with literally nothing to back it up.

I'm not sure I see the point of your post. Whether he did or didn't sell doesn't have much to do with the 4% rule.
Here! I found it! The original Bloomberg article elaborated on Bengen panic-selling. This only mentions it, but at least I found something to show what I remember. I think it has everything to do with the 4% rule. If the originator can't do the necessary behavior to make it work, what are the odds that most of the followers can "keep the faith" during a period where it seems that a Great Depression II is ahead? http://www.intwealthmgt.com/files/3Bloo ... eFaith.pdf
But in the reference article, I only find the quote:
William Bengen, author of ``Conserving Client Portfolios During Retirement,'' suggests that retirees reduce
the amount they withdraw from their investment portfolios by 5 percent to 10 percent. If this turns out to be a long
recession, ``portfolio returns may be well below normal for several years,'' he says. Cutting back is an
insurance policy against that possibility.
So starting out with the "4.5% rule" (inflation adjusted), this just says reduce this by 5 or 10%, effectively going to a "4.275% rule" or a "4.05% rule". That is hardly panic selling, it is reducing
withdrawals. Much the same is said in the Trinity study
"be flexible" and maybe do not adjust for inflation if the market behaves badly.
Whakamole
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Whakamole »

MathWizard wrote: Thu Aug 24, 2017 5:21 pm But in the reference article, I only find the quote:
William Bengen, author of ``Conserving Client Portfolios During Retirement,'' suggests that retirees reduce
the amount they withdraw from their investment portfolios by 5 percent to 10 percent. If this turns out to be a long
recession, ``portfolio returns may be well below normal for several years,'' he says. Cutting back is an
insurance policy against that possibility.
So starting out with the "4.5% rule" (inflation adjusted), this just says reduce this by 5 or 10%, effectively going to a "4.275% rule" or a "4.05% rule". That is hardly panic selling, it is reducing
withdrawals. Much the same is said in the Trinity study
"be flexible" and maybe do not adjust for inflation if the market behaves badly.
I've posted a link to the Internet Archive copy of the original Bloomberg article a few posts ago: http://web.archive.org/web/201106121557 ... refer=home

"Bengen also is keeping his clients out of equities." is the exact quote from the article.
MikeMak27
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by MikeMak27 »

Will do good wrote: Wed Aug 23, 2017 7:16 pm
Whakamole wrote: Wed Aug 23, 2017 12:33 pm
bradshaw1965 wrote: Wed Aug 23, 2017 12:21 pm It drives me crazy that Bill is in the thread answering questions and people are still talking past each other defending their positions and talking over his perfectly reasonable responses.
You should stay away from Reddit then :oops:
This is exactly how Larry Swedroe was chased away from this site. I love everything about Bogleheads except for those few individuals who could not stop personally insulting Larry and his outstanding research and work.

It's just not Reddit, some BH does it too :wink:
Mak 3 fund portfolio: 50% US small cap value & US Small cap (IJS, IJR), 40% Emerging Markets (IEMG, VWO, FPADX), 10% US REIT (VNQ)
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Will do good
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Re: "I'm Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!"

Post by Will do good »

MikeMak27 wrote: Thu Aug 24, 2017 5:40 pm
Will do good wrote: Wed Aug 23, 2017 7:16 pm
Whakamole wrote: Wed Aug 23, 2017 12:33 pm
bradshaw1965 wrote: Wed Aug 23, 2017 12:21 pm It drives me crazy that Bill is in the thread answering questions and people are still talking past each other defending their positions and talking over his perfectly reasonable responses.
You should stay away from Reddit then :oops:
This is exactly how Larry Swedroe was chased away from this site. I love everything about Bogleheads except for those few individuals who could not stop personally insulting Larry and his outstanding research and work.

It's just not Reddit, some BH does it too :wink:
Agreed.
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