submit ?s: Bill Bengen on the 4% rule of thumb

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JonL
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submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

'Bogleheads® Live' is where the do-it-yourself investor community asks questions to financial experts – live on Twitter.

For the Tuesday, December 6th episode, Bill Bengen - creator of the 4% rule of thumb - answers your questions.

We'll be going live at 12:00 PM Pacific / 3:00 PM Eastern.

You can submit your questions below. (I may include your question in the episode. No guarantees.) Or, you can ask your questions live by joining us on Twitter Spaces.

https://twitter.com/i/spaces/1YpJkgMoPpMJj?s=20

While anyone can listen to a live Twitter Space event on desktop, you'll need to be using the Twitter app from a mobile device to ask questions (if you’d like to participate in the Q&A).

If you're not already signed up for Twitter, you can do so here: https://twitter.com/. You can sign up with your Google or Apple account, or via phone, or by email.

Looking forward to seeing you there.

Thank you,
Jon Luskin
Host
Bogleheads® Live

P.S. Listen to past episodes of Bogleheads® Live via the podcast: https://boglecenter.net/category/bogleheads-live/

The Bogleheads® Live series is hosted by me, Jon Luskin, CFP®, a long-time Boglehead®. This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012.
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Lawrence of Suburbia
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by Lawrence of Suburbia »

Is the 50-75% stock allocation still required for the 4% rule to work? ...
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by nigel_ht »

Lawrence of Suburbia wrote: Tue Nov 22, 2022 12:38 pm Is the 50-75% stock allocation still required for the 4% rule to work? ...
Does the 4% rule still work? :)

This isn't really a facetious question. Its quoted many places:

https://www.fool.com/the-ascent/persona ... ger-works/
https://finance.yahoo.com/news/even-inv ... 00007.html

After years of the 4% rule creeping upwards we have a lot of articles that now IMPLY Bengen says Nope...

And kiplinger says:

"Recently, however, Bengen disclosed that he has moved his own personal portfolio to 20% stocks, 10% bonds and the remaining 70% to cash."

https://www.kiplinger.com/investing/604 ... l-rule-did

As far as I can tell he dropped from 4.7% down to 4.4% or something similar...so my presumption is he believes that 4% still works...but it would be nice to hear it yet again from the horse's mouth and what he thinks of those alarmist articles...
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Lawrence of Suburbia
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by Lawrence of Suburbia »

nigel_ht wrote: Tue Nov 22, 2022 1:06 pm
Lawrence of Suburbia wrote: Tue Nov 22, 2022 12:38 pm Is the 50-75% stock allocation still required for the 4% rule to work? ...
Does the 4% rule still work? :)

This isn't really a facetious question. Its quoted many places:

https://www.fool.com/the-ascent/persona ... ger-works/
https://finance.yahoo.com/news/even-inv ... 00007.html

After years of the 4% rule creeping upwards we have a lot of articles that now IMPLY Bengen says Nope...

And kiplinger says:

"Recently, however, Bengen disclosed that he has moved his own personal portfolio to 20% stocks, 10% bonds and the remaining 70% to cash."

https://www.kiplinger.com/investing/604 ... l-rule-did

As far as I can tell he dropped from 4.7% down to 4.4% or something similar...so my presumption is he believes that 4% still works...but it would be nice to hear it yet again from the horse's mouth and what he thinks of those alarmist articles...
I'm guessing he's got so much money now that asset allocation doesn't much matter ...?

I'm trying to reassure myself that I can get by with a more conservative allocation (40/60-ish). I'm currently taking out about 3%, in wartime rations budget mode.
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by iamblessed »

I am trying to remember the study I think he said 4.2% Is that right? I know it was a little over 4%
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by David Jay »

Lawrence of Suburbia wrote: Tue Nov 22, 2022 2:24 pmI'm trying to reassure myself that I can get by with a more conservative allocation (40/60-ish). I'm currently taking out about 3%, in wartime rations budget mode.
Keep in mind that SAFEMAX (Bengen's term) deals with the worst case. The vast majority of those who withdraw at the SAFEMAX number will make their heirs wealthy. It is only those few who retire in extraordinary times that will come anywhere near depleting their retirement portfolio. I recommend studying the "spaghetti graph" in FireCALC to get a sense of the diversity of potential outcomes.

At 3%, you have layered safety upon safety and will almost certainly be amongst the richest in the graveyard.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by Lawrence of Suburbia »

David Jay wrote: Wed Nov 23, 2022 10:43 pm
Lawrence of Suburbia wrote: Tue Nov 22, 2022 2:24 pmI'm trying to reassure myself that I can get by with a more conservative allocation (40/60-ish). I'm currently taking out about 3%, in wartime rations budget mode.
Keep in mind that SAFEMAX (Bengen's term) deals with the worst case. The vast majority of those who withdraw at the SAFEMAX number will make their heirs wealthy. It is only those few who retire in extraordinary times that will come anywhere near depleting their retirement portfolio. I recommend studying the "spaghetti graph" in FireCALC to get a sense of the diversity of potential outcomes.

At 3%, you have layered safety upon safety and will almost certainly be amongst the richest in the graveyard.
I'll actually be cremated, so I'll make sure it's paper money. :happy

My main concern is really my A.A., currently around 40/60 (my 'sleep at night' ratio) and whether that will hold up in a SAFEMAX scenario. I'm 4 years into retirement, so considering my current spending as a way to navigate the sequence of returns risk time period. Mind you, I'm not suffering; my needs met, my wants modest.
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by firebirdparts »

I'm extremely impressed that you're interviewing him, I appreciate what you're doing. I admit I don't really have a good question.
Okay, maybe I do.

"Have you reflected on the worst case over the years? (by that I mean let's presume it's people retiring in 1966 or 1929) What was the worst case, or were there several cases of interest that were similar? What do those specific cases teach us today?"

And

"If we say 4% is the right answer to the question, now much of the historical record is at about 4%? Is it randomly distributed, often about 4%, or rarely about 4%?
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by USAFperio »

I’d be curious to know what Mr. Bengen thinks regarding how CAPE ratios affect SWR math, somewhat along the lines of some of the opinions Karsten Jeske has published on his earlyretirementnow.com website.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by David Jay »

firebirdparts wrote: Thu Nov 24, 2022 8:05 am"If we say 4% is the right answer to the question, now much of the historical record is at about 4%? Is it randomly distributed, often about 4%, or rarely about 4%?
95% of the time the historical record yelds a withdrawal rate above SAFEMAX because that was the point of the original study: "What withdrawal rate has been safe over 95% of past history?" (my language not Bengen's)
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by MaineRunner2001 »

:happy
Lawrence of Suburbia wrote: Tue Nov 22, 2022 2:24 pm
nigel_ht wrote: Tue Nov 22, 2022 1:06 pm
Lawrence of Suburbia wrote: Tue Nov 22, 2022 12:38 pm Is the 50-75% stock allocation still required for the 4% rule to work? ...
Does the 4% rule still work? :)

This isn't really a facetious question. Its quoted many places:

https://www.fool.com/the-ascent/persona ... ger-works/
https://finance.yahoo.com/news/even-inv ... 00007.html

After years of the 4% rule creeping upwards we have a lot of articles that now IMPLY Bengen says Nope...

And kiplinger says:

"Recently, however, Bengen disclosed that he has moved his own personal portfolio to 20% stocks, 10% bonds and the remaining 70% to cash."

https://www.kiplinger.com/investing/604 ... l-rule-did

As far as I can tell he dropped from 4.7% down to 4.4% or something similar...so my presumption is he believes that 4% still works...but it would be nice to hear it yet again from the horse's mouth and what he thinks of those alarmist articles...
I'm guessing he's got so much money now that asset allocation doesn't much matter ...?

I'm trying to reassure myself that I can get by with a more conservative allocation (40/60-ish). I'm currently taking out about 3%, in wartime rations budget mode.
I am interested in this question too. I have a 40 stock / 45 bond / 15 cash allocation, and wonder what is SWR for that allocation?

Age is also a question I have about SWR. I am 56. Is my SWR lower than if I was 66?

Also would like to confirm these calculations are correct:

Is income subtracted from expenses when calculating withdrawal rate: (expenses - earned income) / (beginning net worth)? Last year I retired in August and with income from previous job, using above formula, withdrawal rate would be less than 2%.

This year, with no income, estimated expenses divided by beginning net worth would be less than 3%.

We made a 401k withdrawal and deposited it into a treasury money market Fidelity fund. I assume withdrawing from pre tax accounts and depositing into taxed accounts is not part of the withdrawal rate calculation. Is that right?

Thanks!
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by stan1 »

Some people might spend hundreds of hours building a complex, custom spreadsheet or simulation to model their retirement including taxation, expected rates of return, inflation, and other detailed personal factors. Could a case be made that a simpler rule of thumb, such as a 4% or 3.5% withdrawal rate, is an equally valid long range tool given the assumptions necessary in any model and uncertainty of what changes might occur decades out in the future?
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by dcabler »

Not completely facetious but I'd like to know why so much (virtual) ink is still spilled on this rule of thumb as a withdrawal method, given all of the other options available now and what he thinks of the alternatives?

Cheers.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

Lawrence of Suburbia wrote: Tue Nov 22, 2022 12:38 pm Is the 50-75% stock allocation still required for the 4% rule to work? ...
Thanks for a great question.

It's going on the list.

:happy
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by er999 »

Does the 4% rule include inflation, so the retiree who retired in 2020 could have withdrawn in 2022 4% of the portfolio balance + 7-8% for inflation = 11% withdrawal in 2022 and still potentially be safe?

If someone wants to withdrawal a flat percentage of their portfolio each year, not including an inflation adjustment (so they have variable spending year to year from the portfolio, perhaps because their core expenses are covered by social security or pensions) what is considered a safe variable withdrawal percentage for someone starting retirement in their mid 50s? How about starting at 65?
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by marcopolo »

er999 wrote: Fri Nov 25, 2022 1:15 pm Does the 4% rule include inflation, so the retiree who retired in 2020 could have withdrawn in 2022 4% of the portfolio balance + 7-8% for inflation = 11% withdrawal in 2022 and still potentially be safe?

If someone wants to withdrawal a flat percentage of their portfolio each year, not including an inflation adjustment (so they have variable spending year to year from the portfolio, perhaps because their core expenses are covered by social security or pensions) what is considered a safe variable withdrawal percentage for someone starting retirement in their mid 50s? How about starting at 65?
If you start with 4% withdrawal rate, and get a 7% inflation adjustment, the resulting withdrawal rate is NOT 11%, it is 4.28% (4 × 1.07).
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by sycamore »

marcopolo wrote: Fri Nov 25, 2022 1:48 pm
er999 wrote: Fri Nov 25, 2022 1:15 pm Does the 4% rule include inflation, so the retiree who retired in 2020 could have withdrawn in 2022 4% of the portfolio balance + 7-8% for inflation = 11% withdrawal in 2022 and still potentially be safe?

If someone wants to withdrawal a flat percentage of their portfolio each year, not including an inflation adjustment (so they have variable spending year to year from the portfolio, perhaps because their core expenses are covered by social security or pensions) what is considered a safe variable withdrawal percentage for someone starting retirement in their mid 50s? How about starting at 65?
If you start with 4% withdrawal rate, and get a 7% inflation adjustment, the resulting withdrawal rate is NOT 11%, it is 4.28% (4 × 1.07).
Also, isn't the inflation adjustment cumulative?
So if you retired in 2020 with a $1 million portfolio, you'd withdraw 4% = $40,000.
In 2021, assuming inflation was 3%, you'd withdraw $40,000 x 1.03 = $41,200
In 2022, assuming inflation was 7%, you'd withdraw $41,200 x 1.07 = $44,084

Edited: answering my own question, it is cumulative but you make the withdrawal at the end of the year (source: https://www.financialplanningassociatio ... 20Data.pdf)

So if you retired in 2020 with a $1 million portfolio, and inflation was 3%, you'd withdraw 4% x1.03 = $41,200 at the end of the year.
In 2021, assuming inflation was also 3%, you'd withdraw $41,200 x 1.03 = $42,436 at the end of the year.
In 2022, assuming inflation was 7%, you'd withdraw $42,436 x 1.07 = $45,406 at the end of the year.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by sycamore »

Here's a question for Bill Bengen...

What's a good way to check if a 4% withdrawal rate will be enough? I see two approaches used by Bogleheads:

(1) Subtract pension & Social Security income streams from yearly expenses to compute their Residual Living Expenses. Then check if a 4% withdrawal on the portfolio would be enough to cover the RLE.

or

(2) Calculate the Net Present Value of their pension & SS and add it to their portfolio amount. Then check if 4% withdrawal on that larger amount would cover their yearly expenses.

Which way do you think is better? Does it really matter?
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by er999 »

marcopolo wrote: Fri Nov 25, 2022 1:48 pm
er999 wrote: Fri Nov 25, 2022 1:15 pm Does the 4% rule include inflation, so the retiree who retired in 2020 could have withdrawn in 2022 4% of the portfolio balance + 7-8% for inflation = 11% withdrawal in 2022 and still potentially be safe?

If someone wants to withdrawal a flat percentage of their portfolio each year, not including an inflation adjustment (so they have variable spending year to year from the portfolio, perhaps because their core expenses are covered by social security or pensions) what is considered a safe variable withdrawal percentage for someone starting retirement in their mid 50s? How about starting at 65?
If you start with 4% withdrawal rate, and get a 7% inflation adjustment, the resulting withdrawal rate is NOT 11%, it is 4.28% (4 × 1.07).
Thanks so it’s an inflation correction to the 4% withdrawal rate, makes more sense. Jon feel free to take my question off the list (or can leave on in case others make the same stupid mistake like me)
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by abuss368 »

JonL wrote: Tue Nov 22, 2022 11:51 am 'Bogleheads® Live' is where the do-it-yourself investor community asks questions to financial experts – live on Twitter.

For the Tuesday, December 6th episode, Bill Bengen - creator of the 4% rule of thumb - answers your questions.

We'll be going live at 12:00 PM Pacific / 3:00 PM Eastern.

You can submit your questions below. (I may include your question in the episode. No guarantees.) Or, you can ask your questions live by joining us on Twitter Spaces.

https://twitter.com/i/spaces/1YpJkgMoPpMJj?s=20

While anyone can listen to a live Twitter Space event on desktop, you'll need to be using the Twitter app from a mobile device to ask questions (if you’d like to participate in the Q&A).

If you're not already signed up for Twitter, you can do so here: https://twitter.com/. You can sign up with your Google or Apple account, or via phone, or by email.

Looking forward to seeing you there.

Thank you,
Jon Luskin
Host
Bogleheads® Live

P.S. Listen to past episodes of Bogleheads® Live via the podcast: https://boglecenter.net/category/bogleheads-live/

The Bogleheads® Live series is hosted by me, Jon Luskin, CFP®, a long-time Boglehead®. This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012.
Hi Jon -

My question is related to a retired couple who invest in a very low cost and diversified portfolio of Vanguard total market index funds. The dividends from those funds provide enough passive income cash flows (along with pensions) for retirement. I do not see any issues with this strategy but would be interested in thoughts and perspectives.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

nigel_ht wrote: Tue Nov 22, 2022 1:06 pm
Lawrence of Suburbia wrote: Tue Nov 22, 2022 12:38 pm Is the 50-75% stock allocation still required for the 4% rule to work? ...
Does the 4% rule still work? :)

This isn't really a facetious question. Its quoted many places:

https://www.fool.com/the-ascent/persona ... ger-works/
https://finance.yahoo.com/news/even-inv ... 00007.html

After years of the 4% rule creeping upwards we have a lot of articles that now IMPLY Bengen says Nope...

And kiplinger says:

"Recently, however, Bengen disclosed that he has moved his own personal portfolio to 20% stocks, 10% bonds and the remaining 70% to cash."

https://www.kiplinger.com/investing/604 ... l-rule-did

As far as I can tell he dropped from 4.7% down to 4.4% or something similar...so my presumption is he believes that 4% still works...but it would be nice to hear it yet again from the horse's mouth and what he thinks of those alarmist articles...
It's going on the list.

Thanks,
Jon
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by MaineRunner2001 »

JonL wrote: Sun Nov 27, 2022 8:47 pm
nigel_ht wrote: Tue Nov 22, 2022 1:06 pm
Lawrence of Suburbia wrote: Tue Nov 22, 2022 12:38 pm Is the 50-75% stock allocation still required for the 4% rule to work? ...
Does the 4% rule still work? :)

This isn't really a facetious question. Its quoted many places:

https://www.fool.com/the-ascent/persona ... ger-works/
https://finance.yahoo.com/news/even-inv ... 00007.html

After years of the 4% rule creeping upwards we have a lot of articles that now IMPLY Bengen says Nope...

And kiplinger says:

"Recently, however, Bengen disclosed that he has moved his own personal portfolio to 20% stocks, 10% bonds and the remaining 70% to cash."

https://www.kiplinger.com/investing/604 ... l-rule-did

As far as I can tell he dropped from 4.7% down to 4.4% or something similar...so my presumption is he believes that 4% still works...but it would be nice to hear it yet again from the horse's mouth and what he thinks of those alarmist articles...
It's going on the list.

Thanks,
Jon
Thanks for update.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

iamblessed wrote: Wed Nov 23, 2022 9:27 am I am trying to remember the study I think he said 4.2% Is that right? I know it was a little over 4%
He's had various updates over time. I saw 4.7% once, if memory serves, when including small-cap value in a portfolio.

I'll pose this question, too.

Thanks,
Jon
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by iamblessed »

JonL wrote: Mon Nov 28, 2022 1:15 pm
iamblessed wrote: Wed Nov 23, 2022 9:27 am I am trying to remember the study I think he said 4.2% Is that right? I know it was a little over 4%
He's had various updates over time. I saw 4.7% once, if memory serves, when including small-cap value in a portfolio.

I'll pose this question, too.

Thanks,
Jon
Ask him also what is the max. without small-caps. That is where I think I got the 4.2% number from.
Thank You
Last edited by iamblessed on Mon Nov 28, 2022 1:42 pm, edited 2 times in total.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by rgs92 »

A few months ago I created a post where I asked if the safe withdrawal rate could now be, well, safer at a higher level because for many years people warned that the 4% level was too high due to extremely low interest rates on the fixed income part of your portfolio.

So now that yields are higher on bonds, does that justify a higher SWR? Does it matter that these yields are nominal vs. real?

Thank you.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by FactualFran »

Are there minor errors in Figures 1 and 3 of your 1994 article: Determining Withdrawal Rates Using Historical Data? The bars in the figures for the range of starting years from 1959 to 1964 appear to show the results for starting years one year earlier, from 1958 to 1963.

Figure 1(c) is for an initial withdrawal rate of 5%. The following table has estimates of the number of years a portfolio lasted based on the bar heights in the figure and the results of doing the calculations described in the article.

Code: Select all

Start
Year  Figure  Calc.
1958           45
1959    45     30
1960    30     30
1961    30     29 
1962    29     24
1963    24     27
1964    27
The differences are more noticeable in some of the figures, such as Figure 1(c), but not at all for Figure 1(a) in which all the bars are the same height.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

firebirdparts wrote: Thu Nov 24, 2022 8:05 am I'm extremely impressed that you're interviewing him, I appreciate what you're doing. I admit I don't really have a good question.
Okay, maybe I do.

"Have you reflected on the worst case over the years? (by that I mean let's presume it's people retiring in 1966 or 1929) What was the worst case, or were there several cases of interest that were similar? What do those specific cases teach us today?"

And

"If we say 4% is the right answer to the question, now much of the historical record is at about 4%? Is it randomly distributed, often about 4%, or rarely about 4%?
Much thanks! :happy

I'll add your question to the list!
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by Dave55 »

Jon has he done any research on variable withdrawal rates? And if so, what are his findings?
Is a 4% **Variable withdrawal rate sustainable?
(**withdrawing 4% of the Jan 1 portfolio balance of the new year and every year the 4% withdrawal is based on the portfolio balance at Jan 1)
Thanks
Dave
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by Young Boglehead »

Have you ever known anyone to actually use the 4% rule for their retirement? And if you haven’t, do you think that all the discussion around it isn’t that useful and possibly even counter productive? Especially if people are delaying retirement because they want something less than 4%.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by Random Musings »

Before the x.x% withdrawal rate is applied, what (if any) unique expenditures would Bill B consider to remove from that bucket? For example, a retired couple paying for some percentage of their child's education expenses? Projected gifting? Additional property(s)? Some of these larger lumps of expenditures could distort "base" cash flow needs.

RM
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by Marseille07 »

Lawrence of Suburbia wrote: Tue Nov 22, 2022 2:24 pm I'm guessing he's got so much money now that asset allocation doesn't much matter ...?

I'm trying to reassure myself that I can get by with a more conservative allocation (40/60-ish). I'm currently taking out about 3%, in wartime rations budget mode.
Bengen isn't following the 4% rule is what it is.

Nobody knows, but 3% is believed to be very safe even at a more conservative allocation like 40/60.
US & FM (5% seed) | 5% Cash
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by CurlyDave »

Dave55 wrote: Tue Nov 29, 2022 4:56 pm Jon has he done any research on variable withdrawal rates? And if so, what are his findings?
Is a 4% **Variable withdrawal rate sustainable?
(**withdrawing 4% of the Jan 1 portfolio balance of the new year and every year the 4% withdrawal is based on the portfolio balance at Jan 1)
Thanks
Dave
I do not know about Bengen, but the Updated Trinity Study (Cooley, Hubbard and Waltz, in the Journal of Financial Planning April 2011 "Portfolio Success Rates: Where to Draw the Line" -- it is linked in the Wiki if you look https://www.financialplanningassociatio ... -draw-line) answered a similar question which is "portfolio success rate vs. withdrawal rate" without inflation adjustment, this is shown in Table 1 of the paper. Basically rates between 6% and 7%, have greater than 95% success over 30 years for portfolios of 25-75% stocks, with 50-50 being close to the best.

So if I then ask the question what if I choose to take 7% and on paper re-start my retirement each year? The first year I take the first year of a 30 year retirement, the second year I take the first year of a 29 year retirement, and so on. The authors discuss a similar idea on page 8 of the paper, although with drastically fewer re-starts.

Of course, the real reason Cooley et al chose a constant percentage of the initial portfolio value is that any percentage of the current portfolio value less than 100 can be withdrawn each year without ever running out of money. The amount possible to withdraw can get extremely small if too large a percentage is chosen. In turn this means that an acceptable failure criteria is difficult to state and is always subject to second-guessing.

The fact that it is difficult to state does not mean it isn't worth thinking about, but it requires a different mindset than failure = 0 portfolio.
Answering a question is easy -- asking the right question is the hard part.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

USAFperio wrote: Thu Nov 24, 2022 8:44 am I’d be curious to know what Mr. Bengen thinks regarding how CAPE ratios affect SWR math, somewhat along the lines of some of the opinions Karsten Jeske has published on his earlyretirementnow.com website.
Interesting question. I'll add it to the list.

Have you seen the work by Kitces on the subject?

https://www.kitces.com/blog/shiller-cap ... -planning/
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by retireIn2020 »

I would like to know what his thoughts are for a new retiree using the 4% rule and drawing the entire 4% from their fixed income assets (CD's, treasuries, short term, etc.) and rebalance every 3 years from Bonds into those fixed assets, followed by a rebalance from stocks into bonds every 6 years (bucket approach) vs drawing the 4% equally across assets.
Asking for a friend :D
Retired as of July 2020
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

MaineRunner2001 wrote: Thu Nov 24, 2022 10:12 am
I am interested in this question too. I have a 40 stock / 45 bond / 15 cash allocation, and wonder what is SWR for that allocation?

Age is also a question I have about SWR. I am 56. Is my SWR lower than if I was 66?

Also would like to confirm these calculations are correct:

Is income subtracted from expenses when calculating withdrawal rate: (expenses - earned income) / (beginning net worth)? Last year I retired in August and with income from previous job, using above formula, withdrawal rate would be less than 2%.

This year, with no income, estimated expenses divided by beginning net worth would be less than 3%.

We made a 401k withdrawal and deposited it into a treasury money market Fidelity fund. I assume withdrawing from pre tax accounts and depositing into taxed accounts is not part of the withdrawal rate calculation. Is that right?

Thanks!
Some great questions here!

I'll add them to the list!

:happy
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by MaineRunner2001 »

JonL wrote: Thu Dec 01, 2022 11:24 am
MaineRunner2001 wrote: Thu Nov 24, 2022 10:12 am
I am interested in this question too. I have a 40 stock / 45 bond / 15 cash allocation, and wonder what is SWR for that allocation?

Age is also a question I have about SWR. I am 56. Is my SWR lower than if I was 66?

Also would like to confirm these calculations are correct:

Is income subtracted from expenses when calculating withdrawal rate: (expenses - earned income) / (beginning net worth)? Last year I retired in August and with income from previous job, using above formula, withdrawal rate would be less than 2%.

This year, with no income, estimated expenses divided by beginning net worth would be less than 3%.

We made a 401k withdrawal and deposited it into a treasury money market Fidelity fund. I assume withdrawing from pre tax accounts and depositing into taxed accounts is not part of the withdrawal rate calculation. Is that right?

Thanks!
Some great questions here!

I'll add them to the list!

:happy
Thank you!

Wanted to add expenses above include taxes. Taxes due on Roth conversions and the 401k withdrawal have been the largest expense for us in our first two retirement years.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

stan1 wrote: Thu Nov 24, 2022 10:35 am Some people might spend hundreds of hours building a complex, custom spreadsheet or simulation to model their retirement including taxation, expected rates of return, inflation, and other detailed personal factors. Could a case be made that a simpler rule of thumb, such as a 4% or 3.5% withdrawal rate, is an equally valid long range tool given the assumptions necessary in any model and uncertainty of what changes might occur decades out in the future?
Great question. It's going on the list.

Best,
Jon
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by dcabler »

JonL wrote: Fri Dec 02, 2022 10:01 am
stan1 wrote: Thu Nov 24, 2022 10:35 am Some people might spend hundreds of hours building a complex, custom spreadsheet or simulation to model their retirement including taxation, expected rates of return, inflation, and other detailed personal factors. Could a case be made that a simpler rule of thumb, such as a 4% or 3.5% withdrawal rate, is an equally valid long range tool given the assumptions necessary in any model and uncertainty of what changes might occur decades out in the future?
Great question. It's going on the list.

Best,
Jon
I would actually pose the opposite question. So much of what is written in the popular media regarding all things financial generally start with the presumption of something like the 4% rule of thumb, or some other number, but ultimately with a fixed percentage, adjusted for inflation method. Then a whole bunch of analysis ensues to show why whatever particular idea they're touting is a good one.

Then there are those of us who believe there are better (for us, anyway) systematic approaches for managing withdrawals than this that don't just end up with a simple rule of thumb because we're willing to trade off the uncertainty of depleting a portfolio early or leaving significantly more money on the table at the end of our lives with withdrawals that can vary year in and year out.

The 4% rule of thumb was a good start as it gave better guidance than what was being proposed by others at the time with little to no data to back it up. My question: What do you think about the various variable withdrawal methods out there and is there one that's your favorite and, if so, why?

Cheers.
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

dcabler wrote: Thu Nov 24, 2022 10:50 am Not completely facetious but I'd like to know why so much (virtual) ink is still spilled on this rule of thumb as a withdrawal method, given all of the other options available now and what he thinks of the alternatives?

Cheers.
I, too, would like to hear what Bill Bengen thinks about alternative approaches.

It's going on the list!
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

Tomorrow!

Bill Bengen - creator of the 4% rule of thumb - answers your questions.

We'll be going live at 12:00 PM Pacific / 3:00 PM Eastern.

Use the link:

https://twitter.com/i/spaces/1YpJkgMoPpMJj?s=20
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by JonL »

Folks!

We are just hours from Bill Bengen - creator of the 4% rule of thumb - answering your questions, live on Twitter.

We'll be going live at 12:00 PM Pacific / 3:00 PM Eastern.

Use the link:

https://twitter.com/i/spaces/1YpJkgMoPpMJj?s=20
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

Post by wolf359 »

Lawrence of Suburbia wrote: Tue Nov 22, 2022 2:24 pm
nigel_ht wrote: Tue Nov 22, 2022 1:06 pm
Lawrence of Suburbia wrote: Tue Nov 22, 2022 12:38 pm Is the 50-75% stock allocation still required for the 4% rule to work? ...
Does the 4% rule still work? :)

This isn't really a facetious question. Its quoted many places:

https://www.fool.com/the-ascent/persona ... ger-works/
https://finance.yahoo.com/news/even-inv ... 00007.html

After years of the 4% rule creeping upwards we have a lot of articles that now IMPLY Bengen says Nope...

And kiplinger says:

"Recently, however, Bengen disclosed that he has moved his own personal portfolio to 20% stocks, 10% bonds and the remaining 70% to cash."

https://www.kiplinger.com/investing/604 ... l-rule-did

As far as I can tell he dropped from 4.7% down to 4.4% or something similar...so my presumption is he believes that 4% still works...but it would be nice to hear it yet again from the horse's mouth and what he thinks of those alarmist articles...
I'm guessing he's got so much money now that asset allocation doesn't much matter ...?

I'm trying to reassure myself that I can get by with a more conservative allocation (40/60-ish). I'm currently taking out about 3%, in wartime rations budget mode.
If you read his original article, you'd realize that he is a financial planner, and was writing his article for other financial planners.

The 4% rule of thumb was intended to be used for planning purposes. The intent is that the planner uses that as a baseline and is flexible.

Bill Bengen himself believes in active management. He manages his own portfolio that way. He believed that a crash was coming and moved out to cash. In this case he was right. I don't know how he decides when to jump back in. I think he did it in 2008 as well. Back then he waited too long to get back in.

The 4% rule isn't intended as a withdrawal strategy to be strictly followed. It's a rule of thumb for planning purposes. Bengen still thinks it's valid. In fact, in other forums I think he said that he thinks the safe withdrawal rate is higher than 4% (now that the market has dropped and bond rates are higher.)
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Re: submit ?s: Bill Bengen on the 4% rule of thumb

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When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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