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

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'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.
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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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.
iamblessed
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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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Lawrence of Suburbia
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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%?
A fool and your money are soon partners
USAFperio
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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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David Jay
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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

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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
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 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
MaineRunner2001
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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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