Bengen on his "4% rule"

[Onward]

Here's an interesting interview with William Bengen on the "4% rule" he's known for.

Some surprises (to me), like his recommendation of active mgmt.

Retirees' Withdrawal Syndrome: How Much to Live On - Yahoo! Finance

 

[audreyh1]

I don't know of I ever knew about that extra 0.5%, but now that I do, I think I'll just assign that to my fund fees.

 

[Nords]

Here's an interesting interview with William Bengen on the "4% rule" he's known for.
Some surprises (to me), like his recommendation of active mgmt.

Well, one interpretation would be "active management" as in getting an advisor. But the phrase Bengen used was "actively manage", which could also mean "rebalance".

I voted in the 4% poll. Currently 75% of us think that 4% is enough...

 

[W2R]

From the article,

Q: What about the outlook for those retiring now?
A: If you're retiring today, you probably can't expect much more than 5 percent a year from U.S. stocks over the next five to seven years. That's a pretty bad start to your retirement. Bonds also don't look very good.
People retiring today have to be very careful. They may be better off not retiring for a couple of years. The greatest asset you have in an environment like this is a good-paying job so you're not dependent on the stock market or the bond market to support you.

Pretty sobering. And yet, he thinks a two year wait will make all the difference. I wonder if he is halfway expecting another market crash in less than two years.

 

[traineeinvestor]

This was somewhat surprising:

If you feel you could live for 40 years in retirement, either because you're retiring early or you have an exceptional genetic predisposition, you wouldn't want to take 4.5 percent, you'd want to take 4.1 or 4.2 percent

We are looking at a retirement period of 40+ years and I couldn't get comfortable with anything close to a 4% SWR. I'm sure Mr Bengen knows far more about retirement planning than I ever will but I want a greater margin of safety than a 4.1 or 4.2% SWR implies....especially if the 5% expected return eventuates (I assumed he was suggesting 5% nominal).

 

[NW-Bound]

I am planning on 3.5%, so I think I am safe. The problem is when I get SS, what will I do with the extra money, other than count and recount it. On top of that, I feel like I will be sliding down the Bernicke's spending curve soon.

That's OK. I always like counting money more than spending it anyway.

From the article,

People retiring today have to be very careful. They may be better off not retiring for a couple of years. The greatest asset you have in an environment like this is a good-paying job so you're not dependent on the stock market or the bond market to support you.

Pretty sobering. And yet, he thinks a two year wait will make all the difference. I wonder if he is halfway expecting another market crash in less than two years.

So, I guess the author is not among those who cry "Wh***".

 

[Ed_The_Gypsy]

From the article,

Pretty sobering. And yet, he thinks a two year wait will make all the difference. I wonder if he is halfway expecting another market crash in less than two years.

That is disturbing.

 

[Focus]

I wonder if he is halfway expecting another market crash in less than two years.

5% a year from stocks = market crash? How so?

Really enjoyed the interview (thanks, Onward), probably because I found it reassuring. What an impact Bengen has had on retirement planning with the 4% rule, even though it's been challenged a bit more lately, particularly by the "we've entered a new, it's-all-downhill-from-here paradigm" crowd (which could be right, of course).

I had come to believe that 4% was too ambitious a WR for 40 years. Now I think I can stick to it and add a generous 0.1 percentage point -- until I read Jim Otar's book again!

 

[MichaelB]

It was a good interview. Still, if he is correct, even "only 5%" for stock isn't bad if they then move back to deliver their historical averages.

 

[Ed_The_Gypsy]

The models I have used give me confidence in 3.5%, but if one needed the investments to last a long time with certainty, at 3% the fund should last forever.

 

[Live And Learn]

If 4% works for 40 years then I'm good to go TODAY. That would be so nice I think 3.5% is more comfortable which means I still have a couple of years to go unless I can cut expenses by 10k per year.

 

[jkern]

In Jim Otar's book, he uses 3.8% for 30 years and 3.1% for 40 years. Using 4.5% would scare the cr*p out of me in a market downturn.

 

[Nords]

That's OK. I always like counting money more than spending it anyway.

There's also "fondling it", or raking a bale of hundreds into a big stack and "jumping into it like a leaf pile".

Of course you could also give it to your beneficiaries and watch them [-]light cigars with it[/-] invest it wisely for their own futures...

 

[FIRE'd@51]

From the article,

Pretty sobering. And yet, he thinks a two year wait will make all the difference. I wonder if he is halfway expecting another market crash in less than two years.

My guess is that he's expecting real interest rates to rise allowing the fixed income portion of one's portfolio to contribute more.

 

[RetireBy90]

I sometimes think many on this board are too consertative, maybe lots are Scottish
But on the flip side, you don't get any do-overs, so I'm buying into a bigger pile before we pull the plug. My DW reminds me that in our life, we have been through many changes but we made it. Her take is why expect retirement to be any different? I'm in at 4%, but
then we will have 3 cola adjusted retirement checks plus whatever SS contributes. Belt, suspenders, and elastic waist-band.

 

[Huston55]

Belt, suspenders, and elastic waist-band.

That's a good thing!

Unless you turn into one of those old dudes who pulls his pants up over his belly button to just under his chest. That would be too [-]weird[/-] conservative.

 

[walkinwood]

From the article,

Pretty sobering. And yet, he thinks a two year wait will make all the difference. I wonder if he is halfway expecting another market crash in less than two years.

I wouldn't give any weight to his ability to tell the future.

He is famous (rightly so) for combing through historical data to show that you can't spend 6-7% of your portfolio and still expect it to survive 30 years. He doesn't have any claim to fame based on his ability to forecast the future.

But then who does?

 

[Onward]

He doesn't have any claim to fame based on his ability to forecast the future.

But then who does?

 

[NW-Bound]

There's also "fondling it", or raking a bale of hundreds into a big stack and "jumping into it like a leaf pile".

Nowadays, I have to settle with the joy of seeing the number at the bottom of my Quicken screen creeping upwards, ever so slowly. Yes, it does, until a "Wh***" post sends it reeling back down.

Anyway, without using Bernicke's spending model, FIRECalc says my 3.5% WR plus SS gives me a pretty good chance of dying a decamillionaire. Sure, I'd like to see Quicken reporting on that 8-th digit. If this forum will be around at that time, I will start a thread to announce it.

So, you are implying that I need to spend some? OK, so I change the spending model to 3.5% of portfolio each year, with no cutting back on bad years.

Hmm... FIRECalc says that it certainly reduces my chance of dying a decamillionaire. But look at the spending chart! It says that there will be a good chance I will be burning more than $200K a year in today's dollars (I wouldn't know what for!).

I dunno about this FIRECalc thinggy. And all that if I stopped working, which I am still thinking about.

FIRECalc results sound too good, but I wouldn't mind if it comes true.

 

[audreyh1]

Nowadays, I have to settle with the joy of seeing the number at the bottom of my Quicken screen creeping upwards, ever so slowly. Yes, it does, until a "Wh***" post sends it reeling back down.

Funny problem that! My version of Quicken seems to have the same response to "Wh***" posts too!

 

[FIREd]

You guys need to upgrade to the newest Quicken version! It seems to come with anti-wh*** protection.

 

[Ed_The_Gypsy]

So, you are implying that I need to spend some? OK, so I change the spending model to 3.5% of portfolio each year, with no cutting back on bad years.

....

FIRECalc results sound too good, but I wouldn't mind if it comes true.

The models I have used give me confidence in 3.5%, but if one needed the investments to last a long time with certainty, at 3% the fund should last forever.

NWB, by definition, a flat 3.5% of the portfolio each year will never deplete your stash. Galeno used 4%. The only negative is that the distribution each year can vary wildly, even when smoothed out with a cash bucket.

The 3.5% I referenced is of the initial pot escalated every year for inflation.

I do not know what I will do when the time comes, but there will be no hefty withdrawals unless we have a major health crisis. I am postponing SS and IRA WDs as long as I can.

 

[Ed_The_Gypsy]

I sometimes think many on this board are too consertative, maybe lots are Scottish

Actually, Dutch here. My dad told me the only thing tighter than a tight Scotsman was a liberal Dutchman. Copper wire was invented by two Dutchmen fighting over a penny.

 

[NW-Bound]

NWB, by definition, a flat 3.5% of the portfolio each year will never deplete your stash...

True, but one can set up FIRECalc's spending model so that in the years when the portfolio goes down, the spending stays at the 3.5% of the highest (previous) portfolio value!

The above was what I did, just for grins.

The 3.5% I referenced is of the initial pot escalated every year for inflation.

I understand that FIRECalc reports everything in today's dollars. It is nice that one can look at all the numbers without having to account for inflation.

 

[Ed_The_Gypsy]

It is a terrific tool, isn't it?