William Bengen: 4.2% withdrawal safe for 30 to 60 year retirements

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This article was posted January 1, 2025.

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Financial planner William P. Bengen was recently interviewed on a podcast about the "4% rule" for retirement withdrawals

https://affordanything.com/560-the-father-of-the-4-rule-finally-sets-the-record-straight/

Bengen has finally realized that 50 or 60-year pay out period returns for the S&P 500 converge to a narrow band (i.e., asymptopic). Though I would quibble with the 4.2% figure. While we can calculate historical "safe" withdrawal rates to 3 or 4 decimal places, I don't believe you can predict the future with more than one significant digit of accuracy. Thus, I'd say the safe withdrawal rate (SWR) is closer to 4% than 3 or 5. Of course, the SWR for pay out periods of less than 30 years should rise above 4%.

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There was another interesting podcast with Bengen on Michael Kitces's website where he discussed how he got into financial planning and how he managed his own retirement funds.

https://www.kitces.com/blog/bill-bengen-4-percent-rule-safe-withdrawal-rates-historical-returns-research-book/

It seems that most of Bengen's clients took more than a 4% annual withdrawal. And Bengen himself abandoned the "4% rule" after the 2008 market crash in favor of a "market timing" strategy that left him in cash and fixed income investments. He admits it hurt his investment returns versus following the "4% rule".

Last January, I outlined how I used the "4% rule" over my then 29 years of retirement. I elected to limit the cash and fixed income allocation to no more than 10 years' worth of annual spending (less in the years of low to zero fixed income returns), and kept the balance in the stock market through thick and thin.

https://retireearlyhomepage.com/howtouse4pctrule.html

Resources for more information

How much do you really need to retire?, Quora.com post from w.w. Lenzo Ph.D Quantum Physics, Stanford University 1990

Life Expectancy vs. Income in the United States -- Opportunity Insights Harvard University

PortfolioCharts.com - site that shows lowest cost ETF/mutual fund choices for a retirement portfolio

Bengen, William P, Determining Withdrawal Rates Using Historical Data, Journal of Financial Planning, October 1994, pp 171-180, Volume 7, Number 4.

Investment Company Factbook 2019, ICI.org

You ll Spend Less As You Age -- Time Magazine, Feb 26, 2014