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Bill Bengen (The Inventor of the 4% Rule) Talks Retirement, Past Crashes, and How You Can Withdraw Even More!

The BiggerPockets Money Podcast
46 min read
Bill Bengen (The Inventor of the 4% Rule) Talks Retirement, Past Crashes, and How You Can Withdraw Even More!

He really is the man who needs no introduction (but here’s one anyways). Bill Bengen, the inventor of the 4% rule (and personal finance hero of Mindy & Scott) stops by the Money Podcast to talk about how he calculated his famed 4%, how he managed his client’s portfolios, and how the 4% has aged throughout the past three decades.

In his Original Article from the Journal Of Financial Planning, October 1994, Bengen outlined a groundbreaking calculation: a 4% withdrawal rate from your retirement accounts is all you need to comfortably retire (if enough is saved up). Bengen was hit with praise and criticism, but is still applauded to this day for having such a simple yet crucial metric for knowing how & when you can retire.

Using over 200+ retirement account portfolios spanning decades of time as research, Bengen still says with confidence, the 4% rule is a winner! He has the proof and we couldn’t agree more.

Whether you’re a few years or a few decades away from retirement, this episode features life-changing advice from one of the leaders in financial research. This is an episode you won’t want to miss!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Mindy: Welcome to the BiggerPockets money podcast show number 153, where we interview the father, the inventor of the 4% rule bill bangin, and talk about safe withdrawal rates from the man, the myth, the legend hymns.

Bill: As you lengthen the time horizon, you start out at four and a half percent for 30 years. And you go to 40 and 50.

And finally what I call them, Methuselah client who’s going to live forever. Still is 4% and approaches a minimum of 4%. Doesn’t go below that. And that is a worst case scenario. That’s if you’re retiring into a time where there’s high inflation and terrible bull markets or percent, I think you can do better than that.

If you’re careful about managing your investments and choosing a good time to retire in terms of market valuations and inflation. Yeah, I don’t see why 5% is not feasible or even a higher.

Mindy: Hello? Hello? Hello. My name is Mindy Jensen and with me as always is my 4% rule evangelist, cohost Scott tread.

Scott: Oh, what a, what a safe intro for this particular show.

Indeed. Pick a wrong with that.

Mindy: Can’t go wrong with that. Nope, Scott and I are here to make financial independence less scary less just for somebody else and show you that by following the proven steps. You can put yourself on the road to early financial freedom and get money out of the way. So you can lead your best life.

Scott: That’s right. Whether you want to retire early and travel the world at the 4% rule, go on to make big time investments in assets like real estate, or start your own business. We’ll help you build a position capable of launching yourself towards those dreams.

Mindy: Scott Scott Scott, we have bill Bengan on the show today. He invented the 4% rule, which is kind of the cornerstone of the entire five movement. And once I knew he was coming on the show, I asked our Facebook group what questions they had about the 4% rule. So a lot of the questions that we ask today, come directly from you.

The listener. Bill easily answers your questions. Like the absolute rock star that he is.

Scott: That’s right. We had, we had a really fun episode here with bill. Uh, he, he knows his stuff. He invented it. He pioneered it. He’s evolved. It. It’s like here’s the math, here’s what it is. Here’s my, my lane that I’m an expert in and let’s go to town and, and.

You know, beat up all the naysayers. So, you know, this is where, yeah. The, and Mindy, if, if someone says the 4% rule it’s being questioned, no, it’s not. We’re, we’re, we’re pretty comfortable with the 4% rule here. We’ve done the math. We’ve talked to the originators now of the rule. They’ll bang. And then I would, I wouldn’t say Michael Kitces is an originator of the rule.

But he was, he’s arguably taken some of that work from bill and evolved it and, and gotten into, into even more detail than the original research between the two of them, uh, bill bangin and Michael Kitces. Uh, I think you can learn a tremendous amount about a, an easy button way to manage your portfolio and think about the world of retirement.

Right? There’s all these layers you can bring in besides stocks and bonds. Oh, you have an easy button. You got to just for me when I used it on the next time, uh,

Mindy: I have an easy button, Scott.

Scott: Oh my God. That was easy. She got an easy button to, because I use it all the time. Okay. Okay. Okay. Okay. I see how it is.

Um, look, if you’re going with the easy button, retirement portfolio of just stocks and bonds. This is the expert. This is the guy who knows how to do it. This is the guy who invented into the original research to figure out exactly what you need to retire. He’s also totally up front in this episode today that, Hey, if you’re layering in things like real estate or small businesses, those can easily impact your retirement dates, but those are going to be things that you’re going to have to understand and know about your own portfolio in more detail.


Mindy: William bangin inventor, the 4% rule. Welcome to the BiggerPockets money podcast. I am jumping out of my skin to have you here today.

Bill: Great to be here

Mindy: in 1994, published an article called determining withdrawal rates, using historical data. And this, despite the, um, slightly dry headline was the most fascinating article I’ve read in my whole life.

Bill: Okay. Fascinating. Some people who’s I got pretty close to some death threats from some people were very unhappy with the conclusions I reached in that article. They wrote me very nasty letters.

Mindy: Well, that’s unfair. First of all, didn’t you use math to come up with your conclusions?

Bill: Apparently that’s not sufficient for some people.

Mindy: Yeah, it does not lie. Two plus two is always four that well, those people are wrong. So the initial article is. Just absolutely fascinating. I read it a few years ago and then I re-read it again today in preparation of this conversation. And it occurred to me as I was reading every person that I have ever talked to, who has argued with me about the validity of the 4% rule has never read that article.

Every argument that I have heard from somebody saying, you know, Oh, well the 4% rule doesn’t account for this, or you can’t do that, or it’s not going to last or blah, blah, blah, blah, blah. I’m like, Oh, you should read the article. Because every point that you just made is answered. Bill knew that you were going to ask that question way back in 1994, he predicted this and he has an answer for it.

If you’re listening to this episode and you haven’t read the article, I strongly suggest you read it. If you Google William Bengen 4% rule, you will find the link to the original article on Google,

Scott: somewhere, bill in your article, you kind of have a framework for adjusting the problem, which, uh, that people have around how much do I need to retire, right?

Which is the, this, the central question here. And your framework, I believe has four components to that. One is the size, the size of the pile of money. That you’ve got right. The second is the amount of, uh, th th they’re not, you’re going to withdraw. Well, I guess there’s five components. If not, you’re going to withdraw from that pile on a regular basis.

And then how inflation stock market returns and bond returns impact how big that pile needs to be in order to sustain your desired. Withdrawal rate. Is that right? Can you walk us through why you kind of thought about that with that framework or if I’m maybe misinterpreting and you have a different lens?

Bill: No, that was the initial framework. And actually there are a lot more factors into the nose for, for example, if you feel that you want to leave money, To your heirs after you pass away, uh, you have to specify that and that of course will reduce your withdrawal rate. And that’s important consideration. How often are you going to rebalance your portfolio?

That doesn’t seem my concern very important issue, but that can significantly increase your withdrawal rates. Believe it or not. If you, instead of follow the conventional wisdom of once a year, rebalance, you know, maybe every three years, every five years, let your profits run so to speak. So at that time, back in 94, which seems like an awfully long time ago, I was looking at, I was trying to identify what I thought were the most important factors that people would need to look to to solve this particular puzzle.

And those are those, as you mentioned, the foremost important I’d left out to me. I added more later on. Uh, and then I came up with that number of four and a half percent, which I can remember the moment I was sitting at my computer and I entered it. And all of a sudden, all the portfolios. Survive 30 years.

And it was a shocking experience, man. I said, I’m here, I’ve got a number. I know what it is. It’s four and a half percent. And it’s a lot lower than I thought it would be because the conventional wisdom at that time was much higher or much lower depending upon how you invest it. But that’s what I came up was.

And I was a pretty, pretty exciting moment in my life.

Scott: So, so I think it’s fascinating. And why the reason why it’s so important to found that number is because when you can identify that you can. But the goal is, if you go too low on your, with safe withdrawal rate, you’re building up a stockpile, that’s too big and we’ll take, and we’ll delay your retirement by a large amount of time.

If you go too small, your risk running out. Right. And so that’s why that’s the, at the highest level, if you’re listening at the staggering importance of you discovering this number here, this four, 4%, four and a half percent rule a number, what’d you say 4.25.

Bill: Uh, at the time was around 4.15. I’ve rounded off to 4.2, because I didn’t want to give the impression was a very precise calculation.

You know, these things are subject to change, but you’re right. And that that’s a worst case scenario. And when I, you know, I later years continued to research. Uh, I found that there were individuals who retired, who could have, uh, uh, withdrawn as much as 13%. Believe it or not very fortunate circumstances.

Uh, and the average long-term was 7%. So what caused it to go from 7%? Long-term it is down to four and a half. Well, The person who retired in 1968, faced a perfect storm. You had two terrific bear markets back to back in 69, 70 and 73, 74. There were big. And then inflation came in and inflation is a thief in the night for retirees because it forces them to increase the redraws every year.

And then it locks that in, I mean, stock market. Bull and bear markets. They come and go, you here, you lose some money, then you make it back. But when you have high inflation and you’re increasing withdrawal rate, that’s locked in for all your retirement. So it’s really a scary prospect to face high inflation, turn retirement.

Scott: Yeah. So, so in your article, you point out that the, the period in 1973 to 1974 is actually worse than for example, the great depression for retirees because of that inflation component. Could you kind of walk us through how you thought about that?

Bill: Yeah, sure. The great depression was very interesting because it was deflationary period.

The first three, four years. If you retired, let’s say 1929, let’s say the stock market crashed today. I think I’ll retire. And you went through the next four years of a terrible bear market. Lost 90%, but your drawls because of deflation, we’re coming down by 10% a year for each year, for four years. And they, to a large extent offset the stock market losses that you incurred as a result.

Great depression was not the worst case scenario was the high inflation of the seventies, which holds the record.

Mindy: Yeah. I want to come in here and read. This is almost verbatim from the original. That you wrote, it’s at an analysis of a retiree with $500,000 retiring in 1929, shows his portfolio dipping too, or sees his portfolio dipping to a low of $200,000.

If he converted to 100% bonds. In 1933, his funds would run out in 17 years. 25% stocks runs out in 20 years. 50% stocks runs out in 27 years, but if he stayed in his original 75% stock portfolio, he would have $1.2 million in 1992, assuming he was still alive and. This is the part that I love the most. If he converted to 100% stocks in 1933, he’d have $42 million in 1992.

Bill: Well, that would have been a nice reward for extreme bravery because 1933 was a tough time to go a hundred percent stocks, four years of miserable performance.

Mindy: You don’t. How do you get over that? The best time to invest is likely to be right after the worst time to invest in 2008, when the stock market crashed.

If you put money into the stock market, you saw some pretty amazing growth in March of 2020. If you pulled all your money out as it was crashing and then you didn’t have it back in there, it was go, it like marched right back up. What? In

Bill: weeks? Yes. How

Mindy: do you advise a client who is freaking out about the current stock market?

Because, and this is a great time to, uh, say my little disclaimer, past performance is not indicative of future gains, but how do you advise somebody to stay the course when you could have just a horrible this guy in 1929, lost. $300,000. He lost most of his savings. How do you advise them to keep the course

Bill: speaking metaphorically now?

Because I have no clients who, of course aren’t retirement, but if I did have a client, uh, I’d tell them, uh, at that point stocks very cheap. And when stocks are cheap, it’s always a great time to buy stocks, no matter what your fears, no matter what’s your lizard brain is telling you about the terrible things that are going on in the world.

You should just take the money and put it in there because they will eventually bought them. And you’ll do extremely well for a number of years.

Scott: You mentioned earlier that, uh, you identified more, more than four things besides inflation, the things we just got split that the inflation decides your portfolio, the return of stocks and return of bonds.

Have you, in, in, in future years, uh, been able to identify ways to increase that safe withdrawal from that 4.15% that you mentioned earlier to a higher number. And if so, what are some of the things that you found, um, that people can do to, to, to retire faster?

Bill: Sure absolutely. Well that 94 was baby steps for me.

I was working with only two asset classes. I was working with large company, us stocks and us treasuries. Uh, then about a few years later, after that I added small company stocks into the mix and they dramatically improve the picture. They actually raised the withdrawal rate to about four and a half percent.

And, uh, that’s using a modest amount of malt, a small company stocks, if you really want to. Go strictly by what happened historically, there have been periods of time when you could have gotten 25% withdrawal rates just by using the small company stocks. I know that sounds absurd, but that’s, what’s happened to starkly.

So that’s an asset class that’s worth looking into having your portfolio. Cause I boost returns and boost your withdrawal rates as well.

Mindy: Uh, let’s clarify for the listeners, what do you consider large companies and what do you consider small companies?

Bill: If it’s in one you started with saying has a database.

And, uh, for them, you know, the large companies in the mega large companies accompanies many billions of dollars. You know, I think generally small companies are those with market capitalizations of less than one or $2 billion today’s terms. That’s a small company.

Scott: W one of the things that really annoys me, uh, on a regular basis, frankly, is, uh, when folks say, ah, the, the 4% role, it doesn’t apply in this, doesn’t apply to that.

It’s not good for early retirees. So for example, I’m, I just turned 30 years old recently, and I’ve created a position of financial independence and I considered myself financially free. The moment I hit the 4% rule when I had 25 times my annual spending. For life, your research really works on that 30 year timeline.

I realized that in some cases you’ll deplete the initial reserve and you’ll end up after 30 years with less overall wealth. So start for the million dollars withdrawal at that 4% rate, you might end up with less wealth at the end of 30 years, but you don’t run out entirely for a young person. Who’s thinking about early financial independence.

How would you walk through the idea of using the 4% rule to inform their. Their journey there.

Bill: Okay. Well, how much you think about 40, 50 years? Perhaps they might be in retirement or more.

Scott: I have to live to be a hundred. I’ll be 70 years.

Bill: Okay. Okay. 70 years. I don’t want to plug my book, but I wrote a book about it.

And I’d recommend you get ahold of that because I went through in much greater detail than my original article, all these kinds of issues, but I’ll be happy to tell you what I discovered. I discovered that as you lengthen the time horizon, You start out at four and a half percent for 30 years and you go to 40 and 50.

And finally what I call them, Methuselah client who’s going to live forever. Still is 4% and approaches a minimum of 4%. Doesn’t go below that. And that is a worst case scenario. That’s if you’re retiring into a time where there’s high inflation and terrible bull markets or percent, I think you can do better than that.

If you’re careful about. Managing your investments and choosing a good time to retire in terms of market valuations and inflation. Now I don’t see why 5% is not feasible, even higher.

Scott: Absolutely. Yeah. And, uh, I, you know, I kind of I’ve, I’ve researched enough of this to know that that that’s the inevitable conclusion.

And for those who are not math nerds, there’s this kind of rule of the difference between 30 years and forever is not very math, very mathematically significant in these types of calculations when we’re looking at compounding returns and those types of things. But w another item on that, and again, A big debate in our fire community here is how rigidly do adhere to the 4% rule.

And there’s a lot of naysayers out there, Mindy and I are on your side and completely, you know, understand the math and the research behind it and feel that a balanced portfolio at 4% is it, is it you’re ready to go? But what I love about your research is that your research doesn’t, it assumes that it’s just that portfolio.

And nothing else. There’s no adjustment for lifestyle spending and down years, there’s no other sources of income. There’s no social security involved in it. Right. It’s just the asset class and spending from that in isolation. Is that right?

Bill: That’s right. That’s the issue that I’ve chose to study. I mean, other research that I’ve looked at, a lot of the other topics that you talked about, but I, I kind of want to look, I call a retirement.

It’s like a cow, it’s your retirement cow. And you want to get milk for the rest of your life out of it. So. Oh, I’m studying. What, what is the care and maintenance of this counselor last year, your whole life. So you’d get milk, you know, right to the last breath. And I’m the other issue is I’m leaving to other people.

I’ve got to study. Believe me. I don’t know much about cows. So mine

Mindy: took a little bit tag on what Scott was just asking about. Oh, I want a 70 year retirement. He’s not retiring this year. He might retire next year. Um, Michael Kitsis wrote an article. Called, how has the 4% rule held up since the tech bubble and the 2008 financial crisis?

And if you scroll through this article, you will come to a chart called terminal wealth. After 30 years of following the 4% safe withdrawal rate all historical years. And he, unfortunately, there’s so many years in here that the lines get kind of mixed up, but you can see that if you start off with a million dollars, In almost every case you still have at least a million dollars after 30 years.

So you’ve essentially not taken anything out because your portfolio has grown. There was, I believe he said one year where it dipped below zero and that was even in 31 years out. I think so. I mean, math doesn’t lie. The people that are sending you nasty grams should rescind those because you used math and math doesn’t lie.

And this art, this I’m very thankful to Michael for doing this chart because it’s so easily viewable and it’s so easily understood that, Hey. This makes sense. This 4% rule make sense, but even if you don’t want 4%, if this still like a bill bangin, brilliant bill bangin, isn’t able to convince you that 4% works 3% in your initial study said, if you withdraw at 3%, every single year without fail 50 years, plus that initial retirement account would last,

Bill: you.

Don’t pick your word for it. Cause I haven’t looked at my original paper,

but I’m glad you mentioned Michael Kitces. He’s a brilliant guy, a great friend of mine. And uh, uh, he’s right about a lot of things. If you take a look at it, how much money do most people have? Less 97% of people, all retirees end up with as much money as I started with in nominal terms and words. Almost everyone.

But, you know, when inflation is eating away at that during the 30 years. So the question is how much do you really end up with in terms of purchasing power? Well, still 75% of retirees end up with as much as they had in purchasing powers. I started, so I’ll still, it’s a very high percentage and that’s using, you know, the worst case scenario.

That’s why, you know, there is a good case to be made. If you can take out more and you can justify it, you should enjoy it.

Scott: We’ve interviewed a lot of people, uh, here over the years and really come to know a lot of early retirees. And while the 4% rules, math is very sound and we’ve discussed it at length and there’s a ton of, uh, reasons to be able to be willing, to rely on it.

Most, perhaps most importantly is that most of the time, the vast majority of the time, you’re going to end up with much more wealth in real or nominal terms than you started with. If you buy it by the rule. But in practice, we find that people still don’t. Rely on it. People hit that 4% rule. Then they’ve got a cash reserve, then they might have another asset or two, and then they might have part-time work for those types of things.

And so a problem that I’m sensing that, that I’ve encountered in this world of early retirees is this. I think abundant over conservatism, building a portfolio and sets of income that are so far and away more than is what’s needed to sustain their lifestyles. That it’s it’s delaying retirement. Do you ever wonder why?

Psychologically a lot of people can’t accept the 4% rule in isolation and rely on that without all these other buffers.

Bill: And they want to, they feel they need to take out less to be safe.

Scott: I just think,

Bill: you know, when you think about retirement, it’s scary in a sense that if you start running out of money, there’s not much you can do, you know, at age 85, very you’re going to become a fashion model at 85.

I don’t think so. You know, bringing the big bucks. Uh, so I understand the reason people want to be conservative. That’s why I looked at the worst case scenario, the first thing, but I don’t think. It’s necessary to be that negative. I mean, if let’s say you’re an investor in 2009 March when the market bottom.

Okay. Recently I discovered a way to predict what you redraw would raise should be based on inflation and market valuations at the time was a big breakthrough was based on Mike kitchen’s article on I, and he did it with market valuations. I had inflation and I looked at the 2009 Marsh investor and I figured out he could have taken out six and a half percent.

Very comfortably because the market was cheap. Inflation was low. So if you were tired there, you could take out six and a half. And probably if you’re going to retire for 70 years, it would have been five and a half to six. So there are times, uh, if you don’t want to die, outrageously rich, that you can do much better in four and a half percent.

Scott: Yeah. And again, the, the, the, the challenge I have, or the frustration I have for some folks is like, Hey, and that’s, the problem is in pursuit of dying, outrageously rich, you know, which is not what they’re intending it, but they’re intended to be conservative that I’ll put in is going to, you’re going to die, outrageously rich.

And you’re going to miss out on those extra years. For example, if you hate your job of working that job instead of retiring early, if you’re not. Familiar and comfortable with the mathematics of these things. So this, this can have a real world impact on how happy people are, how productive they are in a lot of ways.

If they could begin relying more on the math and understanding it more.

Bill: Yeah, I agree with you. I trust the math cause I’ve been through for 27 years, you know, and the things worked, uh, very well. Although you have to have a caveat, you have to, you have to tell people that there’s a possibility. This is not a law of nature.

We’re looking at. You know, things could change. If you got into a really bad period of very high inflation that lasted for a long time, you know, uh, even the four and a half percent rule could be in trouble, but I don’t see that on horizon. I don’t, even though the federal reserve is trying to get inflation up there, it’s not having much luck.

So we’ll see what happens.

Mindy: So I hear what’s God saying, and I hear a lot of these early retirees are our future early retirees with one more year syndrome. Oh, I just need to work one more year to really cement my, my position and it’s math. It’s so hard to just not sit here and keep saying it’s math, it’s math, it’s math, but this is the worst case scenario.

And like you said, in your most recent article, You could have taken up to 13% in some situations now, unfortunately you can’t know that her inflation isn’t on the horizon. You can guess you can look at a lot of indicators, but it seems that it just seems that 4% you keep coming back to this number and you know, if 4% doesn’t give you calm.

If bill bankin saying that it’s 4%, doesn’t. Give you calm and Scott and I agreeing with him a hundred percent. Cause he’s totally right. 3% was when you did the math 3% every year, every time anybody retired, 50 years, at least.

Bill: Yeah. I, I, and I know there are people, some of my colleagues who have warned about 4% being dangerous in this environment with very low acid returns, you know, to be expected, but we’ve had periods of time where.

Assets have returned poorly, uh, 1966, 1982, the S and P basically priced returned zero. It did nothing for 16 years and we may have a period like that coming up, who knows. But, uh, once again, it’s got to be a combination of really bad inflation, low return, low returns enough not to do it at least as far as I can say.

Scott: When we have, we have a lot of folks, again, listening to our show that have other assets outside of stocks and bonds and traditional portfolios. Do you have a framework that you apply for clients past clients? You know, I know you’re retired now, but. But where, Hey, I’ve got a business income and I’ve got a real estate portfolio, and then I’ve also got the stock and bond portfolio and those types of things.

And how do you think through layering those different types of assets and being conservative with all of that to get as fast as possible to the finish line?

Bill: I guess I, my, my quick answer to that is I, I, when I was an advisor, I didn’t do do it. Essentially. I told them, look, whatever acids you have, like that business real estate, you understand it better than I do.

You know, what the prospects are for that? I just said, let me focus you on your portfolio, which I understand something, an animal I’ve studied for very many years. You need to get the maximum out of it or not. That’s the first question. If you need an exact amount of it, I can tell you what you can safely take out if you need less.

Well, then we’ll take less and then you go, your wealth is going to balloon during retirement. So I usually didn’t try to get into details of clients’ assets because they understood them a lot better generally than I did.

Scott: Well, fair enough. One of the things, one of the thoughts that I’ve just had as, as a real estate investor in conjunction with my, my stock portfolio is, you know, it seems to me that a real estate investor would intend to live off of cash flow after not just their financing, but their other expenses that are related to the property like management, vacancy, allowance, maintenance, those types of things.

And by doing so you’re really living off of the dividend produced by the real estate and not even counting the, the inflation aspect. And, and so in a lot of ways you can, and I don’t even know, but I wanted to test this, this framework out on you at a high level of like, is that even more conservative perhaps than, uh, the, the income, uh, and draw down on a stock and bond portfolio, because I’m only spending the cashflow for example,

Bill: Well, once again, it’s a guess.

It depends upon the quality of your real estate portfolio, what you know about it and what his prospects are completely different stocks and bonds, you know, different kinds of assets with different, uh, different kinds of track records and real estate is so individual, isn’t it really compared to buying a, an S and P 500 stock fund, which gives you a blended portfolio across many companies.

And you’re not worried about performance of any one real estate. Or any one particular company. Uh, so unless I, uh, unless you have a vast real estate portfolio, which you can treat as a fund, you know, um, I guess you just gotta be sure, you know, what you’re investing in. That’s really important. Fair enough.

Mindy: Okay. Let’s talk about with the draw. What does it actually look like when you are withdrawing these funds? When you’re investing in the beginning, there’s the argument for dollar cost averaging versus lump sum investing. And when we pose that to Michael Kitsis in episode 120, he said, if you’ve got a big pile of cash, throw it all in at once.

Don’t worry about the dollar cost averaging. Just put it all in now because in 50 years, does it matter that you bought it at seven 80 or seven 82? No. What do you recommend for the actual withdrawing? Do you do it lump sum every year or do you do it every month or quarterly? How do you recommend that?

Bill: Yeah. Clients who did all of the above basically to their desires. You know, if you want a monthly, we’ll have essentially a monthly, if you want a quarterly annually, the research is based on annual draws done toward the end of the year. Okay. So that’s now some people have done research where they’ve withdrawn the money at the beginning of the year.

And again, it gives you a lower withdrawal rates that have four and a half has probably 4.2. It’s just, you know, that’s the way the math goes, but, uh, it’s up to the client, what they want to do. Probably my four and a half percent would, if they’re going to be taking money out during a year, Four and a half percent might be a little optimistic for them.

They should maybe work with a little lower, maybe four, four or four, three, because they’re taking money out of the portfolio sooner than we researched expected.

Mindy: Okay. And why would you take it out at the end of the year? Why do you recommend that?

Bill: Uh, I just simply use that. I adopted that. Uh, I, I thought it was based a lot of my clients retired with assumptive substantial cash accounts and they use that money to start retirement.

And then they went into their IRAs and other retirement accounts. So it just seemed like a reflection of what my client’s practice was at the time. Um, I could have set up spreadsheets taken out monthly, but. I want to tell you my spreadsheets with one annual withdrawal or a hundred megabytes, each they take 25 seconds to load, and I need a much faster computer, like a Cray or something to get this next level.

Scott: You, you mentioned, um, rebalancing earlier and how that can affect the, the withdrawal rates. Can you walk us through kind of your thought process on how rebalancing appropriately can, can maximize your, or reduce your safe withdrawal rate?

Bill: And this is a controversial area, you know, this is kind of cutting edge research, and I’ve talked to people about it in my field who don’t agree with me, but haven’t been able to explain why I’m wrong, but essentially I’ve been testing.

Scott: Disagree with it, but the wrong.

Bill: I know I’m not always right. So I’m listen to what folks say to me. There’s a lot of smart people out there who could teach me things, but, uh, essentially I’ve been testing a lot of different retirement dates. I have 260 retirements between 1926 and 1991, which have 30 year time horizons.

And I’ve been discovering consistently that if you withdraw at. One year and do it each year. It does not optimize your withdrawal rate that if you wait for three years or five years, and it depends upon the particular circumstances, you know, you can increase your withdrawal rate by two tenths, 25 basis points, you know, go from four and a half to.

Four and three quarters, which is not as significant, you know, in the context of things. And that’s difficult for some people to accept. Uh, but that’s what my research has shown is very consistent. Then I haven’t completed it, but that’s the indications that I have that rebalancing out a much longer interval than is commonly accepted is probably beneficial for your retirement.

Scott: Fair enough concerns I have as a younger investor about bonds in general is I think we’ve just kind of seen like 40 to 45 years of falling interest rates basically. And so every time that happens, that increases the equity value of your bond portfolio.

Bill: Right? Right. You know,

Scott: I see seeing rates as low as they are today that, you know, every time I rate is reduced even just a little bit, it gives a lot more leverage that lowered interest rate.

But it seems to me as a young investor, that that can’t continue forever and that rates will have to rise. During a large chunk of my lifetime. Does that forecast change anything about how you think about rebalancing portfolios or thinking through them? Or am I crazy? And I should just kind of,

Bill: I think you have a tremendously valid point.

I mean, interface has been declining for so long. There are a lot of people around who don’t remember a period of time when they Rose. I mean 1982, it was one of the big decline started, uh, it’s almost 30 years ago and bonds for years have provided income and they’ve provided diversification, but I agree that long game is probably over or at least, you know, for the foreseeable future, till interest rates start getting back up to closer to what we used to expect when that happens.

I don’t know, but I was thinking myself that. Um, although I advocate like a 55, 60% equity allocation and the rest in bonds. That’s the next time I get an opportunity to revise my portfolio. You know, when there’s this big stock market decline, we were almost stair earlier this year. It just didn’t quite come down far enough.

I might go to a much higher allocation of stocks than I would normally expect. I might go to 75, 80, 85, recognize that bonds really don’t contribute anything anymore. As you pointed out. And then, you know, not hold that allocation forever. You know, stock market rises Gretchen and just rates rise, pare it back.

But I, I think that’s one time you can make a case for very aggressive stock allocation when bonds offer so little.

Scott: Yeah. And, and again, just if you’re listening and trying to follow along here, and you’re not familiar with how interest rates affect bond portfolios. If I have a hundred thousand dollars in bonds and interest rates are 1%.

You know, then that’s the yield, right? And if, and if yields go down to half a percent, for example, then my portfolio has ballooned to $200,000 because people are willing to pay $200,000 to get a 1% yield that I can sell my bond portfolio at a half a percent. Yield. Right. And so the, the, the challenge that’s happening right now in 2020 for me to reconcile in my head is why are bond?

Why have bonds done so well in the last year? Well it’s because bonds were really low and they went even lower right recently. And so great. I’m thinking here, like if I’ve got a very low interest rate, I’m not going to get any income from that. That’s going to be meaningful to my lifestyle. Certainly it doesn’t seem like it’ll be in line with inflation.

And my upside is only if they continue to go down that said by getting out of the bonds game, we’re moving away. We’re where you’re losing this like huge leverage that’s happening every time the interest rates fall further because they’re lowering them in 25, 50 basis point chunks. So anyways, it’s just a kind of interesting a problem that I’m trying to grapple with in the context of this whole discussion about portfolio balancing.

Bill: Yeah, well, it’s the first time we’ve really come into a situation like this for interest rates have been as low and bonds have been useless, but I, one thing I just want to quantify or clarify, I wouldn’t be going 85% stocks in this environment right now with a very high evaluations. I’d be real careful about that and that, uh, what do you put your money in this environment?

That’s a real dilemma dilemma for folks.

Scott: Yeah, well, the other one is like, is it going to be inflation? Right? It’s almost like we’ve got this whole problem here of like, do I balance into cash? We’ll know I’m going to, I might have a lot of inflation. Do I put it into stocks? They might be overvalued. I put it into bonds.

There’s no yield. So that’s, my BiggerPockets is really popular right now, I guess, with the real estate. Um,

Bill: there’s a lot of merit to that.

Scott: So yeah, it could be interesting with all that.

Mindy: I want to talk about text accounts because in your original article, you said note that since we are assuming that all retirement assets are held in tax deferred accounts, capital gains taxes are not a concern.

If the assets have been held in a taxable account, the conclusion might’ve been different as the certainty of substantial capital gains taxes would have to be weighed against the probability of a large stock market decline and the loss of the benefit of a step-up in basis upon death. So. Assuming that all of my accounts are not in tax deferred.

How do taxes, how do you account for capital gains taxes? No,

Bill: I did research on taxable accounts as well. And that’s in the book. I don’t know. I don’t know if I did it on any of the papers on generally their withdrawal rates are about 10%, maybe 15% lower. It depends on your, you know, your effective tax rate.

Uh, so if you’re starting with four and a half percent, you might end up with a 4% or a 3.8% withdrawal rate for a taxable account still. Okay. Because we talked about withdrawals from tax deferred accounts, but we don’t talk about the taxes. You’re gonna have to pay on those eventually anyways. So I think what you’re going to end up with about the same amount of money after tax, which is using those different withdrawal rates, whether there’s a tax deferred or taxable

Mindy: account.

You have mentioned this book. Can you tell us the name of this book please? Oh

Bill: yeah. Uh, conserving client portfolios during retirement, and I’m using it as COVID experience here to up for upgrade book and revise it and add a lot of new research. Uh, that’s happened in the last 15 years since I wrote that book.

Scott: What, what are, what are some of those learnings that you’re specifically interested in layering in.

Bill: The, the recent discoveries you’re saying

Scott: yes.

Bill: Uh, well, uh, for a long time there, you know, we’re all stuck in that four and a half percent. We know RO mode. We knew that was the worst case scenario. And then Michael Kitces, you know, had a wonderful chart, which he showed chief stock market.

Cause you can take out more and he raised, I’d got lined to 5% and five and a half percent, but we had no process by which we go from these low levels to. Six or eight or 13, and just recently using Meisel research as a base, I was able to find a way to actually raise those withdrawal rates to the very high rates are achieved in the past.

If you’re lucky enough to, uh, come into the circumstances that prevail, you know, which is basically very low stock market evaluations, which you don’t have and low inflation, which we do have. But, uh, very high evaluations we have today, you know, forced shut down around 5%. And unfortunately until those valuations come down, you really can’t take advantage of much higher withdrawal rates that, uh, we were able to enjoy in the past.

That that was a big piece. That was the last big piece that allowed basically meters specify a whole process from soup to nuts, picking a withdrawal rate. Uh, following your plan, uh, monitoring, and also deciding if it’s in trouble. Cause sometimes we’ll draw plans. We’ll get in trouble. If you got a little greedy with your doll rides and then deciding what to do with your plan.

Once it is in trouble. So that’s all in place. I’m writing article for the journal of financial planning, where it all began, you know, years ago. And that should come out early next year. And I’ll lay out that whole process for the first time.

Scott: Well, I mean, that, that’s fascinating because if you’re, if you’re interested in early retirement and you want to spend $40,000 per year, for example, if you’re using the 4% rule, you gotta.

Build up a million dollar portfolio. If you can, you get to eight with some of this timing and some of the, you know, by, by leveraging this research. And I, it sounds like there’s a little bit of a timing element to it as well. Uh, that could potentially cut your. Portfolio needed to 500,000 in half. How many years does that shave off your, your timeline?

I don’t know, but it’s, it’s a lot. It’s a big

Bill: deal. Yeah. I think that’s very significant that that’s fine. I’m looking at this just so heavily because I’m sensitive to the criticism. People gave years ago that you accumulate too much wealth. They were right. You do that. Lately though the criticism has been the opposite way.

You can win sometimes, you know, draw rates too high. You’re going to run out of money. So, uh, we’ll see what happens, what comes out in the wash.

Mindy: Okay. So we’ve talked about a lot of things here, but we haven’t talked about how frequently somebody should be reviewing what’s in there. Portfolio in general. Um, my husband gets up in every morning.

He looks at the retirement portfolio, the stock holdings and all of that because he is the biggest money nerd ever. And that gives him joy to be able to see that and know that we’re on track. You don’t have to check it every day, sweetie, but he does. So then there’s other people who are like, I never look at it ever.

And I know there’s a false. I’ve given this false statement many times, but like the best returns are for dead people or something like that. And when, when you don’t look at it, you tend to do better. How often do you advise people? Look at their portfolios?

Bill: Oh, no more than every 15 minutes. I think

it’s a good idea. I’ll have to look at it too. I mean, I’m a once a day person myself, but that’s a habit I developed because I manage money for clients. And I had a big responsibility. I think once a month, you know, is good enough because how much did things change in a month? Really? And, uh, I wouldn’t do it more often than that because it can lead you into some trouble with the lizard brain kicking in and you’re starting to say, Oh, I better sell it.

It doesn’t look good. Then takes off, you know, the next week. That’s the way markets are totally unpredictable.

Mindy: Totally unpredictable. Okay. When the crash happened in March the six months ago, March or eight or whatever, uh, we interviewed a bunch of people about early retirees about their portfolio and how they’re feeling and the mad scientist Brandon said, you know, I really thought I was going to be totally fine.

With whatever happened. And then this giant crash, and I realized that I was not as fine as I thought I was going to be. So I am not making any rash decisions right now. I’m writing down my feelings. And then when the market comes back, because he has utter faith, that the market will come back as do most of us.

Um, when the market comes back, I’m going to revisit my asset allocation based on the feelings that I have written down in real time. And I think that’s a really brilliant piece of advice. So I just wanted to share that again.

Bill: Yeah. Self-analysis yeah. I think that makes sense.

Mindy: Yeah. Take your emotions. Put them down on a piece of paper and then don’t act on them.

Bill: Great advice.

Scott: Have you seen that happen across your clients over a period of years? Where, where in spite of the, you know, all, all of that education upfront people still panic and sell and do the wrong thing at the wrong time to, to blow up.

Bill: Yeah. I’ve had clients, you know, does somebody take control of their portfolio and was celebrating?

And I remember going to a financial planning conference in the fall of 2008, remember October, November were terrible. Most 15, 20% down. And I was talking to financial planners. I’d gotten my client completely out of stocks at that time. So I was feeling pretty good, but there are financial planners there who are literally in tears because their clients falls have a devastated.

And I didn’t know how they’re able to tell the clients how to know how to grow up with that. It’s a serious problem. One of markets decline that much and unexpected. If the markets came back you’re right, the question is, will they always come back as fast I have with a federal reserve, always be there, you know, with QE, uh, the pump market’s back up, who knows.

Yeah, I

Scott: think, I think it’s like the outlook that I think Mindy and I share is that the investment is there for the very, very, very long-term, you know, and it doesn’t matter if I’m buying it at a hundred today or 70 tomorrow, you know, I’m going to continue to buy consistently. For the longterm with my portfolio outlook and stay the course on that.

And you know, in, in March this year, it was scary. We didn’t know it was going to come back. We just knew it was tanking, but my belief was not that it was going to come back within a month. My belief was that over my, uh, Methuselah, uh, lifetime of investing, uh, as you mentioned, I will be in a better place over the long run by continuing to apply my formula and trusting the math over the longterm.

Bill: Well, you folks are in the saving phase of this project. And I agree with you a hundred percent. That’s the way to look at it in the saving face. When you pass over the Rubicon and go into retirement. I suggest that there may be a different outlook that model money you’ve accumulated is all you’re going to have.

So I, I would be very, very protective of that asset base at that time. And I wouldn’t expose it to undue risks of very highly valued markets. Uh, or from inflation, but I agree with you during the saving phase, you’re doing the right thing. You need to be aggressive. You need to trust and financial investments and let it ride.

So you build a pilot as big as possible.

Scott: So let me ask you about that. There’s a, there’s a period between the savings phase and their retirement. Phase right where it’s not a light switch. It’s a, I’m thinking about I’m planning it. I’m going to tease it into it. No, I’m not. Yes, I am. That we’ve experienced a lot of folks, perhaps you’ve experienced that with, with your clients.

Uh, how does that. Transitioned look, how do you set yourself up for a really healthy transition with your portfolio there? Uh, from a thought process perspective,

Bill: that’s a complex issue. Uh, it depends on, well, let’s say you were a hundred percent stocks at age 60, and you’re saying five years, I’m going to retire.

I might say, well, you know, we’re, we’re getting to a 60, 40 portfolio at age 65. You’re at a hundred percent stocks now, why don’t we just knock. No. So many percentage of stocks each year and transition phase into that, uh, ideal portfolio. That’s right. One way I’ve done it with clients. And once again, it depends on our market outlook.

You know, if you’re a 60 and it’s 2000 and then the tech bubble is happening, maybe he’ll say, why don’t we do 60% now, you know, conserve some of that stuff. So it’s, it’s, it’s a complex issue. It really, really tough. Well, I would tend to look at it. Some kind of a fasion kinda like reverse, uh, buying in humiliating capital, gradually

Mindy: original article.

You mentioned a 50, 50 stock bond. Allocation. And then you looked into, uh, 0% stocks, 25, 50, 75 and a hundred percent stocks. And in the article you came to the conclusion that it was between 50 and 75% stocks. What are you thinking about now? It almost seems like. Bonds returned nothing. So you don’t want those, but the stock market is so highly valued.

Maybe you don’t want everything there. How do you determine what’s best for you? Scott is 30. I am. I’m a little old.

Bill: I, I, if you’re at your age, you know, you probably don’t need to worry too much about anything. You’ve got many years left to accumulate and, uh, just let it ride, you know, I won the, uh, stock market crash in February.

I was just 10% stocks. I actively manage my portfolio. And I rapidly moved it up to 25%, but you have to buy when the market goes down and your light on stock, you have to buy and what’s your hands, blind faith in the market’s going to come back. Okay. Uh, cause that’s, that’s always worked. They always have, uh, and I was looking for the market to go even lower and I would’ve got to 60 or 70% stocks very quickly, but it didn’t happen.

So. I’m stuck somewhere right now, about 20% stocks, 5% goal, and the rest in various forms of fixed income investments. I’m not happy about that, but I just feel that, that these valuations is a lot of risks and I don’t want to expose that nest egg to the big risks. And as Warren buffet says, you know, first fool of investing don’t lose money.

Second rule. Don’t forget the first rule.

Scott: So, so you have a good, very good 20, 20 I’m hearing. Uh, if most of that is in fixed income investments and you bought right at the bottom of that, uh, that, that dip there in March.

Bill: Yeah. I’m pretty happy with the prices I got, you know, back and early in March mid-March and I was lucky a couple of years ago they were forecasting interest rates were going to go down to zero.

So CDs were about 3% there. I bought a bunch of CDs at 3%, which really looked awful at the time, but. Now look pretty good. Cause I got bought five, seven year positions and they’re going to last a little bit, the risk that bonds have.

Scott: So I, you know, I w I am not, I think Mindy would would say she’s not, you know, an expert on price, price levels in the stock market, for example, with those types of things.

And so we passively manage our portfolios for the vast majority of them. Is that right?

Mindy: Mindy? Yeah, well, I don’t do it at all. My husband passively manages it, but he’s always, I, I don’t know that I could call it passive. Cause he looks at it every single day. He’s not trading. He’s not like a day trader.

Bill: He is the investments.

The funds are probably passively managed index funds or something.

Mindy: We do have some individual stocks because he is a tech geek as well and loves to research that and jump in on some of those properties or some of those companies.

Scott: Uh, I, I feel like I’m not in a position to be able to assess the stock market’s pricing, for example, like to me, whether the stock market again, and maybe that’s because I’m in the savings phase and not the third retirement phase with that.

Um, for other folks though, maybe are in the retirement phase, how do you. But, but are don’t have that skillset to actively manage their portfolios or take advantage of those dips and those types of things, or just have their portfolio in there. And it’s just a rebalancing act. Is there like a rule of thumb or something that you can do?

That’s totally automatic to negate the need for those decisions?

Bill: Well, back to the research I did recently, I told you about where we were able to assess five based upon today’s inflation. And today’s market valuations, what you would draw rate should be. And historically, you know, we’ve got a template we’ll, let’s say from 1947 had the same characteristics, same market version.

And we use that basically. Right. Do you use to measure your retirement against, uh, and you shouldn’t have to do anything if you just want to lock in, you know, the 60, 40 portfolio and balance every, uh, three to five years, that’s all you need to do. Uh, Uh, it may get a little uncomfortable at times, but you know, if the market performs that it has in the past, you should be okay.

Inflation is, is a real, you know, boogeyman here that nobody, nobody can foresee it. And that’s the danger. Okay.

Scott: Well, well with that, let’s go ahead and transition to our famous four. These are the same four questions that we ask every single one of our guests and, uh, and, uh, we’ll, we’ll get right into it.

Mindy: I am so fascinated to hear, what is your favorite finance book?

Bill: Bill? Oh, uh, security analysis, that great book that Warren buffet based his career on classic from the 1930s. You know, I cut my teeth on that book and I read it once every couple of years, even though I don’t buy individual stocks Masada anymore. It’s just the logic, the understanding of how markets work,

Scott: you know, And Graham classic.

Um, what was your biggest money mistake?

Bill: Oh, I told you how well I do with my clients getting out of the market in 2008, but I didn’t tell you what a lousy job I did getting them back in after the market came back, I asked to be full disclosure here. I took, I did a poor job of that and that’s because I did not have in place.

Uh, you know, the methods that I have now, uh, to take advantage of lower prices, idea, scared of what was happening in the world. I got a lot of people, uh, but I should have taken advantage of a little valuations at that point and just held my nose and put my client’s money. And it took me a couple of years.

And by then, you know, we had lost a lot of the advantage we gained and being out of the market and October, November, 2008. So that was a big and very painful mistake.

Scott: Well, the opportunity cost that. Great, great mistake. Always one of my favorites that when people mentioned that fish, I could have done this better.

Bill: Yeah, that’s right.

Mindy: Yeah. Bill, what is your best piece of advice for people who are just starting out?

Bill: Oh, learn to be savers. Yeah. I have to stack it away. Uh, and uh, no matter what, no matter what the circumstances are, do the best job. Again, put as much as you can grit your teeth and it’ll. You really enjoy it once you get down to the other end of the journey.

Scott: Yep. And then the other end of that journey is when you have 25 times your annual spending or can withdraw on the 4% rule. Not way past that.

Bill: Yeah. I agree.

Scott: All right. Well, what is your favorite joke to tell at parties?

Bill: Oh gosh. Oh, I got an Abraham Lincoln joke. If you can tolerate it, you know, you probably don’t have many people tell Abraham Lincoln jokes.

Remember where he was a young politician before the civil war is running for the Senate us Senate. And, uh, he was stumping around the country with his opponent than his opponent. Just finished a very impassioned speech in which she called Lincoln all kinds of names, including, uh, uh, to, to face politician.

And then he sat down and Lincoln stood up and Lincoln yellow is not a handsome man. The ladies and gentlemen, my opponent has called me a two faced politician. I want to ask you if I had another face, would I be wearing this one?

Scott: I wish I had spent.

Bill: I wish I could have been there to hear that. Brilliant man. Markable man.

Mindy: He was a brilliant man from my home state of Illinois. Oh, okay. Bill. Where can people find out more about you

Bill: on the internet? Uh, I have a Wikipedia page for what it’s worth. Uh, LinkedIn. Yeah, LinkedIn. Uh, I have a small bar graphy.

If I get my book, I have some biographical information. Uh, it depends on what they want to know.

Scott: Well, where can people find your book or, or when does the new updated version, um, and work become or get released?

Bill: Yeah, it’s currently on amazon.com probably down to the last 50 copies that I bought the access to the publishers after they, they stopped publishing. Uh, and then my new book, I hope to get out.

Uh, sometime later in 2021, probably in Kindle because I use a lot of charts. I love charts and I love to use color, very expensive to do print color, but Kendall, I would think will be fill very affordable

Scott: and sorry, I just missed it. When, when will that


Bill: out? Uh, hopefully later, next year later, 21. Yeah.

Scott: Okay. Great. Well, we’ll be on the lookout for that. And, uh, maybe when that comes out, we can ask you some more questions about some of the newer research

Bill: I enjoy death.

Mindy: That would be awesome. Okay, bill, thank you so much for your time today. This was fabulous and I’m so happy to have had a chance to talk to you.

Bill: It was a real thrilled. Thanks for inviting me.

Scott: Thank you. Thank you so much. It was a real pleasure to learn from you. And to hear you talk about this original research yourself. So, uh, what an honor, and thank you very much.

Bill: Best of luck to you. Fuck.

Mindy: Okay. Thanks bill. We’ll talk to you soon.

Bill: I hope so. Have a nice holiday.

Mindy: Thanks, you too. Bye-bye okay, Scott, that was bill bangin. What did you think?

Scott: I thought it was great. I thought it was a fun discussion to have about some of the, uh, some of these items here. I, you know what I was surprised I shouldn’t have been because that was his job, but for whatever reason, it kind of surprised me when he started talking about his active portfolio management.

But, you know, I guess like if you spend. You know, decades researching this topic and you know, your numbers and those types of things. Yeah. You’re going to actively manage your portfolio, but man, what a brilliant conversation and, and, you know, great questions from us. Great answers from bill. Uh, I just had a lot of fun today.

Mindy: Great questions from you. The listener as well.

Scott: That’s right. You listen to her, set us up with really good questions. So thank you. Yes.

Mindy: Yes. I absolutely was delighted to have him on the show today. He knows his stuff. He’s super sharp. And you can ask him. I was actually really surprised that people were talking smack about him and saying, Oh, this isn’t right.

Uh, it’s math. How many times did I said that in the episode, it’s math, you can’t lie with math and he didn’t lie with math. And look at this. Now he’s saying, you know what? And he wrote an article in September and it was for financial advisor magazine. It was called bill Bengan revisits, the 4% rule using Shiller’s Cape ratio and Michael Kitsis, his research that updated as his position and said, you know what?

4% was the safe withdrawal rate was the absolute worst case scenario with the drawl rate in that article, he says that a lot of people can go seven to 13%, depending on when they’re retiring. I’m still basing mine on the 4% rule and I’m going to withdraw 4%. I’ve got to that point. It’s actually, uh, we’ve gotten more than that because I’m still working.

But it just reinforces the fact that he’s right. He’s totally right. He’s a hundred percent. Right. And if you want to argue with him, uh, call him up and he will tell you just how wrong you are. He’s actually very sweet and won’t do that, but he’s right. If you want to retire early, the 4% rule is it shouldn’t be written in stone.

Scott: Well, yeah, I, I think the 4% rule by definition fines, the worst case in all of history, right? So the only way you wouldn’t believe the 4% rule is if you think there’s going to be a period coming up, that is way worse than all of history and that case you might run out of money or more likely just end up with less wealth than you started with after a 30 year time horizon.

But again, if you’re using this, if you’re listening to this and you’re on the way to early retirement, What you think about is great. The 4% rule is the worst case in history. Here’s what I think about once I’m at 4%, I’m retired, that’s it I’m retired. And I also acknowledge that there’s this 2% chance that I run out of money.

Before the end of that period. And there’s maybe a 25% chance that I end up in that period with, with less wealth than I started with. But what a great starting point for someone who is retiring early, because look. That 4% rule does not assume that you’re not going to earn another dollar and your life.

It assumes that you’re not going to adjust your spending. If there’s a time that that calls for it and your portfolio begins to shrink, it assumes that you’re not going to get social security income. It assumes all of these different things. That make it incredibly, even more conservative than that. So if you’re trying to think about like, what is fine to me, and you’re not a real estate investor or a small business owner, you’re just earning money and stacking in a way.

And stocks and bonds. The 4% rule is as good as starting place as you’re going to find. There’s just not going to be a more conservative, reasonable assumption with that. That said, I also acknowledged that a lot of folks go on to then build up cash piles and excess to that they go on to buy other assets and those types of things and layer those into their calculation.

So go for it, but use it as a starting point and the rule of thumb when you’re free, when you get to 4%.

Mindy: You could be free. You can choose to stay working if you really enjoy your job, but you that’s. The real point of financial independence is to have the choices available to you. And yeah, once you hit the 4%, my super math geek, brilliant husband still was not convinced after reading all of the things.

He still wasn’t convinced and had that one more year syndrome. And once he finally left, he was like, yeah, it just continues to grow. And yes, he’s got me working, but the portfolio continues to grow without adding to it as well. So yeah, this is the safe withdrawal rate and, Oh, it was just so much fun to talk to bill.

Should we get out of here, Scott?

Scott: Let’s do it

Mindy: before we do. I want to send a huge thank you to Michael Kitces for introducing us to bill for Michael’s brilliant research extension into the 4% rule and just in general for being a super human being. The notes for today’s show can be found at biggerpockets.com/money.

Show one, five, three. Do you know somebody who argues with you about the 4% rule have them listen to this episode and have them read the article? The original article we will link to in the show notes as well, have them read that and then have a. Intelligent conversation and don’t tell them, I told you so.

From episode 153 of the bigger pockets, money podcast. He is Scott trench and I am Mindy Jensen saying later, tater.


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In This Episode We Cover

  • What the 4% rule is
  • How Bengen came up with the 4% rule and why it stands the test of time
  • How inflation becomes the “thief in the night” for many investors
  • The best (and worst) times to invest
  • How to stay the course during financial downturn
  • Which asset classes boost great returns and withdrawal rates
  • Steering clear of “1 more year syndrome
  • The importance of rebalancing your portfolio
  • How to not accumulate too much wealth for retirement
  • Why everyone needs to learn how to be a saver, so they can enjoy life!
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.