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Bill Bengen Anwsers Three Q's Regarding the 4% Rule
His 4% initial w/COLA is a good start, or a good benchmark.
But there are many approaches - variations of Bengen's, dynamic approaches, increasing equity gradually in retirement, % withdrawals with or without residual values.
I have explored my own that is a bit more flexible - start with 5% initial and review every 5 yrs and reset if portfolio balance is higher. Another is modification of SWR to SWRM.
All this means that the retirement withdrawal problem is still searching for a satisfactory solution decades after Bengen's pioneering work.
An important simplifying assumption in William Bengen’s research is that retirees spend constant inflation-adjusted amounts throughout retirement. This may be at odds with the spending patterns of many retirees. An exploration of the data should give us an idea of how people actually change their spending during retirement.
A well-known early example of spending changes over time for retirees can be found in Michael Stein’s 1998 book, The Prosperous Retirement: Guide to the New Reality. Stein says retirement happens in three phases, popularly known as the Go-Go, Slow-Go, and No-Go years of retirement.
David Blanchett researched how average spending evolves during retirement. He discovered that spending tends to decline in today's dollars for younger retirees especially those entering their 70s. At around age 90 to 95 spending can increase sharply often because of significant health care costs¹. Blanchett calls this the "retirement spending smile."
His 4% initial w/COLA is a good start, or a good benchmark.
But there are many approaches - variations of Bengen's, dynamic approaches, increasing equity gradually in retirement, % withdrawals with or without residual values.
I have explored my own that is a bit more flexible - start with 5% initial and review every 5 yrs and reset if portfolio balance is higher. Another is modification of SWR to SWRM.
All this means that the retirement withdrawal problem is still searching for a satisfactory solution decades after Bengen's pioneering work.
Yeah my parents are taking a very flexible approach to this as they ease into retirement. they are working part time because their hobby/passion even in retirement is their work. But beyond that they are W/D 5% of the portfolio and taking trips, annoying their children by spoiling their grandchildren and just paying attention to the balance while holding a 2 year cash bucket (will go to 3 when fully retire).
I took their 8 fund capital group portfolio and turned it into a single fund capital group portfolio. its a 65/35 portfolio its a single balanced fund and very easy to manage.
I read about 5 books FOR them on the subject and in the end I was like this isn't that difficult at least as it appears.
Comments
It's good to hear Bengen.
His 4% initial w/COLA is a good start, or a good benchmark.
But there are many approaches - variations of Bengen's, dynamic approaches, increasing equity gradually in retirement, % withdrawals with or without residual values.
I have explored my own that is a bit more flexible - start with 5% initial and review every 5 yrs and reset if portfolio balance is higher. Another is modification of SWR to SWRM.
All this means that the retirement withdrawal problem is still searching for a satisfactory solution decades after Bengen's pioneering work.
You might enjoy this book (The Prosperous Retirement):
Reviewed here (in greater detail):
https://retirementresearcher.com/retirement-spending-increases-decreases-time/ Also, a boglehead discussion on the topic:
https://bogleheads.org/wiki/Models_of_spending_as_retirement_progresses
He discovered that spending tends to decline in today's dollars
for younger retirees especially those entering their 70s.
At around age 90 to 95 spending can increase sharply
often because of significant health care costs¹.
Blanchett calls this the "retirement spending smile."
https://retirementresearcher.com/retirement-spending-smile/
¹ Many retiree's spending keeps decreasing in today's dollars for their entire lives.
I took their 8 fund capital group portfolio and turned it into a single fund capital group portfolio. its a 65/35 portfolio its a single balanced fund and very easy to manage.
I read about 5 books FOR them on the subject and in the end I was like this isn't that difficult at least as it appears.