FYI: William Bengen first wrote about the 4% rule in a 1994 research paper for the Journal of Financial Planning called Determining Withdrawal Rates Using Historical Data. He proposed a safe withdrawal rate of 4% of a portfolio’s value in the first year of retirement, an amount which is used as a baseline for spending going forward.
Each year thereafter, you would increase that initial amount by the rate of inflation so your spending keeps up with the cost of living.
Retirement nerds have been running Monte Carlo simulations and debating the merits of Bengen’s 4% rule ever since.
In my post from earlier this week — What If You Retire at a Stock Market Peak? — I used a simple percentage of assets approach along with an increase in spending rate by inflation. This approach takes market fluctuations into account when determining the amount to spend each year so some would view it as not ideal especially when the market tanks.
Here are the annual spending levels using a flat 4% rate of the market value for the unlucky market scenarios I outlined in that piece:
Regards,
Ted
https://awealthofcommonsense.com/2018/11/revisiting-the-4-rule/
