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"Bengen, creator of the ubiquitous “4% rule” for retirement withdrawals, has raised his benchmark rate to 4.7%. Those retiring today could start even higher, he says, at around 5.25%."
"Your actual “safe” withdrawal rate depends on many factors, of course, including market valuations and performance. In Bengen’s view, safe means that you can maintain a certain withdrawal rate over a 30-year period, no matter how the market performs."
"Bengen tested his withdrawal rate against all market conditions from 1926 to the present. It would have worked during the Great Depression and an even worse scenario—the stagflation of the 1970s."
"Bengen’s methodology assumes an allocation of 55% stocks, 40% bonds, and 5% cash."
If markets become unstable and we have higher inflation, then “retirees should control what they can, Bengen says. You might feel better reducing your withdrawal rate and watching your spending. You could also work longer, if that’s an option.”
If he really thought 4-5% was safe why does he need a caveat about feeling better by working longer?
It's worth noting that Bengen's "rule" assumes a 30-year time horizon and that the portfolio is emptied just as the investor takes her last breath. Most people don't want to cut things that close. They want a measure of safety in the event they last longer than 30 years, and most want to leave a legacy, perhaps a good-sized one. These additional factors militate in favor of a lower withdrawal rate (or a longer work life) and Bengen is up front about that.
Bengen's definition of "safe" means that an investor can maintain a certain withdrawal rate over a 30-year timeframe regardless of market performance. In a worst-case scenario (very low probability), the portfolio would be depleted after 30 years. For those interested in leaving a legacy, they may wish to decrease the withdrawal rate accordingly.
Comments
If markets become unstable and we have higher inflation, then “retirees should control what they can, Bengen says. You might feel better reducing your withdrawal rate and watching your spending. You could also work longer, if that’s an option.”
If he really thought 4-5% was safe why does he need a caveat about feeling better by working longer?
Good point about leaving legacy.
over a 30-year timeframe regardless of market performance.
In a worst-case scenario (very low probability), the portfolio would be depleted after 30 years.
For those interested in leaving a legacy, they may wish to decrease the withdrawal rate accordingly.
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