The Father of the 4% Rule Says Retirees Can Take Out Much More

**Robert Brokamp** (0:03)
The Father of the 4% Rule says that retirees can likely take out much more. You're listening to the Saturday Personal Finance edition of the Motley Fool Hidden Gems Investing podcast.
I'm Robert Brokamp, and I was on vacation this past week, so we're re-airing my interview with Bill Bengen from last August. Bill and I talk about his latest book, Why Most Retirees Can Withdraw More Than 4%, how factors such as market valuation and inflation affect the safe withdrawal rate, and whether retirees should decrease or increase their allocation to stocks as they get older.
If you ask a typical investor how much someone can safely withdraw in the first year retirement, the answer they'll likely give is 4%. That rule of thumb has been around since 1994 thanks to the research report published by a financial planner named William Bengen. Over the subsequent three decades, Mr. Bengen has done a lot of additional research, which he has summarized in his excellent new book, A Richer Retirement, Supercharging the 4% Rule to Spend More and Enjoy More. Bill, welcome to Motley Fool Money.

**William Bengen** (1:05)
Hey, thanks for inviting me. I'm looking forward to it.

**Robert Brokamp** (1:08)
We're looking forward to it too. Let's start with a little bit of your history. You got a degree in aeronautics and astronautics from MIT, but instead of working in the space industry, you joined a family-owned soda bottling business and eventually became the president. The company was sold in 1987 and you started a whole new career in your 40s as a financial planner.
So, what led you to the financial planning profession and then eventually your research into withdrawal rates?

**William Bengen** (1:32)
Well, I had never used a financial advisor and there's still a new concept at that time, and I figured that if I was going to have to deal with a lot of the stuff, it wouldn't hurt me to learn about it. Then once I've learned it, perhaps then offer my services to others to give advice.
It just seemed like a very appealing feel to me because it's an area where you can make a difference every day in people's lives.

**Robert Brokamp** (1:58)
Then from there, you had to determine, a lot of your clients were boomers, not quite yet in retirement, but getting close. I'm sure they asked you, all right, how much can I spend in retirement? You looked for an answer and you couldn't find one.

**William Bengen** (2:12)
Yeah, I looked through all the literature. It's not like today where we go on the Internet, type in a few words and there's thousands of sources of information. Back then, it was the library and talking to friends and associates, and nowhere could I find the answers to the questions. Probably not surprising since that issue really hadn't been of importance up until the early 90s, when people were starting to live longer in retirement, and the baby boomers were thinking of living into the 90s, unheard of.
Back in the 50s, you retired 65, and 10 years, you'd die. And that was it. But when you live in 85, 90 or more, it creates a whole new host of issues.

**Robert Brokamp** (2:56)
So you fired up your Lotus 123 spreadsheet, bought some data, figured it out, and your initial research found that the safe maximum withdrawal rate, which you called the SafeMax, was 4.15%.
Then you moved it up to 4.5% after doing additional research that you published in a book in 2006 So it's been above 4% really since the beginning, yet the term 4% rule has stuck. It is now widely referenced. So what was it like to see your research become so well-known, but also be given a name that's kind of outdated and doesn't really quite capture all the nuance and depth to your research?

**William Bengen** (3:35)
Yeah, it kind of led to mixed feelings on my part. It was fun to see my name out there and associate with this research. I had no idea what to expect. But the 4% rule, as it's been formulated, applies to such a small number of retirees. Almost every other retiree can aspire to take out more than that and should look at that. They should not adopt that off the cuff to start their planning.

**Robert Brokamp** (3:58)
So with your recent research, you have moved up the safe max to 4.7%. What are the biggest factors that have resulted in your increasing the number over the years?

**William Bengen** (4:10)
Primarily, I've made my portfolios more sophisticated. I started out with just two assets off the seven assets now.
Probably still not what some would consider a well-diversified portfolio, but it's getting there. Probably means my research still understates the true withdrawal rate by a little bit. I suspect that the number 4.7 could eventually become 5, throwing gold and commodities in emerging markets and alternative investments, and Bitcoin, digital currency, who knows what can go in the portfolio today.