If you have delved into retirement planning even a little bit, you’ve almost certainly heard of – maybe positively, maybe negatively – the 4% rule. It first appeared in 1994 from a financial advisor, William P. Bengen and has generated much discussion since. In his telling, Bengen was surprised to find that there was no universal default withdrawal rate from retirement funds that was guaranteed or at least recommended to stave off every retiree’s greatest fear – outliving your money.
He ran a series of scenarios of someone retiring with a pot of money invested 60/40% stocks/bonds since 1926 to see what was the highest inflation adjusted withdrawal rate – the SAFEMAX – they could use and still have money left after 30 years. Was it 5%? 10%? 3.141592?
Bengen ran his scenarios and pinned down the worst case scenario – the poor guy who decided to retire in October 1968 into the teeth of a bear market and then the eye watering inflation rates (and disco!) of the 1970s. In other words, the only way that guy could still have money left after 30 years was to withdraw now more than 4% of his initial pot of money, inflation adjusted each year.
Four percent was the very lowest withdrawal rate. The SAFEMAX. In every other retirement scenario through the decades that Bengen ran, the fictional retiree could have withdrawn at a higher rate. Often significantly higher. For example, in the best case scenario, after probably losing a ton of money in the Wall Street crash, the fellow who retired in July 1932 could have starting withdrawing at a 16.2% rate! And thirty years later he would still have money left.
Of course, withdrawing 16% your first year of retirement is probably a . No one knows what markets will do in the next 30 years – although there are plenty of folks willing to offer their prognostications. The 4% rule is meant to protect you against the worst case scenario, such as multiple bear markets combined with high inflation.
And that’s your brief background on the 4% rule. Circa 1994.
A Richer Retirement. Decades later, in 2025, Bengen is back and wrote this book to check in on his now grown up 4% rule. Does it still work?
Well, as we would often say in my prior intelligence biz: BLUF (bottom line up front). The BLUF here, according to Bengen, is “Yes.”
In fact, Bengen assesses, based on several more decades worth of data, that the 4% rule could be adjusted upward to the “4.7% rule” (a slightly higher SAFEMAX!) if the fictional retiree diversifies their assets sufficiently. If you’re not sure about this, like Ms. Anysecondnow, Bengen’s book has got about 100 tables and charts to show the financial calculations supporting his conclusions.
My personal bottom line: That’s comforting. As an earlier than normal retired guy, I’m actually shooting for my money to last 50 years, when I’ll be 103. I think that’s pretty safe! So even though the book posits a higher SAFEMAX, I plan to keep my withdrawal rate at 4% or below. But it’s nice to know there’s very likely some wiggle room.1
Okay, that’s a lot of preamble. What did I think of the book?
It is absolutely worth a read if you are interested in this stuff. As I am. Notably, you don’t have to be a finance professional to understand the text — it’s written for the layperson who is generally familiar with personal finance terminology. That said, the book definitely gets into the financial weeds here and there. I skipped over a few sections and confess I wasn’t crystal clear about a few concepts even after reading them twice. Or thrice.
Among the things I gleaned from this book:
Taxes. Ignore taxes at your peril. And Bengen admits ignoring them, in part, to compute his scenario calculations. Actually, I agree that this is the right approach for calculation purposes. There is no feasible way to account for a near infinite amount of individual tax scenarios in a book like this.
But woe to the retiree who fails to account for taxes. As Bengen shows in the chart below, a retiree’s overall tax rate will significantly affect the SAFEMAX.
I thought the effect of taxes was such a crucial caveat that I was a little surprised that the 240 page book devotes only seven pages, including three charts, to the tax topic.
Asset Allocation. As noted above, a more diverse asset allocation was the main impetus for Bengen to raise the SAFEMAX from 4% to 4.7%. Specifically, from classes to . So, yeah, asset allocation is a big deal. Bengen zeroes in on this topic over the 33 pages of chapter 8, which I read with much interest.
For me, chart 8.2B stood out the most. (It’s identified as 8.2A on his website for some reason). Bengen analyzes how much the overall percentage of more volatile stock (equity) assets affects SAFEMAX. The happy conclusion, shown below, is that a retiree’s equity percentage can vary between 46% and 73% with very little effect on the SAFEMAX.
This suggests that if you plan to maintain a static allocation during retirement, an allocation of about 60% is ideal, leaving 35% for bonds and 5% for money market funds or their equivalent. — A Richer Retirement, p. 108
Bengen helpfully provides a companion website to the book, including all of his figures and charts in a zoomable color format. Thank goodness, because some of these charts approach un-readability in the black and white book format (check out Figures 8.6A and B).
The final chapter, Go Forth and Plan!, presents a nice summary of 13 key points along with important caveats.
I’m a fan of keeping my financial investments and allocations very simple. For example, I do not invest in individual stocks. Consequently, I appreciate the main takeaways of A Richer Retirement and the ease of implementing them. Conversely, readers who are more interested in examining various financial scenarios and projections will find plenty in the book to chew on.
- Bengen constantly reminds readers — and credit to him for doing so — that every single calculations is based on past scenarios. All the future projections are just that — projections. There are no guarantees here. ↩︎
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