While attending the NAPFA National Conference in Bellevue, WA, Roger had the privilege of sitting down with Bill Bengen, one of the true financial planning legends. (Ben had the privilege of sitting comfortably in his home.)

Bengen's landmark 1994 paper in the Journal of Financial Planning introduced the world to the now-famous "4% Rule", which stated that based on historical returns for stocks and bonds, a retiree who withdrew no more than 4% (actually, 4.2%) of their initial portfolio and then adjusted future withdrawals by inflation had the greatest chance of not outliving his or her funds.

And just like Louis XV, after Bengen came the deluge of researchers - including Bengen himself - who revisited, and refined the concept of Safe Withdrawal Rates. And many a PhD was hooded...

In this episode, we touch on:

  • Bengen's motivation to research safe withdrawal rates
  • Data sources available at the time
  • Strengths and limitations of the 4% rule
  • The role that taxes and tax-deferred accounts play on Safe Withdrawal Rates
  • New research on the impact that including small cap stocks has on the 4% rule. (It's HUGE!)

Links to things we mention and/or are related

  • The original 4% rule paper
  • Wade Pfau's website (www.retirementresearcher.com) has an entire archive section dedicated to the 4% rule
  • Two new software packages (The Big Picture and Timeline) are built on the premise of helping advisors determine safe withdrawal rates for clients. Michael Kitces reviews both programs in a recent blog post.