What caught my eye this week.
Perhaps if it was known as the Bengen rule, William Bengen would be more insufferable.
You’ll remember Bengen was the first to put statistical guardrails around how much a US retiree could spend from their savings to avoid running out of money.
The approach seems as obvious as the merits of index funds nowadays. But it was a breakthrough back then, when retirees managing their own assets all but used a Ouija board to tackle the problem.
Of course the 4% rule is subject to much debate. People say it won’t work at this time of paltry returns from fixed income. Bengen has warned his sums weren’t looking at early retirement or non-US investors.
Most interestingly of all, in a low-inflation world Bengen now believes US retirees can take out 5% a year with confidence.
Don’t get cross with me! Go listen to the podcast.
You should also check out the various withdrawal rate posts by my co-blogger The Accumulator.
More to spend
There was a further positive spin on retirement income from Christine Benz at Morningstar this week.
She makes the point that those retiring on today’s potentially lower withdrawal rates have almost certainly got much larger pots to draw on, too, thanks to the long bull market.
As a result, their actual spending budgets may not be much different:
To use a simple, admittedly arbitrary example, let’s say an investor retired in early 2011 with a $1 million 60% equity/40% bond portfolio.
If she were using the 4% withdrawal guideline–$40,000 initially with that amount inflation-adjusted by 3% annually–she’d have pulled about $460,000 from her portfolio over the past decade.
Meanwhile, let’s say someone who was 55 and had a $500,000 60/40 portfolio back in 2011 is ready to retire today. Thanks to market appreciation and assuming that she hadn’t been engaging in regular rebalancing, her portfolio is now worth about $1.4 million.
Even if she has to take a lower starting withdrawal of 3%, her larger balance means that her first-year withdrawal is about $41,722. Her first-decade withdrawals, assuming 3% initially with 3% annual inflation adjustments thereafter, would be about $478,000, roughly in line with the 2011 retiree’s.
It’s not quite apples to oranges, but it’s a worthwhile contribution to the discussion.
Bengen himself says in the podcast that precision is a bit moot. Any sensible investor will readjust if things go badly wrong. Like many advisors, he says his biggest challenge was to get retirees to spend their money, not it running out.
I believe there are many ways to skin this cat.
Other readers are working off 3% withdrawal rates, or even lower. Perhaps they don’t want to be left behind by lifestyle inflation in the general population. Or they may be skeptical about valuations in the market, and fear a crash.
My view is thinking sensibly about this problem gets you 95% of the way there. After that, adapt as you go.
Accumulation units: the income tax loophole that never was – Monevator
Should you own Bitcoin in your portfolio? – Monevator
From the archive-ator: The Warren Buffet passive portfolio – Monevator
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UK economy suffered record annual slump in 2020; GDP down 9.9% – BBC
Record $58bn poured into global stock funds in a week [Search result] – FT
Extra £3.5 billion to come to replace unsafe apartment cladding – Which
Brexit: Amsterdam ousts London as Europe’s top share trading hub [Search result] – FT
Bumble dating app founder a billionaire at 31 after IPO – ThisisMoney
Demand for rentals in the suburbs soars as cities hollow – Zoopla
Products and services
Are you overestimating how much state pension you’ll get? – Which
Basic cremations soar as Covid and David Bowie erode ‘pauper’s funeral’ stigma – Yahoo
How to save with a sim-only mobile deal – ThisIsMoney
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
One in five high net worth Britons have been turned down for a mortgage – ThisIsMoney
How 2021: get emailed Elon Musk’s market-moving Tweets – Elon Stocks
Goldman Sachs reopens Marcus savings app to UK savers – Guardian
What to do if your firm wants to own Bitcoin [Video series] – MicroStrategy
Homes for sale with a wartime history, in pictures – Guardian
Comment and opinion
Resentment – 15 Hour Work Week
Unfortunate investing traits – Morgan Housel
Millionaire who bought home at 26 regrets paying off mortgage early – CNBC
Is this 1929 or 1998? – Compound Advisers
The pandemic is a preview of life in retirement – Humble Dollar
Should shorting stocks be illegal? – Morningstar
AMC raised $1bn from meme stock mania, but GameStop didn’t even try… – Marker
…I mean, even Reddit, the home of WallStreetBets – raised $250m – Yahoo Finance
Naughty corner: Active antics
The value factor can temper a momentum strategy [Search result] – Morningstar
More: The historic tug of war between growth and value [Graphic] – Tweedy Browne
How to value shares with the dividend discount model – UK Value Investor
That sounds stupid, I’m buying some just in case – Josh Brown
A value premium update for the not very interested – Evidence-based Investor
The stock market pendulum – Novel Investor
It is difficult being a skilled investor – Behavioural Investment
Investment vehicles through the ages – OSAM
ARK angel mini-special
Cathie Wood amasses $50bn and a nickname: ‘Money Tree’ – Bloomberg via MSN
How ARK finds winners [Podcast] – Oddlots / Bloomberg
In case you missed it: ARK’s Big Ideas 2021 is fascinating [PDF] – ARK
Virus cases falling in all regions of the UK – BBC
Pre-print on positive impact of vaccines in Israel [PDF] – MedRXiv
How England’s Covid hotel quarantine will differ from Australia’s – BBC
Charles Walker MP warns long-lasting lockdown is “bordering on dangerous and robbing people of hope” – Sky News via Twitter
How killer T cells could boost immunity in the face of new variants – Nature
“We are desperate for human contact”: The single people breaking lockdown to have sex – Guardian
Kindle book bargains
Nobody ever buys a Kindle through my link.
Quit Like A Millionaire by Kristy Shen and Bryce Leung – £0.99 on Kindle
Elon Musk: How the Billionaire CEO is Shaping our Future by Ashlee Vance- £0.99 on Kindle
The Six Conversations of a Brilliant Manager by Alan J. Sears – £0.99 on Kindle
The Smartest Guys in the Room: The Scandalous Fall of Enron by Elkind and McLean – £0.99 on Kindle
Blown away – The Gregor Letter
Humanity is flushing away one of life’s essential elements – The Atlantic
Off our beat
Some things Jeff Bezos can do with his $193bn – The Verge
The key to being contrarian: think like a kid – Lucky Maverick
Clubhouse is the anti-Twitter – OneZero
Unlike their users, dating apps don’t travel well – Worth
Lunar New Year celebrations around the world, in pictures – Guardian
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The post Weekend reading: William Bengen’s new five percent rule appeared first on Monevator.