Weekend reading: William Bengen’s new five percent rule post image

What caught my eye this week.

Perhaps if it was known as the Bengen rule, William Bengen would be more insufferable.

But judging by his appearance on the Rational Reminder podcast this week, the inventor of the (in)famous 4% rule (of thumb) is a delightful human being.

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.

For example I’m still presuming I’ll convert to income producing assets if I ever decide to live off my wodge, much to the annoyance of some Monevator regulars.1

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.

From Monevator

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


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

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

More origin stories – Indeedably and A Chat With Kat

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

The failure of anomaly indicators in finance [Nerdy] = Mathematical Investor [h/t AR]

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

Environmental factors

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-TwitterOneZero

Unlike their users, dating apps don’t travel well – Worth

Lunar New Year celebrations around the world, in pictures – Guardian

And finally…

“Workers work hard enough to not be fired, and owners pay just enough so that workers won’t quit.”
– Robert Kiyosaki, Rich Dad Poor Dad

Like these links? Subscribe to get them every Friday! Like these links? Note this list includes affiliate links, such as from Amazon, Unbiased, and Freetrade. We may be  compensated if you pursue these offers – that will not affect the price you pay.

  1. Yes, you need more money to start with. Yes, you’ll probably die with lots of cash left unspent. No, income-investing is not a superior strategy to total market investor from a returns perspective. No, I wouldn’t be owning individual shares in individual dodgy failing UK companies and expecting them to pay me through a forty-year retirement. Et cetera.
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

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