William P. Bengen...The 4% Guy

William P. Bengen is an internationally known retired financial consultant who first talked about the 4% rule as a guideline for initial withdrawal rates in retirement savings. This guideline is intended to help you decide how much you need to live on and it can also be used to help determine how much you will need to save before you reach a certain age.

By following the "4% rule", William Bengen helps early retirees to make sure that the amount invested in assets and retirement plans will not erode too quickly. However, many early retirees fail to meet their investment targets due to inflation target. Even those with good retirement plans will notice that as time goes on, the real value of their investment portfolios begin to decline, which results in higher expenses.

In recent years, as interest rates have plunged, other researchers have estimated the safe withdrawal rate is now as low as 2.4%.

But Bengen, who has continued to do research on the topic, disagrees. His original paper was based on just two asset classes, intermediate-term Treasury bonds and large-cap stocks. He has since concluded that by adding a third asset class, small-cap stocks, investors could safely withdraw as much as 4.5% annually.

Bengen, 73 years old, holds that view despite believing that the current stock market is overvalued. He has slashed the equity allocation of his personal portfolio in half. Nonetheless, he maintains that retirees will be able to keep pulling 4%-plus from their portfolios as long as inflation remains subdued.

One thing that cannot be quantified, however, is the impact of having a good financial plan during your early years of retirement. Though William Bengen emphasizes the importance of having a solid, conservative investment portfolio, recent research shows that having an asset allocation that is based on historical averages can be beneficial. This means, as long as your spouse is willing to work, you can have a good risk-tolerance scenario that results in relatively secure retirement. Through a combination of sound money management and a conservative investment portfolio one can continue to live comfortably into their later years.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

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