William Bengen established 4% as the initial safe withdrawal rate in retirement more than 30 years ago. But in subsequent research, he has concluded that 4% is likely much too low. That research is thoroughly explained in his new book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.
In this podcast, Bengen joined Motley Fool retirement expert Robert Brokamp to discuss:
- How factors such as market valuation and inflation affect the safe withdrawal rate.
- Whether retirees should decrease or increase their allocation to stocks as they get older.
- Bengen's suggested withdrawal rate for current retirees.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.
A full transcript is below.
This podcast was recorded on August 30, 2025.
Robert Brokamp: The father of the 4% rule says 4% is likely much too low. You're listening to the Saturday Personal Finance edition of Motley Fool Money.
I'm Robert Brokamp, and this week, we're going to do things a little bit differently. We're going to forego our last week in money and get it done segments and just feature a guest interview, and that guest is none other than William Bengen, the financial planner whose research established 4% as the safe withdrawal rate in retirement. Bill and I talk about his new book, why most retirees can withdraw more than 4%, how factors such as market valuation and inflation affect the safe withdrawal rate, and whether retirees should decrease or increase their allocation to stocks as they get older. If you ask the typical investor how much someone can safely withdraw in the first year of retirement, the answer they'll likely give is 4%. That rule of thumb has been around since 1994 thanks to the research report published by a financial planner named William Bengen. Over the subsequent three decades, Mr. Bengen has done a lot of additional research, which he has summarized in his excellent new book, A Richer Retirement, supercharging the 4% rule to spend more and enjoy more. Bill, welcome to Motley Fool Money.
William Bengen: Thanks for inviting me. I'm looking forward to it.
Robert Brokamp: Well, we're looking for it, too. Let's start with a little bit of your history. You got a degree in aeronautics and astronautics from MIT. But instead of working in the space industry, you joined a family owned soda bottling business and eventually became the president. The company was sold in 1987, and you started a whole new career in your 40s as a financial planner. So what led you to the financial planning profession and then eventually your research into withdrawal rates?
William Bengen: Well, I never used a financial advisor, and there was still a new concept at that time, and I figured that if I was going to have to deal with a lot of this stuff, it wouldn't hurt me to learn about it, and then once I've learned it, perhaps the offer my services to others to give advice. It just seemed like a very appealing feel to me because it's an area where you can make a difference every day in people's lives.
Robert Brokamp: Then from there, you had to determine, are a lot of your clients were boomers, not quite yet in retirement, but getting close. I'm sure they asked you, all right, how much can I spend in retirement? You looked for an answer, and you couldn't find one.
William Bengen: Yeah, I looked through all the literature. It's not like today where we go on the Internet, type in a few words and there's thousands of sources of information. Back then, it was a library and talking to friends and associates, and nowhere could I find the answers to the questions. Probably not surprising since that issue really hadn't been of importance up until the early 90s when people were starting to live longer in retirement than the baby boomers we think of living into their 90s, unheard of back in the '50s, you'd retired 65 and 10 years, you'd die, and that was it. But when you're living 85, 90 or more, it creates a whole new host of issues.
Robert Brokamp: So, you fired up your Lotus 123 spreadsheet, bought some data, figured it out. Yeah, and your initial research found that the maximum with all right, what you call the safe Max was 4.15%. Then you moved it up to 4.5% after doing additional research that you published in a book in 2006. So it's been above 4% really since the beginning, yet the term 4% rule has stuck. It is now widely referenced. So what was it like to see your research become so well known, but also be given a name that's outdated and doesn't really quite capture all the nuance and depth to your research?
William Bengen: Yeah, it led to mixed feelings on my part. It was fun to see my name out there and associate with this research. I had no idea what to expect. But the 4% rule, as it's been formulated applies to such a small number of retirees. Almost every other retiree can aspire to take out more than that, and should look at that. They should not adopt that off the cuff to start their planning.
Robert Brokamp: So with your recent research, you have moved up the safe max to 4.7%. What are the biggest factors that have resulted in your increasing the number over the years?
William Bengen: Primarily, I've made my portfolios more sophisticated. I started out with just two assets, all up to seven assets now. Probably still not what some would consider a well diversified portfolio, but it's getting there. Probably means my research still understates the true withdrawal rate by a little bit. I suspect the number 4.7 could eventually become five throwing gold and commodities and emerging markets and alternative investments and Bitcoin, digital currency, who knows what can go in the portfolio today?
Robert Brokamp: As you pointed out, the safe max of 4.7% it's almost like a worst case scenario. It would have survived the worst conditions since 1926, and as you say, the majority of retirees would have been able to take out more, in some cases, much more. So what would have been the withdrawal rates if you look at maybe, an average case scenario or even maybe a best case scenario?
William Bengen: Sure, across 100 years of retirees, the average has been a little bit over 7%, which surprises people a lot because they're stuck on a 4% rule, and all of a sudden 7% is an average, and there are people who are able to take out double digits. Of course, if you retire in July of 1932, and the stock market goes up 100% the next quarter, you're off for a very good start with your retirement plan. That's what happened. That's where people got 15, 16% withdrawal rates. Not realistic to expect anything like that today, but I think we can do a lot better than 4.7% in this environment.
Robert Brokamp: In your book, you do provide success rates of other withdrawal rates. So withdrawing 5.5% did not deplete a retiree's portfolio in 90% of historical periods. A 6% withdrawal rate was successful 75% of the time, and as you point out, a 7% withdrawal rate was about the average, so around a 50-50 success rate there. What you've done more recently is try to find clues that would help retirees determine whether they could take out more than 4.7% and enjoy more of their money in retirement and also when they should play it safer, and you eventually came across the research of financial planning expert Michael Kitces, who documented a relationship between stock market valuations and the Safe Max. Tell us about that.
William Bengen: Michael's a good friend and a brilliant guy. Uh and back in 2008, he published in his newsletter, a chart which tracked valuation of the stock market using the Schiller [inaudible] adjusted PE ratio against withdrawal rate on the other end of it, and when you take a look at those two charts, they seem like when one's going up, the other goes down, and one goes down, the other goes up, appears to be a very strong correlation between stock market valuation and eventual withdrawal rate.
Robert Brokamp: Yeah, you looked at that. One of the things you pointed out in your book is that, generally speaking, if the market is cheap, it's going to do OK. You pointed out that there was only really one bear market when the stock market was cheap. That was in the early '80s when Paul Voker, the Federal Reserve chairman, raised rates to bring down inflation. Whereas when the market is expensive, you're more likely to see a bear market, which, of course, could be very rough on your retirement.
William Bengen: As a good example of that. The person retired at the bottom of the market after the great financial crisis back in April of 2009, my calculations indicate they could have taken out 8%. Because the stocks were so cheap at that time, and that's the cheapest they've been over the last 30 years. We haven't approached that since.
Robert Brokamp: So you found that market valuation was helpful? Not a perfect predictor, though, whether retiree could enjoy a higher safe max. So then you moved on to researching whether inflation at the start of retirement was the most important factor. What did you find?
William Bengen: Well, I knew from the beginning that inflation had a role to play because the worst case scenario, the 4.7% was generated by the person who retired in October of 1968, and they hit two bear markets, back to back deep ones, and then got hit with very high levels of inflation for over a decade, which forced them to increase their withdrawals. You would think, though, that 1929 through 2032, where the stock market dropped twice as much would have been worse, but it wasn't because it was deflating period. Actually, you were able to reduce withdrawal by 10% a year, and that offset the huge losses in the stock market and made 68 the worst case, not 32.
Robert Brokamp: You provided in your book some what you call safe Max finder tables based on three inflation regimes, low inflation, middle inflation, high inflation, and then once you determine what inflation regime you're in, then you look up the CAP ratio, and that gives you a hint of what could be your safe MAX although you point out in the book, there are other factors to consider, and we'll touch on some of them. But when you look at the chart, it implies that withdrawal rates could be as high as 6% or 7%, and that might be surprising to a lot of people.
William Bengen: Yeah, it could be. I think in today's environment, I'd probably recommending something around 5.5. Which is low, historically, compared to the average, but it's a lot better than 4.7%, about 15% to 20% higher, which ain't chicken feed.
Robert Brokamp: We're in a medium inflation environment, but I'm assuming you recommend that withdrawal rate because the cape is so high, at this point, about the second highest level it's ever been?
William Bengen: Yeah, and, of course, if the inflation rate were to take off and we were enter a period like the 70s, that would reduce the withdrawal rate significantly. Don't know what's going to happen in that picture. It looks like for the time being, inflation is at a reasonable level, but who knows?
Robert Brokamp: These days, I think there is more awareness of the impacts of a bear market maybe right before retirement, but especially right after retirement, and your research bears that out. So tell us about what happens in that first decade of retirement is so important.
William Bengen: Well, if you encounter a bear market, early retirement, and your portfolio drops 30% compared to another portfolio which might have been making gains, you're behind the eight ball and you never really catch up, so that early stock market declines reduce withdrawal rate very significantly.
Robert Brokamp: If you have a bear market, say, in your 20th year of retirement or 25th year of retirement, at that point, your research indicates that's, of course, not great, but chances are you're still going to be OK.
William Bengen: Yeah, usually by the first 10-12 years, the die is cast as far as your withdrawal plan goes. The success withdrawal plan all is owed primarily to events occurring in the first 10-12 years. There are exceptions people who retired in the late 50s into a low inflation environment, and within a decade, they were facing very high inflation and had to scramble to get back to plan. So events mid retirement, if they're severe enough, can affect the withdrawal rate, but not as much usually as the early ones.
Robert Brokamp: Your book describes how a personal withdrawal plan can be developed by choosing various options among what you call eight elements. There are two other elements, which we just discussed, valuation and inflation, and then there are eight elements. We won't discuss all eight in this podcast. But the first is your withdrawal scheme, right? You discuss a few in your book. Tell us generally about how a retiree might use guidelines so maybe take out a little bit more if the portfolio is doing well, but maybe cut back if the portfolio declines.
William Bengen: You can do those kinds of adjustments. I think a lot of people just do that naturally. So I'm not going to try to fight that. I think it makes sense if your portfolio is under stress due to inflation or a bear market, that you want to take a cautious stance, cut back a little bit on spending temporarily, at least, and just wait and see how bad the situation becomes.
Robert Brokamp: Another important element is time frame. Your base case assumption is a 30 year retirement. So someone who retires at 65 would assume they live to 95, which I think is in the neighborhood of what most financial planners recommend. What about people who are retiring sooner maybe in their 50s, maybe a little sooner? Or what if they're already in their 70s or older? Sure.
William Bengen: The withdrawal rate is very sensitive to the planning horizon. So if we use 30 years as a midpoint standard, 4.7% is the associated withdrawal rate. If you, let's say, have a ten year horizon, your withdrawal rate probably be around 8%, believe it or not, because you only have 10 years to deal with, and you shouldn't have a lot of stocks, probably, at that point. One of the interesting features of the planning horizon is that the withdrawal rate drops as the length of the planning rise increases, but eventually reaches a point where it doesn't decline anymore. It reaches the floor, and for the 4.7% rule, let's say, a 60 year would be 4.1%, and it wouldn't get much slower than that for 80, 90, 100 years, as far as I can tell.
Robert Brokamp: You also looked at how asset allocation affects safe withdrawal rates, and you settled on a base case allocation for a lot of your illustrations, your book, 55% stocks, and those stocks are allocated among five asset classes, large cap, small caps, mid caps, micro caps, and international, then 40% intermediate government bonds and 5% T bills. Generally speaking, though, how does asset allocation, especially the stock and non stock split affect withdrawal rates?
William Bengen: There's a certain minimum percentage of stocks you need to have in your portfolio to get the highest withdrawal rate you can. However, if you try to raise stocks to too high level, it may be productive because during a major bear market, your portfolio could lose 50% or more, and that's tough to come back from in any reasonable time frame. So that's the nature of the Beast.
Robert Brokamp: So a good range is around what would you say is a minimum stock allocation, and then maybe a maximum that most people would be appropriately used?
William Bengen: I think most people can handle at least 50, and I'm doing research right now that indicates that it may be better to have more than 55, 40. You know, maybe we should be at 65. I ran a model right now at 65% stocks, and it's generating higher withdrawal rates than would have been under my earlier analysis. So, I'm still learning here, and as soon as I get a conclusion, I will pass it along. But I think higher stock allocations are probably beneficial. You just have to be careful. You don't want to have a stock allocation when you retire and you know you're going to have a big bear market or likely to have one. You probably best to be little conservative and then after the smoke clears, go to your higher allocation.
Robert Brokamp: I thought one interesting insight from your book was that you include the safe withdrawal rate for a simple two asset portfolio of bonds and large cap stocks, and the SafeMax really starts to tail off at allocations above 75% stocks. But then when the stock allocation is more diversified with five categories of stocks, not only does it boost the safe withdrawal rate, but the drop off beyond 75% isn't nearly as sharp. It's an excellent illustration of the power of diversification.
William Bengen: I think you're absolutely right.
Robert Brokamp: I should point out, too, that you also examined the allocation between cash and bonds, and in your case, bonds were in term government bonds, and there's a pretty linear relationship between that cash bond split and the safe withdrawal rate. More cash equals a lower rate.
William Bengen: That's right, because cash doesn't pay much. It's not very volatile, but today, it's better than it was, let's say, five, six years ago when I was playing practically zero. But you're not going to get a good withdrawal rate, having a lot of money in an asset generating just 4%.
Robert Brokamp: Let's move on to portfolio management. You looked at how often retirees should rebalance their portfolios. But also whether they should be decreasing or increasing their stock allocations over the course of their retirements. Let's start with the rebalancing question. How often do you think folks should be rebalancing, which is basically moving back your portfolio to some originally intended allocation?
William Bengen: Yeah, to a certain extent, it depends upon the retirees circumstances whether they retire into a bull market or a bear market. But overall, looking across all 400 retirees I study, a period of about one year sears to be optimum. It may not always generate the highest withdrawal rate, but we don't know in advance what rebalancing interval will generate. So one year seems to work pretty darn well in the vast majority of cases.
Robert Brokamp: Talk a little bit about your analysis of whether people should be decreasing their stock allocation as they go through retirement or whether it actually makes sense to increase their allocation to equities.
William Bengen: I tested a scheme that was developed by two fellow advisors, Wade Pfau and Michael Kitces. Back about 10 years ago, they published a paper in which they investigated, starting with a low stock allocation, let's say, 30, 40%, and then increasing it one or 2% a year during retirement, and their conclusion, surprisingly, was that had a beneficial effect on withdrawal rates. It gave them a bump. It wasn't huge, but it was significant, worth considering. I suspect their conclusion is correct that the reason this peers counter-intuitive thing seems to work is that because when you're in a bear market early in retirement, you're going to find out a lower stock allocation is beneficial. You will lose less. Meanwhile, after the bear market is over, you're increasing your stock allocation. You're buying stocks aggressively into a rising market, which can only help you.
Robert Brokamp: Let's move on to our final question here, Bill. You are an internationally recognized retirement expert, but you've also been retired yourself for more than a decade. So, how's it going? Were there any bigger surprises, and do you have any recommendations, financial or otherwise, for those who are preparing to make the transition from work to retirement?
William Bengen: Well, I'm really enjoying retirement. I went into the mindset that there are four things that are important, family, friends, your health, and passions. Hobbies, interests. If you cultivate all four of those, not only during retirement, during your whole life, I think you'll have a very successful life and a very satisfying one. But I find once you, let one lapse, it starts to affect the quality of your life.
Robert Brokamp: That is excellent advice. You know, Bill, I first interviewed you almost 20 years ago, and ever since I've peppered you over the years with so many random questions, and you've always replied with thoughtful responses. So I just like to thank you personally for being so generous with your research over the years, and to congratulate you on the new book. I highly recommend it. Thank you so much for joining us.
William Bengen: My pleasure. Thanks for inviting me.
Robert Brokamp: That's the show. As always, people on the program may have interest in the investments they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell investments based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on, everybody.
