Creator of the '4% rule' for retirement withdrawals has fresh advice for today's retirees
It's a pervasive undercurrent in retirement planning for millions of Americans. The fear is particularly palpable for many of those nearing and living in retirement.
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In his new book, 'A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More,' William P. Bengen rolls out the data to argue that everything is going to be okay — with the proper investing and spending plan throughout your retirement.
Bengen is the guy who proffered the celebrated '4% rule' for withdrawing money from retirement accounts decades ago, explaining how much retirees can safely spend each year without the well running dry.
He's been refining that strategy ever since.
Here are edited excerpts of our conversation:
Kerry Hannon: How did you get fascinated with this question of whether people will outlive their money more than three decades ago?
Bill Bengen: I was a financial advisor then, a relatively new one. I was an early baby boomer, as were many of my clients. They were just starting to ask questions in the early '90s about retirement, which was some 20 years off for them, and how much they could spend and how much they needed to save.
When I tried to find answers to those questions in literature, from other advisors, from textbooks, there was nothing available. That's really not surprising because at that time it was just starting to become a big issue because my generation was the first really to have such a long life expectancy in retirement.
If you retired in the '50s or '60s you might have looked forward to about 10 years of retirement, and that's about it. But the rest of us now are looking at 20, 30, even longer periods of time.
Read more: How much should I have saved by 50?
Can you explain in the simplest way possible, what the 4%, now 4.7%, rule is?
I basically reconstructed the investment experience of hundreds of retirees from 1926 to date and tested them with various withdrawal rates from retirement accounts, primarily IRA accounts, over a 30-year period. And back in '94, I came out with a number, 4.15% as the lowest safe withdrawal rate for any person. So if you use that number, you would've always been successful with 30 years of withdrawals. It's actually not something I recommend to everybody — it's a very conservative number.
Did you ever expect when you came up with a 4% rule that this was going to become the gold standard?
Not a clue. I was doing it for my clients at that time. It's an amazing thing.
One big problem I have found is that retirees don't spend enough. Most people are so conservative. They'll take only their dividends and their interest and try not to tap the principal.
That runs counter to the approach that I use. In most cases, people will be able to take considerably more than that safe withdrawal rate. You worked your whole life to accumulate all this wealth. Why not get the most out of it while you're retired?
What does this mean in terms of how much you have saved in your retirement accounts?
If the withdrawal rate you choose is 5%, that means the first year you'd be taking out 5%. So you need 20 times your draw in the first year to start. So if you take out $50,000, you need to have a $1 million portfolio.
Read more:
What's changed since your initial number to the new number today?
My research is more sophisticated. In '94, I was looking at a portfolio with two investments — US bonds and large US company stocks. That hardly qualifies as a diversified portfolio.
I've increased the number of assets and created a more diversified portfolio. I added small company stocks and micro-company stocks in the US, international stocks, mid-company-sized stocks. Each one of them has their own cycle of investing, and each contributes to the diversification of the portfolio and increases the withdrawal rate.
So diversification works?
Yes, as you increase the number of assets, you increase the withdrawal rates. I suspect it'll probably peak out somewhere around 5% when you add in all the other assets.
I haven't looked at gold, precious metals, commodities, real estate investments, and other alternative investments. There are a lot of other things folks can invest in and do invest in: bitcoin, for example. I think there's a pretty good chance adding some of those to your portfolio will further enhance your withdrawal rate — assuming you get the performance out of the investments.
Can you talk a little bit about someone who's retiring into an uncertain economic environment, whether it's high inflation or a bear market?
My research shows that if early in retirement you encounter a bear market or sustained high inflation, your withdrawal rates are going to drop quite significantly. So if there's anything you could do to avoid that in terms of timing your retirement, it'd be a good idea.
Inflation, in my opinion, is the greatest enemy of retirees, especially those who try to maintain a lifestyle with inflation. During the 1970s inflation was 8% or 9% a year for 10 years, and it devastated portfolios. That's where we got the 4.7% rule from. The worst-case scenario was right there in the '60s.
What are the four free lunches that add to your withdrawal rate without adding an additional risk?
Diversification, rebalancing once a year — if you do those properly, you'll give yourself an increase in withdrawal rates — tilting your equity allocations slightly toward small-company and micro-company stocks. Fourth, a rising equity glide path — starting with a much lower allocation of stock. Let's say 30% to 40%, rather than the normal 60% that we might begin with, and increasing it each year.
When I tested that glide against my database, it resulted in an increase in withdrawal rate. Very curiously, it's hard to explain why. We think it has to do with the fact that if you encounter a bad bear market early in retirement and you're using this method, you're going to have a low exposure to stocks. So you won't be damaged that much.
After the bear market is over, the market always recovers and usually pretty strongly, and you'll be buying into that.Parting thought?
The 4.7% rule is the worst-case scenario, and retirees should be looking for more. For today's retirees, I'd probably recommend something around 5.25% to 5.5%.
Everyone is different. Personalize it for your situation.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming "Retirement Bites: A Gen X Guide to Securing Your Financial Future," "In Control at 50+: How to Succeed in the New World of Work," and "Never Too Old to Get Rich." Follow her on Bluesky.
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2 investment trusts I'd consider for long-term passive income
For my money, the best way to source a long-term second income is to invest in dividend-paying assets. I own a variety of stocks, investment trusts and exchange-traded funds (ETFs) that have a history of paying a large and growing income over time. Here are two that have caught my attention this month. I'll consider adding them to my Stocks and Shares ISA when I next have spare cash to invest. Growth and income potential At 11%, Henderson Far East Income (LSE:HFEL) has one of the highest forward dividend yields on the London stock market. This reflects in large part significant share price weakness in recent years that's inflated the yield. As its name implies, it provides significant exposure to China and the surrounding regions. Around 27% of its capital is tied up in Chinese equities alone. So amid signs of severe economic cooling there, it's no shock to see it fall in value. The trust's regained much ground in 2025, thanks to signs of improvement in China's economy. Yet with trade tensions simmering, it's possible the share price could turn lower again. However, I still think Henderson Far East Income is an attractive trust to consider. Its investment across a spectrum of Asian powerhouse economies (including Hong Kong, India and South Korea) provides abundant opportunities for shareholders to tap into. With continental wealth levels and population sizes booming, I think it provides excellent growth and income potential. The make-up of its portfolio also allows it to weather individual dividend shocks and pay a large and growing dividend. As well as providing excellent geographical diversification, the 70-plus companies it holds are spread across multiple sectors including financial services, consumer goods, real estate and technology. As you can see, annual dividends have kept steadily rising, even in spite of troubles in the key Chinese market. In fact, they've grown for 17 years on the bounce. Another top trust TR Property Investment Trust (LSE:TRY) doesn't have such a knockout near-term dividend yield. For 2025, it sits at a still-market-beating (but not double-digit) figure of 5%. What it does have however, is a similarly excellent record of unbroken dividend growth. Shareholder rewards have risen almost each year for around 20 years. TR invests in real estate investment trusts (REITs) across Europe, including the UK. This makes it a reliable source of income as, under sector rules, these trusts must pay at least 90% of annual rental earnings out in dividends. That's in exchange for the tax breaks they receive. Many of these trusts focus on cyclical sectors like retail, leisure and industrials. And so rental collection and building occupancy are highly sensitive to economic conditions. But strong diversification across sectors helps limit such damage on overall returns. Healthcare, residential and food retail are also among the industries it has exposure to through the 48 REITs it holds. Today, the trust trades an a near-8% discount to its net asset value (NAV) per share of 352p. Combined with that large dividend yield, I think it's a great value investment trust to consider. The post 2 investment trusts I'd consider for long-term passive income appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Sign in to access your portfolio
