Is the 4% Rule Dead? NO! It's Now the 4.4% Rule

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In a recent WSJ article, Bill Bengen, the father of the 4% Rule, discussed how inflation and market valuations may affect the 4% Rule in the years to come. The situation isn't as dire as the WSJ makes it sound. Here's why.
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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Опубликовано:

20 апр 2022

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Комментарии : 84

@denniskirschbaum9109 2 года назад

1. I used to love the Wall Street Journal but it is a slim shadow of what it once was. I don't bother reading it anymore. The Economist is a much more thoughtful read. 2. Times are ALWAYS unprecedented. 3. With bond yields still pretty low (though rising fast), a down year in the stock market (though hardly a disaster thus far) screaming about sequence of return risk is the best way to guarantee clicks. The 4% rule is 4% for exactly times like these. As a new retiree, I am grateful, Rob, for your calm and rational analysis as a counterbalance to the voices telling me that I am doomed and that I should go to all cash or some other crazy move. But, as we know, it is hard to make predictions especially about the future. So get back to me in 2052 and I'll let you know how it worked out. Meanwhile, thanks again! Yours is the best financial channel out there for those that want something a bit more thoughtful than what is typically found.

@marshallhosel1247 2 года назад

Well said!

@seriousfaith 2 года назад

Great video... a beacon of rational thought and common sense in a stormy sea of fear mongering.

@terryadams1830 2 года назад

Another great video! Thanks Rob!

@markevans6201 2 года назад

Thank You for all The GREAT and Informative Videos !

@clark6g 2 года назад

I think worrying about the 4% rule is overblown. For those of us in retirement with assets in traditional IRA’s try not to withdraw more than your RMD. Having a pension and SS helps to limit distributions to only the minimum. My own RMD is plowed back into the markets, with an eye on tax efficiency.

@OnCashFlow 2 года назад

Thanks for sharing this. I am always interested in challenges/updates/etc to the 4% rule. I still think it is a good rule of thumb to shoot for while also being flexible with your spending in retirement

@NipItInTheBud100 2 года назад

Great video. I run a business and I can’t tell you how many customers come in saying the world is coming to an end stating the current inflation rate as one of the reasons why. I just smile and nod and in my head say to myself exactly what you mentioned in this video! It’s amazing to me how soon people forget historical financial data. If they would just look they’d see that we have been through times like this before and believe it or not we survived!!! Thanks for the great video!!!

@galindes 2 года назад

12:24 EXACTLY!!!!

@rayok434 2 года назад

Best video I have ever seen of you! thank you - please keep your videos like this one - short concise no spreadsheets LOL thank you again you are great you have helped me as a retiree 😊

@perrybrantley6188 2 года назад

Enjoyed the video. I question the future as everyone has in past years. We just have to decide what is best for us and move forward.

@kenfinley3586 2 года назад

Brilliant and presented in an easy to understand way. This video is so valuable.

@JosephDickson 2 года назад

Read the article yesterday. We're better off tuning out the noise and staying the course.

@johngiesbers9811 2 года назад

Sir I have only watched a few of ur videos, but I am convinced on the validity of ur programs. This is a no BS zone. Thant u.

@pbr549 5 месяцев назад

Rob you are sharp. Bill Bengen is in his late 70’s so yes it makes sense for him to go to cash. I also liked your bucket interview which is the method I will use. Based on the 4% rule.

@jps0117 5 месяцев назад

I have a problem with the word "rule". I see 4% as the starting point of my analysis which in retirement will be subject to annual review based on my expected expenses for the following year.

@happytravels2480 2 года назад

I’m not all cash, but I have moved a lot to cash/ stable value. I’m now 50% stable value/cash. Lots of headwinds ahead and unprecedented stock market euphoria over the past few years. I’m ok being conservative. I’m sleeping better. That Schiller PE ratio gives me chills.

@howardfriedman7077 2 года назад

When do you go back in? You are playing an extremely risky game by trying to time the markets.

@StanHasselback 2 года назад

You explained this very well. I remember the inflation rates in late 60's and 70"s. We were told at the time in school that we would always have inflation like that. Do you remember the WIN buttons? BTW the moon landing was in July 1969 not 1968 like the Balance website shows.

@Bobventk Год назад

Changes in GAAP have made the cape ratio useless, Schiller has admitted this

@JaredHoutsma 2 года назад

When the 4% rule was created was it accounting for CPI-W or CPI-E? Seems like seniors, as a whole, aren't going to be nearly as effected by the 8% inflation occurring today as millennials trying to buy their first home & driving everyday to work.

@SueTNguyen 11 месяцев назад

My withdrawal rate is btw 2-3 %, in the worse case scenario. If you kept a long cash reserve, with no debt, you will be fine. My family have survived 3 decades already with this plan, we can another. Have to read advice and articles with framework in mind if you chose not to be the norm and overreactive.

@jackdguida Год назад

I don't see a lot of talk about this but if you use portfolio visualizer or portfolio charts, you can see that adding a small amount of gold (10 or 15%) to your portfolio will increase the SWR significantly. Now I'm no gold bug, I don't think the whole monetary system is going to collapse, but I never understood why everyone seems to either be all in on gold or all out. I wonder why that is?

@rob_berger Год назад

Jack, that's an interesting point. I'm going to do some research and report back on that question. Thank you.

@rralphymiller3115 Год назад

Thanx Rob. That’s good coverage of a long standing rule, or “rule of thumb” of good common sense investing. I’ve discussed this rule with more than one investment advisor. The rule is sound and backed by facts in the market. Now that said I believe the fear factor can move your needle.

@kevinquinn7645 2 года назад

It would have been interesting to see Bengen's asset allocation.

@Compounddeznuts 2 года назад

Just finished your 31 day money challenge on Spotify! Crazy to see how far things have come 2014 lol keep up the great content

@canyonoverlook9937 2 года назад

I was looking at Wellesley fund's bond holdings and they have some US Treasury Bills with zero percent coupon rate that mature in 2022. Why would they invest in those?

@denopac7193 Месяц назад

American Chess Magazine FTW!

@jeffsim4191 Год назад

It definitely is unprecedented times.... National debt to GDP. Inability to raise interest rates substantially for long term as it kills the nation's ability to pay its debt therefore currency stability is at risk.

@maa11235 2 года назад

Seems kind of counterintuitive to go to cash in a high inflationary period.

@ralphparker 2 года назад

If that is what Bill B. is worried about. Personally I predict stagflation and it be seen as stocks grow slightly but loose real value due to inflation. Which is what happened in the early to mid 70' and late 70's early 80's.

@stevenmorris2736 2 года назад

@Rob Berger could you please do a short video on how to withdraw funds in retirement? Specifically, how it works if you multiple funds in 1 account (401k for example) and want to follow the 4% rule. No one, and I literally mean no one, has a video on "How" in practice you sell when having multiple funds in one account in order to live off the account. The only video's out there are which account to pull from first. It would be super helpful. Thanks.

@Rick-kj9dd 2 года назад

Rob 3 minutes 23 seconds into your video you said " Take out 4.7% and then adjust it each subsequent year by the rate of inflation". Doesn't your comment suggest that if inflation was in fact consistently high in the years following your retirement investment you would then need to adjust your drawdown by increasing it potentially quite a lot above that 4.7%, drawdown. Consequently your funds may be exhausted a lot quicker. ie not last 30 years.? Also I think Bill Bengan in going to cash may have bought IBonds, the benefits you discussed in a previous video. Thanks

@alphamale2363 2 года назад

People seem to neglect social security in these discussions.

@aaront936 2 года назад

Social security will become insolvent within the decade.

@alphamale2363 2 года назад

@@aaront936 That is a good topic for debate. I am optimistic the politicians will figure something out since the elderly make up such a large voting block.

@regalwalnut 2 года назад

Love your videos, Rob! Long time fan. I think it's time to invest in a wireless lav mic. :-) Your voice is muddled.

@dmsoundcollective6746 2 года назад

Thanks again Rob ;) I'm thinking about moving my Roth from betterment to m1 finance. I really like the idea of the minimal fees versus the .50 I'm paying right now. Is it true that there's a one-time per year rule for rollovers like that? Going into information overload this month

@rob_berger 2 года назад

There is such a rule, but it doesn't apply in a number of situations, including trustee-to-trustee transfers. www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

@ltmsimply 2 года назад

I decided to do both. 70% of the portfolio have it in the market for the long run and the other 30% selected stocks and etfs to go in and out hopefully outperform the market. So let’s see in 1 year how it goes! I would not sell if the stocks and etfs are down but would sell if the gains are at 20% . Some of my picks are paypal,FB, Netflix, Nividia, Airbnb,

@johnlo1362 2 года назад

Rough time for FB and NFLX

@bennyl7224 7 месяцев назад

Hope you topped up on FB and Netflix

@ltmsimply 7 месяцев назад

@@bennyl7224 I did on nflx but waiting.. Been trading some more on tsla as very volatile .

@Omar-et7sb 2 года назад

Right. Bengen going all cash is like why it's okay for Warren Buffet to go 100% S&P stocks in his portfolio but PROBABLY not okay for the average person. Buffet has so much money that he can withstand losing 95% of his equities and live life as usual. Bengen by his account has enough money to live off his cash if he needs to... (Even with his tacit admission that he is probably wrong). This doesn't change the fact that a diversified, balanced portfolio of equities and fixed income will work for most regular folks. Or if you get real skittish like me, plan to work a few extra years and live off 3.5% instead of 4% :)

@pawelvideo 2 года назад

If S&P500 is down 95%, we would have a bigger problem then money and portfolios allocation....

@Omar-et7sb 2 года назад

@@pawelvideo for sure!

@ibrahibrak4210 2 года назад

@@Omar-et7sb dont forget warren buffets 2 rules no1 dont loves money and no2 dont forget no1

@ariefraiser140 Год назад

Bengen going all cash is likely not a big deal because he is in his mid 70s. The average life expectancy for males in the US is 79 or 80. The simple fact is he likely only has to fund his retirement another 6 years. Worse or best case scenario depending on how you look at it he has to worry about funding an additional 15 years and remember he is collecting social security and maybe a pension.

@simondejonge3486 2 года назад

Do you have any thoughts on blue chip funds? Specifically fbgrx for long term investments?

@johngill2853 Год назад

My first thought is blue chips belong in every portfolio but in the back of my mind I know large cap US stocks have out performed lately, so as always I would diversify

@maryfreeman2917 2 года назад

Rob, at the beginning of 2022, I put about 60 percent of my 401 in an Invesco bond fund to reduce losses in a down market. Should I stay there for a while or get out. The fund has not lost money yet. Still about .5 percent positive. Thinking about moving part back into an index fund. I am 57 and don’t have the stomach for another 30 percent down market and 10 year recovery.

@moneyindabank 2 года назад

I use the 12% rule with QYLD.

@howardfriedman7077 2 года назад

Then you don't understand anything about that fund, nor retirement withdrawal rates. BTW-That fund is down 10% over the last 12 months.

@sergiosantana4658 2 года назад

The research by M.Kitces and W.Pfau.(Rising Equity Glide Path) shows that by going into retirement and tilting your portfolio heavier in cash /bonds (30/70) you will be in position to mitigate sequence risk and put you in position to use a dollar cost average or a value average strategy to buy back into the market in case of a major market downturn. This strategy will work great in a 3 bucket strategy.

@johngill2853 Год назад

Of course if you happen to retire and large bull market happens the first couple years this may not work as well. it does have merit there is no free lunch

@aaront936 2 года назад

In the 70s the fed didn't have its hands tied by the national debt and could actually raise rates to fight inflation.

@rob_berger 2 года назад

True, but the Fed says it's going to raise rates now. I guess we'll see.

@favjr 2 года назад

Bill Bengen has been 75% fixed income for a number of years now. He did not "go to cash" very recently or based on recent events. According to his interviews In 2020, he was 20-25% stocks and 5% in gold, the rest in fixed income. Note that Bill Bernstein holds a similarly conservative portfolio. Paul Merriman, who is also of a similar age, holds 50% stocks and 50% treasuries, and plans on upping his withdrawals from 5% to 6% next year. None of these luminaries actually believe in or follow the 4% rule or anything more conservative. All of that is stuff put out by the financial media to attract clicks and the financial services industry to sell annuities and structured products. And yes, Morningstar is in on the game.

@howardfriedman7077 2 года назад

You may be overly paranoid. There is a lot of research behind investment allocations and withdrawal rates beyond the initial 4% rule that never sees the light of day in financial media.

@johngill2853 Год назад

Your mistake in your reasoning is there is no 4% rule. It's not a rule it's historical data. Take the historical data and use it as you want but it in no way is a rule. It's no more rule than don't eat your dessert before dinner

@mikesamyn7054 2 года назад

What % are you in cash? I’m about 16% currently and feel comfortable with that amount. Really appreciate all your RU-vids. - Mike

@DavidMontgomery1 2 года назад

Curious as to your thoughts… Retiring early with $2M cash. What do you think of buying a $1M annuity to pay lifetime annual income of ~$48,000? Or would you invest it all in a mix of Vanguard stock and bond funds?

@johngill2853 Год назад

My thoughts is inflation and unless you have a super short life expectancy that should also be your thought

@aconsideredmoment 2 года назад

Articles like this not possible if we had better math education, esp. applied math and the history of capitalism. The greatest poverty is education. Ken Fisher, Jack Bogle, David Swensen, Ray Dalio, and Munger's rec to read history of Capitalism are needed. P/E ratio relevance is limited. Mature industries are being transformed, GE, Big Auto, Big Oil going through shakeouts. New companies have higher PE ratios but are droppibg each quarter as they mature. This is the BCG Matrix. Cash cows and dogs being replaced by stars. Not unprecedented. Expected. Part of much longer cycles.

@fabiGBOtown 2 года назад

Hi Rob, new investor, middle aged, where should i start? Got 15 years to retire. Trying for 1 million

@rob_berger 2 года назад

I'd start with the 3 fund portfolio.

@fabiGBOtown 2 года назад

@@rob_berger thank you, ill research to find out what that is.

@johngill2853 Год назад

Middle aged I would start with 1. Traditional retirement accounts (unless you have a pension or other income in retirement) 2. Have as high as savings rate as you can 3. Use low cost index funds

@AJ-rc5lr 2 года назад

I never think the 4% rule is enough, i've always set the bar to 6% ( it's possible since im a not in the US )

@howardfriedman7077 2 года назад

Do you have research that supports that withdrawal rate?

@AJ-rc5lr 2 года назад

@@howardfriedman7077 no particular research, i just made my own 4% rule higher because i feel i need a minimum of 6% (with inflation in mind ) to support my lifestyle in retirement at least 20 years from now, and i am 29 right now, the reason why is because for our market ( i am from Indonesia btw ) are an emerging country, our growth are accelerating, interest rate tends to be higher than US matured market and inflation tends to be more fluctuative, though we still are at 2-4% so far.. with that being said, 6% is more of the sweet spot for me, and it's easy to get a return of 6% -7% even from government bonds. You might want to check out some of our best performing bluechip banks such as code ticker: BBRI and BBCA, and take a look it's growth

@johngill2853 Год назад

@@AJ-rc5lr so what you're telling us is if we pick the best stocks we can withdraw 6%?

@PH-dm8ew Год назад

Let me start by saying i love your channel. So take the following as a passing frustration. So, it appears that everyone who does this math comes up with wildly different determinations then they did even a few years ago. I know you all have disclaimers before and after. Karsten Jeske, Ben Felix, and now Morningstar and Christine Benz appear to indicate 2.3 to 2.7 % is the rule. Been planning for the last 20 years and now i have retired I am told my numbers won't work. Is there any credibility or reliability to any of the online finance "experts". It is like i am watching fox news.

@harrychu650 2 года назад

Legendary financial advisor Suzie Orman says we need $5 mn to $10 mn to retire in America today. She expresses concerns about taxes and inflation.

@harrychufan 2 года назад

That seems oddly high? I’ve heard a lot of people saying $2 mn

@pawelvideo 2 года назад

She's a moron and unrealistic. You'll have to make a $100,000 for 35 years and invest 50% of that in S&P500 at average 4% return. Live out of $3K / month for everything else to get an average $4.5 minion after those 35 years. Average US 401K account at age 65 is $220K, Median balance is $84K. So good luck...

@ArthurDentZaphodBeeb 2 года назад

$5M seems about right for high cost areas. You can live a comfortable but not extravagant life on that sort of portfolio.

@johnyjsl9219 2 года назад

Bengen doesn’t walk the talk.

@rhoelg 2 года назад

so much base on your mic

@financephilosopher3244 2 года назад

Why did you ignore the 10,000 lbs. gorilla in the room of negative real rates? This is the unprecedented financial condition that anyone who understands finance is talking about, not PE or 30 or inflation of 8.5%. 4% has historically been a result of S&P 500 yield of 2.5% and real yields of 1%-5%. S&P 500 yield is 1.5% and real yield is negative 5%.

@wacoharder Год назад

I still would like an explanation of how this works if you have 70% in SP500 and we go through another period like we did 2000-2012 before the market fully recovered and started reaching new highs.