Bill Bengen, the godfather / creator of the 4% safe withdrawal rate (SWR), or rule, has just published a new book available on Amazon – A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.
I have not read the book, however, he has done a number of interviews on YouTube. The gist is that with a more diversified portfolio, as compared to that used to generate the original 4% rule, the new SWR should be raised to at least4.7 %.
1) the original 4% SWR was not what his original study showed – it really was determined to be 4.15% – it was rounded down to 4% for unclear reasons.
2) per Michael Kitces, using a 4% SWR, 2/3 of retirees portfolios will grow to be greater than 2.5 x what they started retirement with, by the time they pass.
3) real world date has shown that retiree spending declines by ~ 1 % per year, meaning that spending will go down by 30% over a 30 year retirement (compunding effect disregarded)
Are we vastly underspending our financial resources ? Keep in mind that an increase from 4.0 to 4.7 % is a very large increase in “permissible ” spending. On a 2.5 M portfolio spending would increase from 100 K/yr to 117.5 K/yr, which is a highly significant bump up in annual spending.
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My first retirement party was in 2001. I’ve had a few paid assignments here and there since then. Our portfolio is up about 60% over the last 24 years. With another 12-14 years to go, we imagine we’re going to be OK even with the added CCRC expense starting in ‘26. Our LTC insurance company staying solvent is always a concern. With six grandchildren who we helped with tuition, we couldn’t follow the 4% rule — plus we took one big trip virtually every year. Our big trip in 2024 was our last. Only 3 more have college coming up.
I could be in retirement 8 years longer than I worked. I never imagined that would have been possible especially when I spent way too much money before I was 40. Staying put in the same house for over 40 years was our smartest decision.
Dick and Kathy wonder who or where are these old folk who spend less as they age. It’s a good question, with Kathy paying for her CCRC and Dick maintaining two expensive homes. But I don’t think they are the rule.
I observed several hundred tax clients as they grew older. I have to say these folks did indeed spend less through the years. Sure, some expenses increased, but others like vacations and day trips slowed or ceased. Their passion for shopping waned. Car ownership halved or was totally eliminated. Eating out slowed to a crawl as well.
My parents spent practically nothing in their 80s, unless you count generous gifts to family or the church.
Like Dick, I like having a financial cushion. I don’t think I’d ever be comfortable spending 4, let alone 4.7%. Spending less than that keeps me in my happy place.
Dan, if you looked at my taxes you would have no idea what we spend, except QCDs.
i am 82 and Connie 86 and if our spending declined overall, it seems we would have more of our fixed income to save. That is not the case, in fact the opposite.
When I refer to spending I include all giving money out, not just actual expenses. Our insurance of different types, HOA and property taxes increase every year.
Another link to show that spending declines with age:
https://www.rand.org/news/press/2022/12/07/index1.html
In addition, lets not forget the work by David Blanchett and the retirement spending smile.
I recently checked the book out of our local library. I started reading it and it was way over my head. I am hoping some of the engineers here will read it and maybe explain in plain English for the rest of us. Looking at you, Rick Connor. 😂 Chris
Not having to deal with this, what do I know, but I sure wouldn’t bet my future on my spending decreasing by any percentage a year.
Fifteen years into retirement and while our spending has shifted, it has not decreased.
If spending decreases a net 1% why is anyone concerned about inflation especially if a big chunk of retirement income is SS?
We may get to the no go years, but not the no higher bills years.
Every time I read about a new study based on assumptions and some average person, I wonder who that person is and where they live.
if you want to increase to 4.7% I’d stick that extra .7% into a money market for a few years and see how it goes. Do your own study so to speak. 🤑
Please see above or below depending on how you scroll.
And to emphasis, this is not a new find/observation.
“ real world date has shown that retiree spending declines by ~ 1 % per year”
Wonder how anyone came up with that. Certainly not true for me as my CCRC monthly fee will go UP every year with inflation. People with Medigap plans will see those costs go up every year, sometimes by a lot.
See slides 26 and 27.
https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/retirement-insights/guide-to-retirement-us.pdf
BTW ; This is not a new finding / observation.
Personally, I don’t pay much attention to the 4% SWR. It’s really just a yardstick to set a target for the accumulation phase, as for drawdown, it’s far too simplistic a metric for that phase.
Re. It’s really just a yardstick to set a target for the accumulation phase,
Correct. And a very important one. As pointed out in one or more of the YouTube interviews, it means that people “could” choose to retire earlier using 4.7 %. If we round 4.7% to 5%, it means whereas you need to ROUGHLY accumulate 25 x your expected expenses with the 4% rule, then one needs to accumulate 20 x expected expenses with the 4.7/5.0 % rule.
I guess that’s a possibility. Personally, I wouldn’t be comfortable with such high initial drawdown rates and wouldn’t advocate for anyone else to do so, regardless of what the updated data suggests.
I’m tripping at the threshold of Bengen’s new book title. Spending more does not = enjoying more. To me the greatest joy comes from being financially unbreakable, so I will always have the joy of spending my time as I choose.