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Is a 4% withdrawal rate TOO safe? Or not safe enough?

The 4% rule has long been held up as a retirement gold standard. If you withdraw just 4% of your retirement each year, it’ll last you until you leave this world.

Sometimes it’s seen as too conservative, but that is in part by design. Bill Bengen came up with the 4% rule because he looked at the worst possible case from 1926 until “now” to come up with a safe maximum withdrawal rate of 4.5% (it involved someone who retired on 10/1/1968 and “suffered through years of poor stock market returns and high inflation.”). Then he chopped off the .5 to reach 4% – so it’s clearly on the safer side of safe.

First, an article that dives into the 4% rule, followed by an update.

Is the 4% Safe Withdrawal Rate Obsolete? [Can I Retire Yet?] – “But the era of the simple 4% Rule may be drawing to a close. We are now hearing from some respected voices that it, too, is rigid and simplistic — relying too much on historical data, and not enough on current financial conditions. Most alarmingly, we are being told that it might be too generous for these extreme economic times, that the actual safe withdrawal rate for today’s retirees could be less than half of the traditional 4% rate. If true, that would mean you must save twice as much!

Woah. So is it safe or not safe enough?

Bengen weighs in:

Bill Bengen Revisits The 4% Rule Using Shiller’s CAPE Ratio, Michael Kitces’s Research [Financial Advisor] – “How do you determine the “safe” portfolio withdrawal rate (what I call “SAFEMAX”) for clients at the beginning of retirement? My research over many years indicates that an initial withdrawal rate of 4.5% sustained all portfolios from 1926 up until now (when we assume that you had a tax-advantaged account, annual CPI adjustments and a minimum of 30 years of portfolio longevity).”

Like all rules of thumb, your thumb isn’t the same safe as another’s thumb. Plus you have the hand. The air around you. And whether that hand is in an inflationary or deflationary environment (the analogy is starting to fall apart, I know :))… but this adds a little color to the otherwise static number of 4%.

Now for something fun – bootlegging in a place where you aren’t supposed to have alcohol!

Bootlegging in Karachi: A Sinner’s Story [Roads & Kingdoms] – “Our anonymous correspondent on the intimate ties between Karachiites and the dubious men who supply them with illegal alcohol. […] My bootlegger and I have a routine, fine-tuned through trial and error. I hand him the bag. He takes bottles from the footrest and stuffs them into it. I give him the cash and ask him if the city is calm tonight. He makes a retort about my tendency to ask too many questions. The transaction done, Bilal speeds off. I return, victorious, to my friends in the restaurant.”

Have a great day Apexian!

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