Don't Follow the 4% Rule in Retirement. Here's Why

The 4% rule rests on 30 assumptions. Bill Bengen stated some of them in his 1994 paper. Most he never spelled out. In this video, I walk through all 30 so you can see where the rule fits your retirement and where it doesn't. I start with how the rule actually works. You take 4% of your savings in year one. After that, you adjust that dollar amount for inflation each year, no matter what the markets do. Then I go through the assumptions in seven groups: Timing: you retire on January 1, your first withdrawal waits a full year, and retirement lasts 30 years. Spending: your withdrawals rise with the CPI, your spending never changes after inflation, and your paycheck depends on your balance the day you retire. Your portfolio: 50% to 75% in stocks, no cash, and a mix that never changes. Costs: no fees at all. I rerun Bengen's method with a 1% fee and a 2% fee to show what fees do to the safe withdrawal rate. Market history: the future looks like US history since 1926. You: you never panic sell, and someone capable manages the money for all 30 years. Success: ending with $1 counts the same as ending with $1 million. Along the way I show why two retirees with the same $1.5 million can end up with very different paychecks, and where 4% sits next to the average and best starting years. By the end you'll know which of these assumptions fit your plan and which ones change your number. Resources mentioned in the video: Bill Bengen's 1994 paper (with the appendix): https://robberger.com/research/determ... Bengen's 1997 follow-up paper: https://www.financialplanningassociat... Historical returns data (Damodaran, NYU): https://pages.stern.nyu.edu/~adamodar... Shiller stock market data: https://shillerdata.com/ Boldin (retirement planning software I mention): https://go.robberger.com/boldin/yt-4-... ProjectionLab (retirement planning software I mention): https://go.robberger.com/projectionla... Join the Newsletter. It's Free: https://robberger.com/newsletter/?utm... Financial tools I use: I track all of my investments, performance, fees, and asset allocation with Empower. It's Free: https://go.robberger.com/empower/yt- I use Monarch Money to manage our budget: https://go.robberger.com/monarch-yt/y... My retirement plan comes from Boldin, the most robust retirement planner available at a reasonable cost: https://go.robberger.com/boldin/yt- I used Capitalize for my last 401(k) rollover. They did all of the work, and it's Free: https://go.robberger.com/capitalize/yt- My Book (Retire Before Mom and Dad): https://amzn.to/4d9qbhA #retirement #investing #robberger 0:00 30 assumptions behind the 4% rule 1:21 How the 4% rule actually works 2:59 The 30 assumptions, starting with timing 5:32 Does the month you retire matter? (1929) 6:24 Spending: inflation raises and a paycheck set on day one 10:41 Same money, different paycheck 12:58 Your portfolio: stocks, bonds, and no cash 15:26 Costs: what a 1% or 2% fee does 18:06 Market history: the future looks like the past 21:56 You: no panic selling, other income, who runs it 23:17 Success: surviving the worst start 24:35 Worst, average, and best starting years ABOUT ME 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. I've since sold my websites, bought them back, and started a new website and this YouTube channel. I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (https://amzn.to/3by10EE) LET'S CONNECT Youtube: @rob_berger Facebook: Facebook: financialfreedomguy Twitter: Twitter: Robert_A_Berger DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions. *Disclosure*: Some of the links in this description are from partners who compensate us. This means — at no extra cost to you — I may earn money if you click and sign up for a product or open an account. This creates a financial relationship that may influence my recommendations, but I only recommend products and services I believe in and would recommend to my own mom. Advertisers have no control over my content. Read the full advertiser disclosure here: https://robberger.com/how-we-make-money/