BiggerPockets Money Podcast Summary: "4% Rule Creator Bill Bengen Reveals His NEW 5% Retirement Strategy"

Release Date: June 6, 2025

In this enlightening episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench engage in a deep dive with Bill Bengen, the esteemed creator of the original 4% retirement withdrawal rule. The conversation explores Bengen's updated research, introducing a new 5% rule aimed at enhancing retirement strategies. Below is a detailed summary capturing the episode's key discussions, insights, and conclusions.

1. Introduction to Bill Bengen and the Original 4% Rule [00:00 - 03:31]

Mindy Jensen opens the episode by introducing Bill Bengen, highlighting his pivotal role in developing the 4% rule—a cornerstone in retirement planning. Bengen reminisces about his 1994 study published in the Journal of Financial Planning, where he sought to determine the safest withdrawal rate for retirees to ensure their savings would last through 30 years of retirement, even amidst adverse market conditions.

Bill Bengen [02:20]: “The original 4% rule, which I've upgraded now to 4.7%, is really the worst case in history. My database goes back 100 years.”

Bengen used a simple portfolio of large U.S. stocks and five-year U.S. government bonds, finding that a 4.15% withdrawal rate was sustainable for most retirees, with only one out of 400 retirees facing the lower threshold.

2. Evolution to the New 5% Rule [04:13 - 07:05]

Building upon his initial research, Bengen introduces his updated 5% rule. This revision incorporates a more diversified portfolio, expanding from two to seven asset classes, including international stocks and micro-cap stocks. The enhanced diversification not only mitigates risk but also allows for a modest increase in the withdrawal rate.

Bill Bengen [04:13]: “I've increased the number of investments from 2 to 7. All these investments increase the diversification of the portfolio and increase the returns.”

3. Portfolio Allocation and Diversification [03:31 - 08:48]

The discussion delves into the specifics of the updated portfolio allocation. Bengen recommends a more diversified setup with approximately 55% in stocks, 40% in bonds, and 5% in treasury bills or cash equivalents. This shift aims to reduce portfolio volatility while maintaining the sustainability of retirement funds.

Bill Bengen [05:24]: “The new allocation for the more diversified portfolio actually lets you use a lower allocation of stocks like 55% and that creates a less volatile portfolio.”

Bengen emphasizes the importance of diversification as a "free lunch" for investors, enhancing returns without proportionately increasing risk.

4. Impact of Market Valuations and Economic Environment [17:37 - 43:54]

Bengen addresses the influence of current market valuations, particularly the Shiller CAPE ratio, on future stock market returns. With the CAPE ratio hovering around 36-37—significantly above the historical average of ~17—Bengen anticipates lower future returns. He discusses the implications of governmental deficit spending, labeling the current economic environment as "unnatural and unstable," which adds uncertainty to long-term investment strategies.

Bill Bengen [40:21]: “The U.S. Stock market from that metric is about double its normal valuation than it is from a lot of others... but it's not a forecast because I don't forecast.”

5. Withdrawal Strategies and Psychological Aspects [14:37 - 18:30]

A key segment focuses on the psychological challenges retirees face when adhering to withdrawal strategies. Bengen advocates for a "total return approach," where withdrawals are funded by both income and capital appreciation. He stresses the necessity of overcoming hesitation to sell assets, emphasizing trust in historical market resilience.

Bill Bengen [15:27]: “You have to trust history, trust what's happened... It gets by them. It goes on and builds new wealth.”

6. Alternative Investments: Real Estate and Bitcoin [21:30 - 24:29]

Scott shares his perspective as a real estate investor, viewing real estate as an inflation-adjusted store of value. While Bengen acknowledges the potential benefits of real estate in a diversified portfolio, he notes the lack of comprehensive historical data compared to stocks and bonds. They briefly touch upon Bitcoin, with Bengen allocating a modest 1% to it, treating it as part of a diversified strategy despite varying opinions in the investment community.

Bill Bengen [23:57]: “Bitcoin makes sense as part of a diversified portfolio... I've got a small portion of my like 1% of my portfolio in bitcoin.”

7. Managing Debt: Mortgages in Retirement [34:11 - 37:25]

The conversation shifts to the impact of carrying a mortgage into retirement. Using Scott's example of a $320,000 mortgage at 4.5% interest, they discuss how an outstanding mortgage can undermine the sustainability of withdrawal strategies. Bengen concurs that eliminating such fixed obligations before retirement can enhance financial stability and reduce portfolio risk.

Bill Bengen [37:10]: “Debt always introduces an element of risk in the portfolio... especially retirees.”

8. Personalizing the Withdrawal Rate [50:15 - 52:19]

Mindy and Scott emphasize the importance of tailoring the withdrawal rate to individual comfort levels and financial situations. While Bengen's research supports a 4.7%-5% rate, personal circumstances, risk tolerance, and financial goals may necessitate adjustments to ensure retirees feel secure and confident in their strategies.

Mindy Jensen [49:00]: “If you don't feel comfortable with spending the money that you're spending, you're not going to sleep well at night.”

9. Rebalancing Strategies [19:49 - 20:47]

Bengen recommends rebalancing the portfolio every six months to a year to maintain the desired asset allocation and manage risk effectively. He notes that the frequency of rebalancing may depend on market conditions and individual retirement timelines.

Bill Bengen [19:49]: “In my book, I have a whole chapter devoted to that particular topic... rebalancing every six months to a year.”

10. Upcoming Book and Final Thoughts [45:21 - 52:48]

Bill Bengen introduces his forthcoming book, "A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More," slated for an August release. Both hosts encourage listeners to pre-order the book to support its availability and success.

Scott Trench [34:11]: “If you've ever planned on retiring using the 4% rule... get a copy of the book.”

Mindy and Scott conclude the episode by expressing their gratitude to Bengen, highlighting how his research has profoundly influenced the retirement planning community and their own personal strategies.

Key Takeaways:

• Updated Withdrawal Rate: Bengen's new research supports a slightly higher withdrawal rate of 4.7%-5%, thanks to enhanced portfolio diversification.

• Diversification is Crucial: Expanding the number of asset classes in a retirement portfolio can improve returns and reduce volatility.

• Market Valuations Matter: High valuation metrics like the Shiller CAPE ratio may indicate lower future stock market returns, influencing withdrawal strategies.

• Psychological Readiness: Overcoming the hesitation to sell assets is vital for maintaining sustainable withdrawals during retirement.

• Alternative Investments: Incorporating real estate and a small allocation to Bitcoin can diversify and potentially enhance portfolio performance.

• Debt Management: Eliminating fixed obligations such as mortgages before retirement can significantly reduce financial risk and portfolio strain.

• Personalization: Tailoring the withdrawal rate and portfolio allocation to individual circumstances ensures greater financial comfort and security.

• Rebalancing: Regular rebalancing of the portfolio helps maintain the desired asset allocation and manage investment risk effectively.

• Upcoming Resources: Bengen's forthcoming book promises to provide further insights and strategies to optimize retirement planning.

This comprehensive summary encapsulates the essence of the episode, providing valuable insights for those seeking to enhance their retirement strategies based on Bill Bengen's updated research.