Excess Returns Podcast Summary

Episode Title: He Invented the 4% Rule | Bill Bengen on Why He Now Thinks 5% Works
Date: November 12, 2025
Guest: Bill Bengen
Hosts: Matt Zigler, Justin Carbonneau, and (occasionally unidentified co-hosts)

Overview:

This episode features Bill Bengen, creator of the famous "4% Rule" for retirement withdrawals, discussing his groundbreaking research, how it’s evolved over the decades, and why he now argues that retirees can potentially use a higher withdrawal rate—up to 4.7% or even 5% in some scenarios. The conversation delves into the original logic and assumptions of the 4% rule, updates based on new research into asset allocation, longevity, inflation, sequence of returns, and the personal side of enjoying retirement spending.

Main Discussion Points and Insights

The Origin and Evolution of the 4% Rule

• Genesis of the Rule

  • Bill Bengen developed the 4% rule over 30 years ago as a new financial advisor when he discovered there was little concrete guidance on sustainable withdrawal strategies for retirees.
  • “My first task was I assigned myself to find the worst case scenario, to find one withdrawal rate that could survive or had survived under all historical conditions.” (00:57)

• How the Research Was Done

  • Bengen back-tested numerous rolling 30-year periods using US asset class returns starting in 1926, searching for the worst-case scenario for portfolio longevity.
  • The most challenging scenario was for retirees who began in October 1968, facing consecutive bear markets and high inflation.
  • “[1968] ran into a buzzsaw of multiple big bear markets followed by high inflation … just devastated their portfolio.” (03:38)

• Clarifying the Rule

  • Many interpret the rule as withdrawing 4% of the current portfolio value every year, but Bengen clarifies the intent: “Take out 4% the first year and then give yourself a cost-of-living adjustment each year after that.” (04:36)
  • He points out that the rule was never meant as the first or only consideration in planning; higher safe rates may apply based on current conditions.

Updating the Rule: Toward 4.7% or 5% Withdrawals

• Portfolio Diversification & Asset Allocation

  • Early research assumed a stock allocation of 55%. Bengen now advocates for 65% equities to better support higher withdrawal rates.
  • “Every time I went to a more diversified portfolio, it increased the withdrawal rate. The last time it went from 4.5 to 4.7%.” (13:59)
  • More diversification, including small and mid-cap stocks, further improves withdrawal success rates.

• Role of Inflation and Market Valuations

  • The two key variables are inflation and equity valuations (e.g., CAPE ratio).
  • Placing inflation first in the analysis clarified the real danger: “Once I put inflation first and put stock market valuation second, everything flowed.” (13:01)
  • High inflation is more damaging than market returns: “[Of the two], inflation is most painful because you’re probably stuck with whatever increases you make in your draw rates.” (10:16)

• Adapting for Longevity and “FIRE”

  • Extended retirement periods (due to increasing longevity or early retirement movements like FIRE) require only a modest reduction in withdrawal rates, which bottom at about 4.1% for time horizons of up to 100 years. (15:48)

Advanced Withdrawal Strategies

• Sequence of Returns Risk

  • The risk of bad market performance early in retirement (“sequence risk”) is a key reason for conservative rates.
  • Reducing equity exposure right before and after retirement, then gradually increasing it—a “U-shaped” glide path—has strong backing, originally championed by Michael Kitces and Wade Pfau.
  • “If you encounter a major bear market around your retirement and have lower exposure to stocks, you’re not going to get hurt as bad … then you can just pile money into a market which is going up.” (17:31)

• Rebalancing and Bucket Strategies

  • Annual rebalancing works well “under almost all circumstances.”
  • On buckets: “My research incorporates a bucket strategy because it has a 5% cash component … a simple two bucket approach works pretty well.” (22:52)

• Dynamic Withdrawal Frameworks

  • While Bengen has mostly modeled fixed strategies, he admires dynamic approaches (like those studied by Wade Pfau): “I think there’s a lot to be said for those dynamic strategies although I haven’t really been able to test one.” (23:34)
  • He supports “front-loading” spending for younger retirees as long as one is prepared for future spending cuts.

Practical Applications & “Playbook” for Retirees

• Customizing Based on Individual Needs

  • Bengen advocates calculating an expense budget first and tailoring the withdrawal rate to both coverage demands and risk tolerance. There’s no need to take on excess equity exposure if the portfolio is large enough.
  • “I don’t think you should take any more risk in your portfolio than you absolutely need to.” (34:26)
  • Required Minimum Distributions (RMDs) are an artifact of the tax code; they don’t directly drive optimal withdrawal rates but should be factored into planning.

• Bengen’s “Eight Elements” for Retirement Planning

  • Bengen’s new book introduces a step-by-step method for individuals including withdrawal scheme, account type, asset allocation, legacy goals, timing, and rebalancing schedule.
  • He’s even open to integrating alternative COLA approaches, such as a fixed 2% annual increase regardless of actual inflation. (32:18–33:30)

Notable Quotes and Memorable Moments

• On Retirement Spending:
  “People need encouragement to do so [spend money]. It’s pretty clear … if you spend all those years saving money and sacrificing, you should enjoy it.” — Bill Bengen (06:00)

• On Sequence Risk and U-Shape Glide Path:
  “If you encounter a major bear market around your retirement and you have lower exposure stocks, you’re not going to get hurt as bad … eventually they run their course and are over, and then you can just pile money basically into a market which is going up.” — Bill Bengen (17:31)

• On the Success and Responsibility of the 4% Rule:
  “I feel a little bit like Monk in the TV show … there is a sense of responsibility, of place on my shoulders to get my stuff right, you know, because a lot of people will be reading it and acting often.” — Bill Bengen (37:12)

• On Life Priorities:
  “If I’ve learned anything on this journey, you need family, friends, and a passionate interest in something to fully enjoy life. Cultivate all three, and they will not fail you. … If I was to write that paragraph today, I would probably add health.” — Bill Bengen (38:01, 38:48)

• On Bear Markets and Withdrawal Rates:
  “If you’re in retirement and you’re tracking your plan and you run into a bear market … bear markets come and go … unless it’s a really extremely deep bear market, you’ll probably be okay. And you’ll find a good recovery on the other side will bring your plan back into alignment.” (39:46)

Important Timestamps

• [00:57] – Bengen introduces his search for the “worst case scenario” and the origin story of the 4% rule.
• [04:36] – Clarifying the key assumptions and misunderstandings of the 4% rule.
• [10:16] – Why inflation is even more damaging than severe market declines.
• [13:01] – How inflation and stock valuations interact to affect withdrawal rates.
• [15:48] – Implications of increased longevity and FIRE movement on sustainable withdrawal rates.
• [17:31] – Explanation of the counterintuitive U-shaped equity glide path.
• [22:52] – Bengen’s perspective on cash buckets and weathering bear markets.
• [23:34] – Commentary on dynamic withdrawal strategies.
• [25:40] – How Bengen personally updated his own withdrawal strategy to 5%, and why caution still matters.
• [30:11] – Key chart: Safe withdrawal rate vs. asset allocation.
• [32:18] – Walkthrough of Bengen’s new planning “playbook”—the “eight elements.”
• [34:26] – Practical advice for retirees with sufficient portfolio size covering most needs.
• [38:01] – Life philosophy: The importance of family, friends, passion, and health.

Conclusion

Bill Bengen’s appearance on Excess Returns offers both a historical deep-dive and forward-looking update on the legendary 4% rule. He makes a strong case that current retirees, with appropriate diversification (particularly up to 65% in equities), could safely withdraw closer to 4.7% or even 5% under many scenarios—though dynamic adjustment, personal circumstances, and humility in the face of market uncertainty remain keystones.

Bengen’s work is characterized not only by rigorous research but also by practical, human empathy—reminding listeners to spend and enjoy their savings, to adjust for longevity, and to prioritize what matters most in life. His updated book, "A Richer Retirement," provides actionable tools for customizing withdrawal strategies, making it a valuable resource for anyone planning their financial future.

Guest’s Book:
A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More — Available at major online booksellers.

Learn more:

• Bill Bengen’s website: https://bengenfs.com
• Excess Returns Network: https://excessreturnspod.com