WCI #464: Is The 4% Rule Still Safe? (Creator Responds)

Summary

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Podcast Summary: White Coat Investor Podcast #464

"What the Creator of the 4% Rule Says Today"

Date: March 26, 2026
Host: Dr. Jim Dahle
Guest: Bill Bengen (original proposer of the 4% rule)

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Overview

In this episode, Dr. Jim Dahle interviews Bill Bengen, the originator of the 4% rule for safe withdrawal rates in retirement. The discussion explores the history and evolution of the 4% rule, safe withdrawal strategies, portfolio construction, risk management, and psychological challenges retirees face when spending their savings. Bengen discusses new research indicating the withdrawal rate could be higher than 4% and gives practical advice for high-income professionals preparing for and living in retirement.

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Key Discussion Points and Insights

1. The History and Origin of the 4% Rule

• Bill Bengen’s Background:
  • Aeronautics & astronautics major, soft drink business, and then financial planning (03:21).
• Development of the 4% Rule:
  • Bengen was first (ahead of the Trinity Study) to deeply research safe withdrawal rates (04:48).
  • Early 1990s: No established consensus; advisors gave wildly varying safe withdrawal advice—from 3% to 8% (05:48).
  • Pre-4% Rule, planners ignored sequence of returns risk, leading to flawed advice (06:26).

Quote:

"Back then, the subject really hadn't been researched at all before I published my first paper… their answers were all over the lot." – Bill Bengen (05:48)

2. Current Thinking: Is 4% Too Low?

• Research Shows a Higher Possible Rate:
  • In his book, Bengen suggests a safe rate can be up to 4.7%, especially with broader diversification ("factor investing") (07:05).
  • His research now considers asset classes beyond just US stocks/bonds.

Quote:

"I feel very confident in my numbers. And they support, you know, a withdrawal rate a lot higher than 4.7% in this environment." – Bill Bengen (24:13)

3. Portfolio Construction and Diversification

• Bengen’s Recommended Allocation:
  • Diversify across large cap, mid cap, small cap, micro cap US stocks, international stocks, treasuries, and cash (08:09).
  • Portfolio: 11% each in large, mid, small, micro, and international equities; 40% intermediate treasuries; 5% cash (08:09).
  • Stresses importance of even greater diversification: REITs, emerging markets, alternatives (09:42, 31:14).

Quote:

"My research still doesn't reflect the degree of diversification I'd like to see... Some of the asset classes I've included, like REITs and emerging market stocks and digital currency and alternative investments, they might make a significant contribution to the future withdrawal rate." – Bill Bengen (09:42)

4. Risk Management vs. Buy-and-Hold for Retirees

• Not a Pure Buy-and-Hold Advocate:
  • Recommends retirees engage in ongoing risk management, possibly via third-party services to adjust equity exposure based on market conditions (12:40).
  • Differentiates between “wholesale” market timing and incremental, data-based risk management (13:12).

Quote:

"I recommend risk management practices—use a third party risk management service to guide your equity allocation, protect and preserve your capital." – Bill Bengen (12:40)

5. Sequence of Return Risk & Inflation

• Inflation is the Biggest Threat:
  • 1970s stagflation, not the Great Depression, was worst for retirees (15:39).
  • High inflation causes portfolios to fail due to rising withdrawals (15:39).

Quote:

"Inflation is the greatest enemy of retirees. It can devastate your portfolio." – Bill Bengen (15:39)

6. Applying Bengen’s Own Research to His Retirement

• Practices What He Preaches:
  • Retired in 2013 using a 4.5% withdrawal rate (16:59).
  • Adjusts withdrawal rate over time; stresses need to monitor and change as conditions evolve (16:59).

Quote:

"I eat my own cooking in that regard." – Bill Bengen (16:59)

7. Asset Allocation Tactics:

• Bond Tent vs. Rising Equity Glide Path:
  • “Rising glide path” (increasing equity exposure in retirement) may be superior at lower starting equity allocations (55%); at higher allocations, fixed allocation may win (18:20).

8. On “Winning the Game” and Removing Risk

• Comment on Bill Bernstein’s TIPS Ladder Approach:
  • Respects the idea but hasn’t specifically tested it; warns of possible missed gains if retiring into a strong bull market with too-heavy fixed income allocation (20:29).

9. Psychological Barriers to Spending in Retirement

• Many Retirees Underspend:
  • Even those with substantial nest eggs often fail to spend 4% (21:00).
  • Fear of running out causes overly conservative behavior (21:34).
  • Importance of being intentional about enjoying what you’ve saved (24:13).

10. Critiques and Clarifications about the 4% Rule

• It’s a Guideline, Not a Law:
  • “Rule” actually means “worst-case scenario” for the past 100 years (25:37).
• Must Account for Fees and Taxes:
  • Bengen deliberately leaves these out for universality—advises including them in one’s spending plan (28:45).
• Possible Psychological Stress If Portfolio Drops:
  • Those skirting failure may feel pressured to abandon their plan at wrong moments (30:17).

11. Diversification, Alternatives, and Crypto

• Bengen’s Current Portfolio:
  • 4% gold, 1% bitcoin, also REITs, emerging markets, etc. (32:31).
  • Even small allocations (like 1%) can matter during periods of outperformance (33:17).

12. Advice for Purposeful Living Beyond Money

• Focus on Relationships, Health, and Interests:
  • Money is a support, not a goal; real fulfillment comes from family, friends, health, and passions (34:18).

Quote:

"Money supports that, but it doesn't necessarily represent the goal you have in retirement. It's what you do with the money that counts." – Bill Bengen (34:18)

13. Actionable Final Advice for Listeners

• Manage and Monitor Both Portfolio and Withdrawals:
  • Be prepared to respond to big bear markets and especially to periods of high inflation by acting decisively—cutting withdrawals if needed (35:14).
• Keep Expenses Flexible:
  • Try to structure spending so that necessary cutbacks are possible during downturns (36:00).

Quote:

"If you're faced with ... a period of high inflation like we had in the 70s, you want to do immediate rescue work on your portfolio, you want to cut your withdrawals drastically and do it immediately." – Bill Bengen (35:14)

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Notable Quotes & Timestamps (MM:SS)

• "Their answers were all over the lot..." – Bill Bengen on pre-research withdrawal advice (05:48)
• "I eat my own cooking in that regard." – Bengen on using his own methods (16:59)
• "Inflation is the greatest enemy of retirees." – Bengen (15:39)
• "The money supports that, but it doesn't necessarily represent the goal you have in retirement." (34:18)
• "If you're taking only 4%, your heirs are going to be very grateful ... but is that what you really want?" (24:13)

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Timestamps for Major Topics

• 03:21 – Bill Bengen’s background and shift to finance
• 04:48 – Inventing the 4% rule and comparison to the Trinity Study
• 07:05 – Why the safe withdrawal rate may be higher than 4%
• 08:09 – Details of Bengen’s proposed asset allocation
• 12:40 – Risk management practices for retirees
• 15:39 – Sequence of return risk and inflation
• 16:59 – Bengen’s own retirement withdrawals (“eat my own cooking”)
• 18:20 – Rising equity glide path vs fixed allocation
• 20:29 – Thoughts on “winning the game” and TIPS ladders
• 21:34 – Psychological transition from saving to spending
• 24:13 – Advice for spending in retirement
• 25:37 – 4% rule as a rule of thumb and worst-case measure
• 28:45 – Expense ratios, taxes, and advisory fees
• 31:14 – Portfolio diversification including alternatives and digital assets
• 32:31 – Personal portfolio allocations
• 34:18 – Living a full and meaningful life

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Takeaways for Listeners

• The “4% rule” is not immutable—Bengen’s latest research supports higher, well-diversified withdrawal rates.
• Risk management and ongoing portfolio monitoring are crucial—don’t simply “set it and forget it.”
• Inflation is a bigger threat to retirees than poor stock returns; plan accordingly.
• Don’t be afraid to spend and enjoy your wealth, but stay prepared to adjust during tough market or economic periods.
• Happiness in retirement comes from more than money: focus on relationships, health, and passions.

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For high-income professionals: Interpreting the 4% rule with nuance, prioritizing risk management, and addressing the psychological side of spending are as essential as the numbers themselves.

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Transcript

[A]

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

[B]

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[C]

Thanks for what you do. Unfortunately, I've had lots of opportunities to interact with the medical profession lately.

[B]

I don't enjoy that part of it so much, but it is nice to meet you guys and see you at work. And I do appreciate your education and training and how it helps me with whatever my medical challenges might be for the moment. You are doing good work out there.

[C]

That's why you get paid so well.

[B]

But that doesn't necessarily mean that you're getting the thank yous that I know a lot of you enjoy getting from time to time. So if no one said thanks for your hard work today, let me be the first. By the way, the White Coat Investor is here to help you be successful. Successful in life, yes, but particularly in your finances. And I'm always surprised when people don't realize that. We have recommended lists.

[C]

Part of what we do, part of

[B]

our mission is connecting you with the good guys and gals in the financial services industry. So we have these recommended lists. You can see them all if you go to whitecoatinvestor.com recommended but whatever you might need, whether it's a financial advisor

[C]

or an insurance agent or a mortgage

[B]

lender or somebody to help you with your contract, or some advice about your student loans or some surveys you can

[C]

take as a side gig, whatever you're

[B]

looking for, we have these lists of people that we have, you know, that we can introduce you to and help you with whatever it is you're seeking.

[C]

And we get feedback on these all

[B]

the time from White Coat investors.

[C]

If we get a lot of complaints about them, obviously we take them off the list.

[B]

So they're continuously vetted by the community and helping you to be successful in what you're looking for. So if you need help with something, rather than just plopping into one of the White Coat investor online communities and asking, hey, who should I use for mortgages?

[C]

Start with the list. Right? We've got this whole list.

[B]

We've been keeping up for you for years and helping you get connected with those people.

[C]

Check that out.

[B]

Whitecoatinvestor.com recommended. We have a great interview today. We've got somebody that I was asked to bring on the podcast by some members of one of our online communities. This is Bill Bangan and let's get him on the podcast and talk with him.

[C]

My guest today on the White Coat Investor podcast is Bill Bangan. Bill, welcome to the podcast.

[D]

Thanks so much for having me. I'm looking forward to this.

[C]

Now, if you've paid any attention at all to the personal finance space, to the investing space, to the retirement planning space, you need no introduction to Bill Bengen. He's a very well known name in this space. For those of you who might be new to the podcast or maybe not as well versed in this sort of stuff, maybe what you ought to know about Bill is that he's probably the first one to come up with with something we talk about all the time, this 4% rule or this 4% guideline. He's one of the very first people out there to start talking about this sort of a safe withdrawal rate concept. But it's interesting. That is not where he started his career. His degree is actually, I just learned this in aeronautics and astronomics. Yeah, you had an interest in being an astronaut and transition from there to running the family soft drink business before you eventually ended up at some point in the 80s in financial planning where kind of you made perhaps the greatest impact. Although I don't know, 7 up's a pretty well known brand. Maybe you made more impact in the soft drink space than you ever made in financial planning. I don't know. But I guess my first question for you is if the Nobel Prize was ever given out for the concept of safe withdrawal rates, should it go to you or should it go to the authors of the Trinity study?

[D]

Well, it depends. If I came out with my study about three or four years before Trinity, theirs was very similar. They verified essentially what I had, which was very comforting to me at the time because that was still pretty new. And I was always worried about making some major error. But there are other people too, you have to take a look at. And we have, fortunately, a lot of talented people in the field researching retirement income. And I think those names should be considered too.

[C]

Yeah, there's definitely a lot of people that have contributed to it, and more and more is coming out every year. Of course, people are always trying to come up with new, fancier ways to make your money last in retirement. But it's interesting to think about what financial planners were telling people, you know, in the late 80s, in 1990, you know, if somebody walked in to a financial planner and said, how much of this portfolio can I spend? What was the answer they would get in 1990?

[D]

Well, you know, back then, the subject really hadn't been researched at all before I published my first paper. And I called some of my fellow financial advisors in the San Diego area to ask them exactly that question, and their answers were all over the lot. And it's not surprising. If there's no established research, you know, that's available, you're going to have to just make do it by guesswork. So some of them said 3%, some said 8%, some said, you should have a lot of stocks in your portfolio. Some said, no, you shouldn't have any stocks in your portfolio. You're a conservative in retirement.

[C]

Yeah, it certainly was all over the place. And what I'd heard a lot was, well, if your portfolio averages 8%, you can spend 8%. There was just no concept of sequence of returns, risk, even among the financial planners of the world, most of which unfortunately were in the business of hawking stocks or hawking mutual funds or hawking insurance products, not really doing planning. But nobody knew, nobody had really looked into it. So thank you for doing that work and getting people talking about this so we can have this conversation today.

[D]

My pleasure.

[C]

Your latest book is called A richer supercharging the 4% rule to spend More and Enjoy more. And in the book you argue that maybe the safe withdrawal rate is a little higher than that 4% guideline that's been around for years. Maybe it's as high as, as 4.7%, especially if you include some different types of investments in the portfolio factor investing, maybe we should call it, for lack of a better term. Why did you feel like this was an important enough concept to put out

[D]

a book about it? I've been researching this for 30 years, and the last 10 years. I've written articles in various publications, but they're spread all over the place. So I wanted to bring all my research together in one place and present my process that I developed over the years in a very comprehensive, thorough fashion. And that was the real reason for the book.

[C]

If you look at the Trinity study, for instance, it just basically looks at US Stocks and US Bonds and really it's just large cap US Stocks.

[B]

And that's it.

[C]

That's what they did all the study on. But in the book it talks about an allocation of 11% to U.S. large cap stocks and 11% to to U.S. mid cap stocks and 11% to U.S. small cap stocks and 11% to micro cap stocks and 11% to international stocks and then 40% in intermediate term treasuries and 5% in cash, essentially treasury bills. And I'm curious about that allocation. I mean, is that some sort of a recommendation to retirees? Why did you choose that? And in particular maybe why did you decide to tilt that allocation, that portfolio, toward the small factor and not necessarily the value factor? For instance, can you talk a little bit about where that allocation came from?

[D]

Yeah, essentially I had tables showing rates of return for investments going back 100 years. And I pretty much chose the investments that had the highest returns. Microcaps and small cap US stocks are the highest and S&P 500 isn't too far behind. And international stocks have done well too. So I'm a big fan of broad diversification. My research still doesn't reflect the degree of diversification I'd like to see. I mean, some of the asset class have included, like REITs and emerging market stocks and digital currency and alternative investments. You know, they might make a significant contribution to the future withdrawal rate.

[C]

And a lot of people in this space tend to get, for lack of a better term, very pessimistic. Right. I mean, I see people talking about a safe withdrawal rate and all of a sudden it's not only below 4%, it's closing in on 3% and sometimes gets below 3%. And so many people out there arguing that the 4% is actually too high. And yet your premise in the book is that 4% is probably too low. Are you not being pessimistic enough? And why is this pessimism that people get into? Why is that so sexy and so attractive? And why do so many people listen to that and pay attention to it?

[D]

Yeah, I prefer not to be pessimistic or optimistic. I'd rather look at the data and see the story it presents. And the story it presents to me is that even in today's environment where stocks are very expensive and we're probably not that far from a major bear market, which as you know, has a very deleterious effect upon withdrawal rates, you will still be able to withdraw somewhere between five and a half, 5.8%, which is not bad, particularly compared to 4.7 or even 4.

[C]

I guess it comes down to what, what's likely to work versus what is safe. Right. What's nearly guaranteed to work. And a lot of people get lost between those two concepts. What strategy do you recommend to people that are on the eve of retirement? They're not going to have any more earned income going forward and they need to develop some sort of strategy to make sure they don't run out of money before they run out of time. Is there a strategy you recommend to them? Do you recommend they start at 5 or 5.8% of the portfolio or maybe start lower or set up some guardrails or what strategy do you recommend to them?

[D]

It's a very individual thing. People's what I call the eight elements or the primary determinants of the withdrawal rate vary from person to person. They include things like planning, horizon, the type of account you withdraw from, whether or not you want to leave a legacy at the end of your life or not. And you have to consider all those factors in detail. You also have to consider inflation and US stock market valuation. There's a lot of things to consider, but overall I recommend, I don't recommend in my book I use primarily a buy and hold philosophy, but I also mentioned my book that I'm not a buy and hold investor. More and more I don't think retirees should be buy and hold because if they encounter a really bad market like we did in 2008, which can devastate their portfolio and greatly reduce the withdrawal rate. So I recommend risk management practices use a third party risk management service to guide your equity allocation, protect and preserve your capital.

[C]

What do you mean by a third party risk management?

[D]

Well, there are companies that do nothing but that they basically issue recommendations on allocation based upon their perception of risk in the market. I use one. I know there are several of these that are very good.

[C]

You mean they recommend you change your asset allocation? Is that what you're saying? So they say valuations are high and we expect a bear market to be here soon. Maybe you ought to cut back from 60% stocks to 45% stocks or something.

[D]

Exactly. They do it incrementally, not large jumps. At a time. There's a difference between risk management and market timing. Market timing, in my understanding, is where you, you try to invest all your money at the bottom of the market and sell out the top. And I don't think anyone can be that accurate predicting tops and bottoms to justify using that. The risk management approach assesses risk continually and adjusts the portfolio accordingly. The particular service I use had a great track record back in the 2008 bear market. They lost only half of what the market lost. So that's. Preservation of capital is paramount to me.

[C]

Isn't it just a matter of degree though? I mean, a wholesale market timer may swap the whole portfolio from stocks to bonds, and somebody doing this risk management might only be swapping out 10%. But isn't it just as difficult to predict the future and get the timing right on 10% of the portfolio is on 100% of the portfolio?

[D]

Yeah, I think the risk management makes sense to me because it's constantly reevaluating the risk in the market based on valuation, economic factors, technical factors and so forth. If you're trying to call tops and bottoms, you don't have much margin for error. But the risk management people do because they're not making huge commitments based upon a forecast. They're looking at the data on what the gleam from the data, adjusting the allocation accordingly.

[C]

Now, when it comes to these sequences, we talk about sequence of return risk. And if you look historically at the times that were really bad for somebody that was withdrawing from a portfolio, usually the Great Depression gets trumped out there because equity returns were so terrible. But the really the worst sequence was actually somebody retiring into the stagflation of the 70s. That's when portfolios failed. And it turns out that inflation is actually a bigger risk to decimating your portfolio than poor equity returns. What lessons should be taken from that? When somebody's constructing a portfolio to withstand the possible bad things that can happen to them over the next 20 or 30 or 40 years during their retirement?

[D]

Yeah. I always say that inflation is the greatest enemy of retirees. It can devastate your portfolio. And what happens is that if you're increasing your withdrawals each year by inflation, and inflation is high, you're going to be very rapidly increasing withdrawal rate, put tremendous stress on your portfolio. That's why 19, 29, 33, the market dropped almost 90%, but you still had a withdrawal rate of about 6% for that period because it was a deflationary period and people were actually able to reduce their withdrawals. When you come to the 1968 period, you had the worst of both worlds. You had high stock market valuations and you had a high inflation rate. And those combined made far worse than the depression for retirees.

[C]

I've got a few questions that came from our audience. They wanted me to ask you during this interview. The first one was grill him on whether or not he followed his own advice or punted. That's the first question I got. So I'm not sure what they mean by your advice, but he wrote these papers back in the 90s about how much you could withdraw from a portfolio. I guess the question is, what have you done in your retirement? Did you follow your own advice?

[D]

Yeah, I can honestly say I eat my own cooking in that regard. When I retired in 2013, by that time, my research had a worst case scenario of 4.5%, and that's what I used. Over the last decade, of course, the stock market has done extremely well. And I reevaluated my withdrawal rate and figured I probably could have taken five and a half percent or more. So I've adjusted my withdrawal upward. And it's very important that people realize that once you have a plan, it's not a static plan. You have to constantly monitor it and make changes up or down.

[C]

All right. Another question I got is people want to know how you think about asset allocation relative to a safe withdrawal rate. And you've mentioned a little bit about risk management and some tactical asset allocation, but they want to know, did you test a fixed portfolio versus using a bond tent? You know, this higher percentage of the portfolio in bonds for a few years before and after the retirement date versus this other newer idea out there, a rising equity glide path where you actually increase the amount of money, the amount of your portfolio that's in equities as you move throughout retirement, and whether you thought one of those was a better way to do asset allocation or not.

[D]

Yeah, you know, I've only done a small amount of testing on the rising glide path, and in my book, I present with a 55% allocation of stocks that the rising glide path was superior to a fixed allocation. When I tested it at 65%, the difference was much less. And I suspected higher allocations that the straight fixed allocation will probably be superior.

[C]

So you're saying that if you don't have that high of a percentage of your money in equities, that a rising glide path makes more sense than if you're starting with 65, 75, 90% equities in retirement rising from there doesn't Give you the bang for your buck.

[D]

Yeah, I think the concept adds value and it's difficult to understand why it works. Counterintuitive. But I remember the authors of the paper who proposed that first said they thought it was due to the fact that if you're using a rising equity guide path, you're going to start with a lower allocation, maybe instead of 65% stocks, maybe it's 40, and then increase it maybe 1% a year. If you get hit with a bad bear market early in retirement, you're not as exposed as you might be if you had a 65% allocation. So that bad. That helps in many cases, the worst cases, and compounds through the portfolio over the years.

[C]

Somebody asked me to ask you about Bill Bernstein's idea where he talks about, once you've won the game, stop playing. And he's a big fan of putting a certain amount of your money into very safe assets. The classic example is a ladder of tips, treasury inflation protected securities and, and basically ensuring that you won't run out of money because you've essentially put the money you need to spend at least on your fixed costs, into a guaranteed investment. What are your thoughts on eliminating risk when you have enough money that you don't have to take it anymore?

[D]

Yeah, I haven't tested Bill's idea. I have a respect for him, very bright, and listen to what he says. So I really can't comment as much as I'd like to on it. I hope later this year to run some tests on that approach and see what it does. The thing you have to deal with is that if you retire into a favorable environment and you're heavily into bonds, you're going to lose a lot of gains in stocks you might well have been able to reap if you had stuck with a fixed allocation.

[C]

You know, in my experience, I've run into a lot of people who save up a multimillion dollar portfolio, you know, this big fat nest egg. And when you actually talk to them about their. What they're spending, they're not even spending 4%, you know, and it's a lot of people. It's not a small percentage of retirees that are spending significantly less than 4%. Why do you think that is? And what can we do to help people to, to spend and, or give more of their portfolios away as they move through retirement.

[D]

I think I'm a retiree now and I understand that when you cross that line from the working world to retirement, you have this concern about your income because now you don't have employment income to bail you out if you need it. All you have is income from your own investments and Social Security, maybe a pension plan. So it's a little scary for folks, and I think it tends to make them too conservative. And I'm hoping that my work, which I've researched for 30 years, will help them see it's possible to take a lot more than they might otherwise think without taking undue risk.

[C]

Yeah, for sure. It is a difficult transition. Lately I've been talking a little bit that there are two challenging problems in personal finance. The first one is figuring out how to save enough of your income that you're actually going to build a nest egg that can support you in retirement. And that's hard for people. It's hard for people to save. I mentioned before we started recording this study that came out, I think, by Goldman Sachs last year, that showed even among high earners, something between 18 and 40% of them are essentially living paycheck to paycheck. This is a hard thing for people to do to start saving enough to actually build an estate. But once you solve problem number one, you basically need to move instantaneously to start working on problem number two, which is how to get yourself psychologically to be able to spend that money that you spent such a long time saving up. And this is very hard for people. I mean, almost every retiree I've talked to have talked about how difficult it is, even when their portfolio is still getting bigger, to spend as much as they can spend. And I think that's why books like this one that came out a few years ago die with zero. You know, the book's not perfect, but just to get people used to this idea that you're not going to live forever and it's okay to spend this money that you spend a lifetime saving up for these retirement years and get used to it. I think another good test run for people is college savings, right? They put this money aside to pay for their kids to go to college, and then they get in their 50s or so and the kid's actually in college, and they got to start withdrawing and using that money that they saved for this purpose. And I think it's a great trial run for the retirement spending they're going to be doing a decade later to get used to pulling money out of those accounts, to get used to actually spending money for the purposes you saved it for. But I don't know if you have any other tips for retirees now that you've been doing it for more than A decade to help them to actually spend.

[D]

It's a tough nut. I just tell them that, you know, I've researched this very thoroughly. I feel very confident in my numbers. And they support, you know, a withdrawal rate a lot higher than 4.7% in this environment. So if you're taking only 4%, your heirs are going to be very grateful to you because you're going to leave them a lot of money. But is that what you really want? Do you want to enjoy life a little bit more?

[C]

There's another fellow that likes to look at this retirement spending puzzle in great depth, in great detail. A fellow by the name of Carsten Jeske, also known as Big Earn out there. I'm sure you're familiar with some of his work. Eight years ago he published a blog post as part of his Big Long Safe Withdrawal Rate series. I think this is number 26 in that series, but he titled it 10 Things the Makers of the 4% Rule Don't Want you to know. It's a very clickbaity title, of course, but I thought it might be worth spending some time talking about these issues that he brings up with the 4% rule. And his first one is that we actually mean the 4% rule of thumb, that it's a guideline and not necessarily some fixed law of physics in the universe. Do you think that's fair to say that the 4% rule is a guideline or a rule of thumb?

[D]

Well, possibly, but I have a very specific meaning for it. It to me represents the worst case scenario that's occurred over the last hundred years where you find an investor who had the lowest safe withdrawal rate of all these investors. And that's the number, obviously everyone else is going to be able to withdraw more than what them by definition. So to me, if you're a very conservative person and you don't want to take hardly any risk, you might be satisfied with the withdrawal rate because it might meet your requirements, particularly if you're a high inflation, high stock market valuation environment, which was in the 60s. We're not in that now. We have high stock market valuation, but so far at least, inflation seems that is relatively tame. We'll see what happens in the future, though.

[C]

Part of the challenge, I think, is that we can't use our time machine to go back and live in the past. With the inflation and the returns we had in the past, we're facing a completely new environment. There's nothing that says we can't have higher inflation or crummier returns than they had in the last hundred years. How much of that should one take into account when setting up their own personal withdrawal rate?

[D]

Well, I always tell folks that basically I'm a reporter. I look at history, study what's happened in the past, and report to them the consequences of that. But if we try to extrapolate past results to the future, we run the risk that the future, as you indicated, might be significantly different and more adverse than the past has been. And it's possible that the 4.7% rule might fail at some time if we got up to really high inflation on a protracted basis and stock market stayed expensive.

[C]

Another point that Carsten makes in this blog post I think you'll agree with is that the 4% rule is likely way too conservative for many early retirees and just goes to show that the vast majority of people can spend more than 4%. They just maybe won't know it for a few years.

[D]

Yeah, I think it's important to recognize that the withdrawal rate varies with those eight elements I mentioned, particularly with a planning horizon. So if a person, let's say some of the FIRE folks are looking at 50, 60 years of retirement, 4% may not be a bad number for them. Actually, I think 4.1% is where I've indicated the thing bottoms out, but for shorter time horizons than normal retirement, 25, 30 years or so. Yeah, that's way low.

[C]

I think Carson makes a good point with this next one. He says, you know, one of these 10 things that the makers of the 4% rule don't want you to know. We conveniently ignore expense ratios, transaction costs, taxes, et cetera. The 4% has to include any advisory costs you have and of course your tax bill as well. Do you think a lot of people forget about that?

[D]

Yeah, it's an interesting point. It's a way to really underline how the money you pay to an advisor is going to affect the long term performance of your portfolio. But I've avoided including those expenses because they vary so much from individual to individual, including investment advisor fees. I know people paying a quarter of 1%. I know people paying 1.5%. That's a huge spread. I wanted my research to be as universally applicable as possible. So I treat those expenses as budget expenses. Expense. Include them in your expense budget rather than necessarily adjusting the withdrawal rate because also you may have other sources of income for which you may elect to pay the advisor's fees. Social Security, pension plan, annuity.

[C]

Right. Absolutely.

[B]

Okay.

[C]

Another point he wanted to make was that some of these cohorts of people that didn't run out of money. Right. They survived, you know, withdrawing 4% or four and a half or 5% or whatever. They didn't actually run out of money, but they would have had a very scary and turbulent retirement because they would have gotten close. And how big of a deal do you think that is in real life? Somebody gets a relatively poor sequence of returns, they still withdraw their 4% or 4.5% or 4.7% or whatever, and they almost run out of money, but they don't. How big of a deal is that psychologically? Do you think that is a problem?

[D]

Yeah, I think it is a legitimate issue. The danger there is that market events may cause you to jump out of the market with fear, which is why I'm such a strong proponent of risk management, because risk management does it gradually and preserves your capital that way. That's. I don't think, quite frankly, retirees can get away from risk management during retirement. Okay.

[C]

You know, the book talks about adding some other asset classes to your portfolio, and by adding them, having a higher, you know, safe withdrawal rate. I mean, how far do you take that? Should people be investing deliberately in small stocks? Should they be investing deliberately in value stocks? Should be in real estate, in international stocks. What sort of portfolio construction advice does your research lead you to give to other people?

[D]

Yeah, as I said, I'm a broad proponent of broad diversification. And the portfolio I use in my book only has seven asset classes. I use more than that personally. I include some digital currency, include emerging markets stocks and bonds, include alternative investments, precious metals, REITs, and so on. And I haven't tested them yet. So I don't know how much of an improvement they'll make in the portfolio. But my guess is they not so much the rate of return there, but how they correlate with the other assets in your portfolio. It's kind of like a recipe with a lot of ingredients. And if they all work together harmoniously, it's very tasty. If they don't, the result is less than you could hope.

[C]

Well, there's a lot of people out there that love having a little slice of bitcoin in their portfolio, that love having a little bit of gold in their portfolio. And obviously, bitcoin over the last 15 years has had some pretty serious volatility, but overall has performed pretty well despite its current downturn. And everybody loves gold. The last year or two, it's had a spectacular last couple of years. I think people would be curious to hear how much of your portfolio you have in those sorts of assets.

[D]

Gold. I have about 4% of my portfolio in gold. Wish based on the last year I had more than that Bitcoin, just 1%. I have two minds of that asset class because I've heard some very smart people praise it and others condemn it. So what chance do I have to get it right? So I just settle for a small allocation and I have some REITs in my portfolio across foreign stocks, emerging market stocks and so forth.

[C]

Some people might argue that 1% doesn't matter, that it's not enough to actually really influence your portfolio. If you really believe in it, you ought to have more in it. What do you think of that argument? Do you think it's still worth hassling with something that's only 1% of your portfolio?

[D]

I think so. I mean, I had 1% in silver a year ago and I held it, just recently sold it and I was very happy with the results of that 1%. I felt it was riskier than gold. And it turned out to be. That was the case. You can see by the recent decline. But no, I think 1%, if you get a high enough return, could have a surprisingly good effect on your portfolio.

[C]

Now you're living close to my old stomping ground. I spent three years living in Tucson while I was training as an emergency physician. But turning away from finances for a minute, one of the things you've said on your website is that in life you need family, friends and a passionate interest in something to fully enjoy life. Cultivate all three. They will not fail you. Can you expand on that? What advice do you have, people for living a full, enriching life and maybe not spending too much time focusing on the financial part of it?

[D]

Yeah, I think it's really important to think about what's important in life. The money supports that, but it doesn't necessarily represent the goal you have in retirement money alone. It's what you do with the money that counts. And I mentioned those three factors if you have strong family ties and good friends. I also admitted, but I add health. Good health is very, very important to those elements. You'll have a successful life as well as successful retirement because I think those are the most important things. Yeah, for sure. All right.

[C]

Our time is now short, but we're, you know, this is a chance. You've got the year of 25,000 or 30,000 high income professionals out there, you know, many of whom, you know, look forward to retirement or are retired or on the eve of retirement. What have we not talked about in this interview that you think they ought to know.

[D]

I think they need to actively manage their portfolio during retirement or have someone else actively manage it for them. There are two circumstances you're likely to meet. One is a big bear market early retirement. And my research indicates that unless it's something the size of 2008, you can probably ignore it. Don't change anything. Allow your withdrawal rate stay the same in the subsequent structure. Strong market recovery will put you back on plan. If, on the other hand, you, you're faced with a period of attractive period of high inflation like we had in the 70s, you want to do immediate rescue work on your portfolio, you want to cut your withdrawals drastically and do it immediately. The longer you wait, the more severe the problem will become.

[C]

It's interesting you talk about managing the portfolio, but really what you're talking about is managing spending, managing your lifestyle, having you know as much as you can of your expenses be variable expenses that you can cut back on rather than fixed expenses.

[D]

I agree.

[C]

All right. Well, Bill Bangin has been wonderful to chat with you. Thank you so much for your work on retirement, research on safe withdrawal rates on the 4% rule, now the 4.7% rule. And thank you for your recent book that can be bought anywhere you buy your financial books. It's called A Richer retirement supercharging the 4% rule to spend More and Enjoy More. Thank you so much for your time today.

[D]

It's been a pleasure. All mine. Thank you.

[C]

All right.

[B]

I hope you enjoyed that interview as

[C]

much as I did.

[B]

You know, it's interesting to talk to

[C]

one of the big names out there.

[B]

He's been around for a long time. Obviously he's now been retired for more than a decade, but still writing and still researching, you can talk about some of the things, you can hear him

[C]

talking about some of the things he

[B]

still wants to look into.

[C]

So he's still in this space and

[B]

still making a difference. And we're appreciative of him. And I hope you learned a few things about his thoughts on retirement and how much you can spend and how you ought to manage your money in retirement. The interesting thing about talking to lots and lots of different experts is they don't always agree about everything. He talks a little bit about some of the tactical asset allocation. I'm obviously not a big fan of that. I find it just, just as hard to make small movements in my portfolio as large movements in my portfolio. But the more you become educated and you listen to experts, you find the right path for you. You realize what reasonable looks like. You realize the things where all the

[C]

experts agree and you see the things

[B]

that the experts don't necessarily agree on. They're usually much smaller things. Of course, getting the big things right, everybody seems to agree on the smaller things. Maybe not so much.

[C]

There's a little more room for nuance

[B]

out there, so I hope you enjoyed those parts of the interview as well. As I mentioned at the beginning of the podcast, SOFI could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.com whitecoatinvestor See all the promotions and offers they've got waiting for you. One more time. That's sofi.com whitecoatinvestor Sofi student loans are originated by SOPI Bank NA member FDIC. Additional terms and conditions apply. FDA NMLS 696891 don't forget about our recommended lists. You can see all of them whitecoatinvestor.com recommended or you can just go to the White Coat Investor website. Up at the top you'll see a recommended tab and if you click on that you'll see insurance and mortgages and experts and tools and all kinds of things that we have put together for you to help you be successful in your financial life. Thanks for leaving us five star reviews. It really makes a difference. Wherever you get your podcast, leave us

[C]

a five star review there.

[B]

It helps other people to find the podcast and to have their lives changed in the same way that yours has been changed by getting this information hopefully earlier in your career rather than later. A recent one came in from itman who said Love it.

[C]

Psychiatry intern here who no longer worries about finances.

[B]

Thanks to WCI 5 stars. Thanks so much for that kind review. All right, we'll see you next week on the podcast.

[C]

Till then, keep your head up, shoulders back.

[B]

You've got this. We're here to help. See you next time.

[A]

The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.