In this episode of the Bogleheads® on Investing podcast, guest Bill Bengen — creator of the famous 4% Rule — joins us to discuss what’s changed in retirement spending research and how his new book, “A Richer Retirement,” shows retirees how they can spend even more money.
Jon Luskin, CFP® and Bill cover safe withdrawal rates in today’s market, how inflation and the CAPE ratio impact spending, and why adding asset classes like small cap and micro cap stocks increased the safe withdrawal rate from 4% to 4.7%. The episode dives into practical strategies including front-loaded withdrawals, rising equity glide paths, the role of cash buckets, rebalancing, the spending smile, and why a simple all-in-one fund may be the best approach for do-it-yourself investors.
Whether you’re planning for early retirement, looking to maximize spending from your portfolio, or simply trying to understand how much you can safely withdraw, this podcast provides essential insights from the researcher who started it all.
• • •
Jon Luskin, CFP®, a long-time Boglehead and financial planner, hosts this episode of the podcast. The Bogleheads® are a group of like-minded individual investors who follow the general investment and business beliefs of John C. Bogle, founder and former CEO of the Vanguard Group. It is a conflict-free community where individual investors reach out and provide education, assistance, and relevant information to other investors of all experience levels at no cost. The organization supports a free forum at Bogleheads.org, and the wiki site is Bogleheads® wiki.
Since 2000, the Bogleheads® have held national conferences in major cities across the country. In addition, local Chapters and foreign Chapters meet regularly, and new Chapters form periodically. All Bogleheads activities are coordinated by volunteers who contribute their time and talent.
This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012. Your tax-deductible donation to the Bogle Center is appreciated.
Listen On
Show Notes
Bogleheads® Live with Wes Crill: Episode 45
Bogleheads® Live with Ted Randall: Episode 16
Bogleheads® Live with Paul Merriman: Episode 10
Bogleheads on Investing with Eduardo Repetto, Ph.D. – Episode 43
Bogleheads® Live with David Blanchett: Episode 14
Should Equity Exposure Decrease In Retirement, Or Is A Rising Equity Glidepath Actually Better?
Morningstar: Mind the Gap US 2025
Transcript
00:00:00 Jon Luskin
Coming up on the 92nd Bogleheads® On Investing Podcast:
00:00:04 Bill Bengen
If you get much higher than 65% and you encounter a bad bear market early in retirement, a very high stock allocation will just devastate your portfolio.
00:00:17 Jon Luskin
How much can you spend safely in retirement without running out of money? Hi folks, I’m Jon Luskin, board member for the John C. Bogle Center for Financial Literacy. Today on the 92nd Bogleheads® On Investing Podcast, we’re joined by Bill Bengen, creator of the 4% Rule, to talk about what’s changed and how his new book, A Richer Retirement, shows how you can spend even more money.
We’ll cover practical strategies like inflation adjustments and spending flexibility, and if you’re listening on audio, this is a great episode to watch on YouTube. We’ll be showing the relevant charts from Bill’s book as we discuss his findings, and we’ve even created our own visuals just for this episode to help better communicate the concepts discussed. And now, on to the show.
So, let’s kick it off with what safe spending looks like today. We have a couple questions from Bogleheads® Reddit, usernames Hamzehaq7 and VastGlittering9676. They ask: What should we be thinking about with respect to how much we can spend today, given today’s market volatility and inflation rates?
00:01:22 Bill Bengen
In today’s market, of course, we’re facing, at least in the United States, very overvalued stock markets. And usually when we get very overvalued stock markets, a major bear market is not far behind. And when you have a major bear market early in retirement, it can really have a very negative effect on your withdrawal rates. So that’s one aspect.
The other is inflation. Inflation at this point, I’m not too concerned about. It’s what I call a moderate range between 2.5 and 5%. But it bears watching because the latest Producer Price Index report, as you know, came out a little bit hot. I’m hoping that that’s not the start of a trend in the CPI because inflation, in my opinion, is the greatest enemy of retirees.
00:02:04 Jon Luskin
Absolutely. So, in your book you provide guidance for folks. You have a few charts in there, and those charts pretty much sum up, hey, here is what CAPE is, and then here is the accompanying inflation regime. And you give folks the choice to choose from low inflation, moderate inflation and high inflation, which you talk about in the book. And you say, hey, you know, given these two variables, here’s the safe withdrawal rate you should be considering going forward.
Jon Luskin jumping in here with a podcast edit to explain some of the geeky topics we’re going over in the episode so far. CAPE is just a valuation metric. It’s a way of determining just how expensive or cheap stocks are, and CAPE can sometimes be used to help determine whether a future market correction is more or less likely to occur. So here, Bill’s research looks at the question of, hey, if markets are relatively expensive or cheap compared to historic averages, perhaps that suggests that we should change what we think of as a safe withdrawal rate. And now, back to the episode.
One question I have for you is that insofar as determining the right inflation regime, because we pretty much have to guess what inflation is going to look like, in your research, did you do anything along the lines of, hey, here’s what inflation is like at this point in time, and therefore it can indicate what inflation might look like over the balance of the next 30 years?
00:03:41 Bill Bengen
Yeah, you know, that falls into the realm of projecting. And I think my favorite author, Mark Twain, said, projecting is difficult, particularly about the future. It’s a task you have to perform to have a plan, but it’s okay if you don’t have a high degree of confidence in it, because I don’t think anyone can predict inflation with a high degree of confidence.
00:04:01 Jon Luskin
Got it. So it seems like no correlation between what inflation is today and what it’s going to be like 30 years from now. And that’s not surprising, right? That would require knowing the future.
00:04:11 Bill Bengen
Yeah, I would think, you know, people in the early 60s, when inflation was still pretty low, felt pretty good about things. And then 10 years later, they were in a decade of very high inflation. So it can change on a dime.
For years, I struggled to find a method to recreate the sometimes very high withdrawal rates in the past. And it wasn’t successful because I was putting stock market valuation first, and I knew inflation was part of the picture, but I was putting it in the background. And when I flipped that priority, I made inflation the most important factor, everything fell into place and the data made sense then.
00:04:49 Jon Luskin
Yeah, not surprising. Inflation is going to be the driver on what you can spend from your portfolio sustainably.
00:04:56 Bill Bengen
Yeah, assuming that you’re using a withdrawal scheme, which involves giving yourself a cost of living adjustment every year, like Social Security. I mean, you don’t have to do that. You could, based on a percentage of your portfolio value each year, or some other method, you know, an annuity-like method, a fixed dollar method. But I think most people want some inflation protection, and that’s the consequence of that.
00:05:22 Jon Luskin
For those who aren’t sustainable spending geeks, I’m going to jump in here to add some context. You want your portfolio distributions to keep up with inflation each year. That means making bigger and bigger distributions each and every year, usually assuming that inflation goes up each year, which it usually does. So for example, if you’re making a $47,000 a year distribution on a $1 million portfolio in your first year of retirement, you’re going to increase that portfolio distribution next year with inflation. So if inflation is 3%, then your $47,000 distribution goes up to $48,410 the following year. That allows you to maintain a similar quality of life year by year, even though the cost of living increases.
So most folks are familiar with that 4% rule of thumb originally created from your original research. You did more research, as you talk about in the book, and that by adding other asset classes, that 4% has now increased to 4.7%. Notably, adding small caps to a portfolio initially increased that safe distribution rate by half a percent and then you added a few more asset classes, micro, mid-cap, international stocks that brought it up to 4.7%. I’m curious, of those latter asset classes that you add, micro, mid, and international, which of them made the biggest contribution going from 4.5 to 4.7?
00:06:54 Bill Bengen
Sure. You know, I never did a sensitivity analysis of that, so I don’t have a good answer, but I suspect it was probably the micro caps and the small caps because they had the highest returns over the last 100 years.
00:07:07 Jon Luskin
Naturally, you used indexes to get the returns from these different asset classes. Any considerations or maybe any thoughts you’d like to share on how costs could decrease those returns by adding a small cap index, especially the micro cap index, where, you know, there could be some illiquidity premiums there decreasing the return that investors might actually net compared to the index.
00:07:33 Bill Bengen
Costs are very expensive. I’m assuming in my research that I’m using funds, ETFs or mutual funds, with essentially zero costs. And quite, that’s realistic. When I first started my research, that was not the case 30 years ago. But today, investing is low cost commission-wise and fee-wise, which is great for investors.
00:07:55 Jon Luskin
Absolutely. All Bogleheads®, we’re fans of ultra low cost investing.
00:07:59 Bill Bengen
Yeah, makes sense.
00:08:00 Jon Luskin
I hope you’re enjoying the 92nd Bogleheads® On Investing Podcast. If you’re finding it helpful, please subscribe to the channel. It helps more investors discover the show. And now, back to the conversation.
One point that you mentioned in the book, which is rather interesting as well with respect to adding these other asset classes to juice up returns, small cap, micro cap, et cetera, is that with enough of the addition of these higher returning asset classes, the safe distribution rate doesn’t necessarily increase anymore, but decreases. So it’s too much of a good thing.
00:08:33 Bill Bengen
Yeah, volatility is a factor that offsets some of the benefit of the higher returns. It’s particularly important for retirees. Volatility is less important for people accumulating money since they keep adding money, but retirees are not adding money. They’re taking money out. And when you do that and the portfolio is volatile, you can have periods of time when the market is crashing and you’re taking out substantial amounts and really depleting your portfolio.
00:08:58 Jon Luskin
And for those folks who want to nerd out on the subject of adding asset classes like small cap, targeting factor premiums in their portfolio, we’ve done some interviews on other Bogleheads® series on this topic. I’ll link to them in the show notes. For example, we interviewed DFA recently, we’ve had some folks from Avantis on the show, so folks can check those out if they want to learn more.
So in your book, and you mentioned it just now, talking about other asset classes that you could add to a portfolio. I’m curious, any updates? Have you looked at some of these other vehicles and how they impact a portfolio’s return for the long run?
00:09:33 Bill Bengen
Yeah, I think the next one I’d want to take a look at would be gold probably, and beyond that, real estate. And those are two pretty substantial asset classes with decent returns over time. So those are the ones I’d be focusing on.
00:09:47 Jon Luskin
And in your book, I believe you comment to the effect of if folks are interested in how these other asset classes add to the return of a portfolio, you know, let you know, and then you’ll do that research. So folks, if you want to hear Bill do more research on those topics, put your comments in the comment section. Let him know what you want him to research next.
00:10:09 Bill Bengen
I’m happy to help. I enjoy my research immensely, and the prospect of getting something new, perhaps that no one else has seen, is what drives me.
00:10:18 Jon Luskin
Yeah, gold, silver, right? Especially they’ve seen a recent run-up and now drop, right? So it’ll be interesting to see how that added volatility contributes or decreases to that safe withdrawal rate.
00:10:29 Bill Bengen
Yeah. And then commodities are important too, you know, industrial and agricultural. They’ve had a good run and probably going to continue. We’re probably in what’s called a commodity supercycle right now, where commodities can go up and up for a decade or more. And they’ve underperformed for a long time so, apparently this dog is having his day.
00:10:51 Jon Luskin
One thing I can’t help but wonder about with respect to commodities is that yes, there’s the index return, but it’s my understanding that there are a lot of costs when it comes to investing in commodities relative to what you can get from the return in an index in large cap U.S. stocks, for example.
So I think that would be an important consideration on folks interpreting any results that you might find yourself, because there’s the index return for commodities, and then there’s the real return that investors are going to get after all those fees for investing in something like a commodities fund.
00:11:22 Bill Bengen
Yeah, and commodities are particularly loaded with costs. Part of it is because most commodity funds use futures, futures contracts, and they need to be rolled over to new contracts as they expire. And there’s a cost, substantial cost right there.
00:11:37 Jon Luskin
One investing quote that I think applies here, and it’s one of my favorites from Cliff Asness, is, “There’s no investing strategy so good that a high fee can’t make it bad.”
00:11:48 Bill Bengen
That’s a very wise statement. I agree wholeheartedly with it.
00:11:53 Jon Luskin
Certainly Bogleheads® are going to appreciate that one.
00:11:55 Bill Bengen
Yeah, I know when I started out as a financial advisor, I felt advisory fees were too high. So I set my fees at a half, actually, of what the prevailing market rate was. And I thought they’d come down to me, and they never did. And actually, I was forced to raise my rates a little bit to cover my costs, which made me feel badly.
But, you know, AI and a lot of other things I think are going to greatly impact the cost of investing in the future. It’ll be interesting to see what happens.
00:12:25 Jon Luskin
Yeah, it certainly will be interesting to see what role AI does have in investing and financial planning going forward.
There’s a really fascinating article by Michael Kitces on fee saliency. That’s to say, you charged half a percent, but most folks don’t even really think about what half a percent means, right? So certainly as advisors, you know, we get the impact of costs when investing. Kitces, he argues that percent, it’s sort of a meaningless amount for most folks, at least those folks who aren’t really financially savvy. So I’m not surprised that lowering a conventional fee that most folks don’t understand in the first place, right, didn’t really make a difference.
00:13:06 Bill Bengen
Yeah, well, I think people should spend some time and educate themselves on the impact of fees on their investments. It’s quite an important topic.
00:13:14 Jon Luskin
I wholeheartedly agree. Let’s talk about a front-loaded withdrawal scheme. This is the idea that we’re going to spend more money earlier in retirement than later in retirement. And it’s not only an issue of spending more money because there’s certainly the go-go years. Hey, we’re relatively younger. We’re going to do more things. We want to do more travel, et cetera.
But the other thing that I think about with respect to portfolio distributions are larger at the beginning of retirement compared to later in retirement is not just that we’re spending more, but later in retirement, we might have more income. This is especially going to be the case if we’re delaying Social Security, for example. So not only is our spending higher early in retirement, but we have less retirement income to manage the impact of a portfolio withdrawal.
So you look at front-loaded withdrawal schemes, and the takeaway is for every basis point or percent that you spend more during the first 10 years of retirement, you have to spend twice as much less during the latter 20 years of retirement.
00:14:15 Bill Bengen
Yeah, it’s really significant. When you bump your expenses up early in retirement for anticipated travel, enjoyment, and other entertainment costs, you’re creating a hurdle for yourself later in retirement because the first 10 years of retirement are the most important because they compound the longest. And if you’re withdrawing at a higher rate during those 10 years, you’re going to have a big cliff to basically go over to get your expenses down to what’ll be manageable the rest of retirement.
00:14:46 Jon Luskin
Yeah, and certainly this is something we’ve seen before in other research. Those first 10 to 15 years of retirement make the biggest difference insofar as if you’re going to run out of money. So it’s no surprise that the results here are so extreme.
00:14:59 Bill Bengen
I agree.
00:15:01 Jon Luskin
And a shout out to markfaix from the Bogleheads® Forums for asking about this question. So related to this topic of that front-loaded spending in retirement is another subject that you touch on in the book, which is the spending smile.
That is, we’re spending more earlier, and then later as we reach more advanced ages, we’re spending less because we’re traveling less. But then at really advanced ages, we might be spending even more.
This term, the spending smile, coined by David Blanchett, who we also had on a previous Bogleheads® Live series. I’ll link to that in the show notes for folks who want to check that out. And in your book, you mentioned that if there is enough interest in how sustainable withdrawal rates are impacted on this topic, you would do more research on it. I’m curious, any updates since doing the book? Any research on the spending smile?
00:15:48 Bill Bengen
I’ve got it on my research list, and hopefully we’ll get into it later this year. It’s an intriguing idea, and I don’t know how it’s going to turn out at all. It just, it should be very interesting to do. I have a lot of respect for David. I think he does some wonderful work, so I’m happy to take the lead from him on that.
00:16:05 Jon Luskin
And Bill makes a similar comment in his book. If you guys want to hear him research this topic, let him know. Put a request in the comments.
00:16:14 Bill Bengen
That’s right. You can do that or reach me through my website if you wish, too. I have an Ask Bill tab there.
00:16:23 Jon Luskin
All right. Let’s jump to safe withdrawal rates beyond 30 years. So much of your research looks at these 30-year time horizons. How much money can I spend safely if I have 30 years to withdraw, and then after that 30 years, my portfolio is extinguished?
Now with greater life expectancy and folks possibly retiring earlier and of much interest to the FIRE communities, what happens to that safe withdrawal rate when we have a longer timeline? So it looks like in your book, you mentioned that beyond 65 years, the safe withdrawal rate drops from the updated figure of 4.7% to a lower figure of 4.1%. And then beyond that, it stays fixed at that 4.1% figure.
00:17:05 Bill Bengen
Yeah, it’s a very interesting phenomenon. You think it would continue dropping, but I think what happens when you’re looking at very long time horizons, the compounding power of stocks supports the portfolio as time goes on. So you get that asymptotic, that, you know, that floor kind of a phenomenon.
00:17:24 Jon Luskin
So related to the topic of we’re living longer, we’re going to need this portfolio to last longer is in addition to having that lower distribution rate is how should we be investing? What is the optimal stock-bond mix? And you talk about this in your new book as well. So 60% stocks are nearly ideal, as you mentioned in the book for that 30-year horizon. And then that ideal mix jumps up to 67% for 40 years and then 72% for 50 years. So we see marginal increases in the optimal stock-bond mix as that retirement timeline, that distribution period increases.
00:17:59 Bill Bengen
Yeah, and I’ve done some research since I did my book which I’ve published on my website. Instead of 60% for the 30 year, I favor a 65%, and I’m looking at even higher allocations.
I suspect though, if you get much higher than 65% and you encounter a bad bear market early in retirement, a very high stock allocation will just devastate your portfolio. So I’ll be running the numbers on that and advise you soon, but you’re right, the higher, the longer your time horizon, the more you can withstand in the stocks.
00:18:29 Jon Luskin
All right. Let’s jump to rising glidepath. So this is a really interesting idea. And this idea is instead of having a fixed stock-bond mix throughout retirement, we mentioned 60%, 65%, 72%, et cetera, we’re going to change our stock-bond mix over time.
So there’s been research done on this by Kitces and Pfau. I’ll link to that article in the show notes for folks to check out. But you looked at this question too. You looked at the question of what happens if I change my stock-bond mix over time? Tell us, what do you find?
00:19:02 Bill Bengen
It’s very interesting. And I haven’t researched this as much as I’d like to. It’s a very interesting idea. Essentially what probably happens is with a rising equity glidepath, you start with a lower equity allocation, let’s say like 40%, and then increase it every year during retirement. And that will actually significantly raise your withdrawal rates.
And the reason is a little bit of a mystery. But their theory is, well, and I agree with it, is that probably because if you encounter a bad bear market early in retirement, and you have a lower equity allocation, you’re not hurt as badly. And that’s the most critical period. Later on, you’re increasing your equity allocation into a stock market recovery, which is ideal.
00:19:45 Jon Luskin
It’s no surprise. That’s the takeaway here. Everything you’re saying makes sense. Those initial years during retirement, we’ve got to be really thoughtful about how much risk we take on. Here’s a really easy way to do that. Be more conservative early on, take more risk later when it’s less impactful.
In your research, you show that even in a worst-case scenario, implementing a rising equity glidepath looks like it could improve returns by 0.15%. That’s $1,500 a year more in sustainable spending for a million-dollar portfolio.
00:20:16 Bill Bengen
Yeah, and you know, I’m trying to help people squeeze every last dime out of their retirement savings. So that’s important.
00:20:22 Jon Luskin
So as someone who specializes in working with do-it-yourself investors, my concern is always the complexity of any investment plan. And certainly I love the takeaway of, hey, if we do this strategy, we’re going to have more money for folks to spend over their lifetime.
The challenge for me, though, is I often find that for the most part, do-it-yourselfers really aren’t maintaining their portfolio. They’re not even doing their annual rebalance.
I’m curious, any guidance or suggestions for how do-it-yourselfers can successfully implement a rising equity glidepath themselves?
00:20:57 Bill Bengen
It requires a little bit of work. You know, each year you have to adjust your portfolio, your equity allocation upwards. I don’t think it’s a huge amount of work, but it all depends upon how comfortable you feel with numbers. Some people have a greater level of comfort than others. For me, it’s a second language. So I can’t speak for everybody. But there are certain things you have to redo, you know, to maintain that performance.
00:21:23 Jon Luskin
And then related to that topic is rebalancing. You note in your book that not rebalancing is not the same thing as creating a rising equity glidepath. That’s to say, when you put in this rising equity glidepath strategy, you can actually spend more money over time. But if you don’t rebalance, you’re probably looking at spending less money over time.
00:21:44 Bill Bengen
Yeah, that’s right. The rebalancing is an orderly process, you know, that I can test the effects of easily. But just letting your portfolio grow without weeding the garden, so to say, is counterproductive. Your stock allocation may rise too quickly and get yourself into dangerous territory.
00:22:07 Jon Luskin
Yeah, I think that’s a really important takeaway. Again, especially for the folks that I find that I’m working with, because sometimes rebalancing just isn’t done. So that’s to say, if you’re delaying rebalancing for whatever reason, maybe because you want to defer taxes, or maybe because you don’t necessarily want to sell high and buy low, understand the opportunity cost is that that might mean, at least according to looking at what has happened in the past, that could mean spending less money in retirement.
00:22:35 Bill Bengen
Yes, which is not desirable.
00:22:37 Jon Luskin
You also looked at optimum strategies for rebalancing, concluding that annual rebalancing, doing it once a year as a good option.
00:22:44 Bill Bengen
Yeah, I think once a year is pretty close to optimal. It really varies upon the individual retiree’s experience. There are some retirees who would have done better rebalancing every three or four years. Some would have been better rebalancing every quarter. Almost nobody benefits from not rebalancing over the course of their retirement. But I use the one-year rebalance because it seems to strike a good medium, gets you a good withdrawal rate without taking unnecessary risks.
00:23:17 Jon Luskin
All right. Let’s talk about cash. Now, lots of folks, especially retirees, they like having a cash bucket. And the idea here is, hey, I don’t necessarily want to sell stocks when they’re down. I want to spend cash instead.
Now, certainly there can be a behavioral or a psychological component for that. And you talk about that in the book. But if you want to be a real nerd about it, if you want to be a real optimizer, you note that having cash, having a cash part of your portfolio ultimately decreases the amount that you can spend sustainably.
00:23:52 Bill Bengen
Cash is a low-returning asset. It’s the lowest-returning asset of all the ones I use. So if you allow it to become too large part of a portfolio, it’ll drag down returns and drag, take withdrawal rates with them.
00:24:03 Jon Luskin
Yeah, certainly folks really like having the idea of just having cash for that bear market, but you address exactly this in your book, writing, “Why didn’t the Great Depression, with its nearly 90% stock market drop, have a bigger impact on portfolio longevity?”
And you’re right, inflation must be considered on par with stock bear markets as a determinant of the success of a withdrawal plan. If maximizing withdrawals is paramount to you, you might choose to forgo treasury bills or cash and invest your entire fixed income allocation in bonds.
00:24:41 Bill Bengen
Yeah, and that would generate the highest overall return for the portfolio and probably give you the highest withdrawal rate. And not probably, I know that for a fact. But you know, I don’t have any problems with folks looking to have some cash. If it keeps them on plan, that’s so important. And I use 5% in a lot of my research. That’s probably roughly your expenses.
You know, if you’re withdrawing 5%, that’ll be your expenses. That’s usually good enough to get you by the worst of most bear markets, with some exceptions. But you don’t want to have an excessive amount. I personally, I don’t use anything near 5%. I use about less than 1% cash because I find that’s perfectly adequate. And I have it constantly replenished from the dividends and interest paid by my mutual funds and ETFs. So it’s important to keep that cash reserve at a certain level.
00:25:40 Jon Luskin
And Bill, I totally agree with you. I think if a cash bucket is going to help someone stick with their investing plan, they are going to have my blessing.
00:25:47 Bill Bengen
Yeah, we kind of owe that idea to Harold Evensky, who was, you know, probably called the Dean of Financial Planning years ago. He came up with that whole bucket concept, you know, a bucket of cash and then your portfolio. And I think it was a brilliant idea and it makes a lot of sense.
00:26:03 Jon Luskin
Yeah, huge psychological benefit there. And also a very personal decision. I can think of a family that I worked with once, a gentleman. He had a software company, sold it, had a huge liquidity event, right? Had, you know, millions in cash and now he’s figuring out what to do next.
So take some, invest it for the long haul to provide for living expenses. But then also he ultimately settled on having a $1 million cash bucket. Now, objectively, that’s a large amount of money, you know, for him it made sense relative to his net worth. But man, just having that much cash gives you a lot of peace, right? Helps you sleep at night, even if it’s not the most optimized way to invest.
00:26:49 Bill Bengen
Probably the most important consideration is being able to sleep at night and feeling comfortable with yourself and with your plan. And I put that psychological aspect above everything else. I mean, you can justify different things from a technical point of view, but people still have to live with it.
00:27:08 Jon Luskin
Yeah, I couldn’t agree more. The most perfect investment plan is not going to work unless you can stick with it.
00:27:13 Bill Bengen
That’s right.
00:27:14 Jon Luskin
One final consideration I have on that cash bucket for folks, again, especially for do-it-yourselfers, is just making sure that adding that cash doesn’t make your investing plan any more complicated. I think one reasonable way folks can do this is the strategy of not necessarily replenishing a cash bucket.
Because I think that’s where it can get complicated. That’s to say, sometimes I’ve advised folks, great, you know, here’s your cash bucket. Choose whatever cash bucket you want. And then when you feel like the market is scary, et cetera, feel free to spend from that.
I think what might trip people up is any sort of strategy where they have to replenish that cash bucket via something based on portfolio value returning to a certain point. Is that point nominal? Is it inflation-adjusted? So I do like cash. I just encourage folks to make sure it doesn’t overly complicate their investing plan.
00:28:08 Bill Bengen
That’s a reasonable approach.
00:28:10 Jon Luskin
Let’s talk about what I would call some caveats and context to the subject of a safe withdrawal rate.
That’s to say, and I’ll quote you here from the book, “Safe is only historical in context. One can’t guarantee the safety of any withdrawal plan in the future. What has been a safe withdrawal rate in the past has declined in the past and may well again decline in the future. A withdrawal plan needs to be managed and fixed if needed.”
00:28:39 Bill Bengen
It’s true. And if you take a look at the history of safe withdrawal rate for 30-year portfolios, it began out, let’s say, in the mid-20s, around close to 6%. And then over the years, gradually came down to 4.7% in 1968, which is the worst scenario any retiree faced in the last hundred years.
You have to be aware that it is possible in the future, even worse conditions might prevail. And in that case, the 4.7% rule may not be sufficient. It might be lower than that. But I don’t see that happening yet. And I hope I don’t. Inflation will be the thing I’d be most watching to be concerned about that.
00:29:20 Jon Luskin
Yeah, it’s certainly impossible to know if what’s worked in the past will work again in the future. I’m less concerned about what particular retirement spending sustainability approach you take. That is, hey are we using something based on historical returns? Are we plugging numbers into a computer and then asking the computer to guess about the future for us? You know, à la a Monte Carlo simulation. Or are we using something where we’re trying to determine our future liability needs?
I am less concerned as a financial planner with what mode you take to answer the question, am I spending sustainably? As much as I am concerned that you maintain it on an ongoing basis. What I don’t like folks seeing is saying, hey, I’m going to spend 4% and never look at this again. Quite the opposite. Reviewing a retirement plan is critical for the success of any plan.
00:30:10 Bill Bengen
Yeah, and I think it should be done annually so that you can keep up with changes in inflation, the market conditions, personal expense needs, and so on.
00:30:21 Jon Luskin
Yeah, I absolutely agree. I think annually is a great time to figure out if you’re going to spend a little bit more, maybe spend a little bit less if the market has a period of an extreme drop, or maybe even if the market drops a little more mild and you’re investing relatively aggressively.
All right. This question comes from AlwaysLearningMore from the Bogleheads® Forums. And this question is on all-in-one funds. He asks, does Bill have any thoughts on safe withdrawal rates when using a balanced fund such as the Vanguard Retirement Income Fund? He adds, aging retirees may not feel comfortable with managing multiple mutual funds. Helped an elderly relative consider an age-appropriate Vanguard balanced fund, he shares. Any thoughts on using one single fund to invest?
00:31:07 Bill Bengen
I guess it’s possible to do it that way and get reasonable results. I don’t know if you’ll get them as high a withdrawal rate as if you had a better diversified portfolio. You know, usually the funds we’re talking about are large-cap funds and maybe they have an international component as well as domestic.
But they have nothing in commodities, nothing in gold, nothing very little in real estate. When you omit those asset classes, you know, you run the risk of having a lower withdrawal rate.
00:31:37 Jon Luskin
Yeah, certainly it depends upon what sort of returns we get from those asset classes going forward. For folks who are curious about all-in-one funds, yours truly did a talk at the Bogleheads® Conference last year on just this subject. So I’ll link to that in the show notes for folks to check out who want to learn more about how to invest simply.
00:31:55 Bill Bengen
Investing simply really makes a lot of sense. I’m not a, human beings are not constructed to handle complexity, you know, and unfortunately we live in a complex world, so we do the best we can to cope with it.
00:32:07 Jon Luskin
Yeah, I’ve certainly gone on a bit of an investing philosophy evolution myself. You know, before I had worked with hundreds of do-it-yourselfers, I would often suggest relatively more complicated investing strategies. Let’s use at least three funds to invest, if not more. Let’s do something like a rising equity glide path in some circumstances.
But having worked with hundreds of do-it-yourself families now, I found that rebalancing portfolio maintenance isn’t something that a lot of folks make time for or prioritize. And that’s why I increasingly suggest something like an all-in-one fund, something that doesn’t require a lot of maintenance on the part of a do-it-yourselfer. Now, certainly if you’re using an advisor, they can put in place any sort of complicated strategies for you. But for do-it-yourselfers, my default is often going to be, hey, let’s keep this as simple as possible and still accomplish our goals.
00:33:04 Bill Bengen
I think that’s a sound approach. I mean, once again, it’s about keeping people on plan. And if it’s simple, they should find it a little easier to do so. And those funds you talk about, some of those balanced funds have generated wonderful returns over the years. So I don’t have any strong objections to them.
00:33:22 Jon Luskin
Morningstar put out a study that showed that investors do objectively better when they use something like an all-in-one fund.
00:33:30 Bill Bengen
Yeah, and that’s great. Keep it simple. That’s always good.
00:33:35 Jon Luskin
All right. Let’s talk about what surprised you when researching this topic. Ricky Roberts from Bogleheads® Facebook asks about that. With respect to your research that you did on sustainable distributions, any surprise findings that would be interesting to share?
00:33:53 Bill Bengen
I don’t know if I have any surprise. I’ve been adding to my website what I call retirement scenarios, which are tools that people can use to find their safe withdrawal rate. I recently did one where normally we assume there’d be zero left at the end of the planning horizon in the portfolio. But what if you don’t? What if you want to leave a balance for your heirs? And I calculated a scenario like that and saw the impact on the withdrawal rate, and it reduced it as expected, but it was only a small inheritance. So it didn’t impact it that greatly, but if you leave a large inheritance or plan to leave a large inheritance compared to the balance of your portfolio, it will diminish your withdrawal rate dramatically.
00:34:42 Jon Luskin
Yep, absolutely. Right. And that makes sense. If I want to leave a big pile at the end, it’s probably going to mean I’m spending less during my own lifetime.
This episode of the Bogleheads® on Investing Podcast, as with all episodes, is brought to you by the John C. Bogle Center for Financial Literacy, a 501(c)(3) nonprofit organization that is building a world of well-informed, capable, and empowered investors. You can show your support by making a tax-deductible donation at boglecenter.net/donate.
So let’s talk about legacy planning a little bit more. Samir from Bogleheads® LinkedIn asks about what would be a good safe withdrawal rate if someone’s retiring at 50 and a desire to leave a legacy behind? What sort of distribution considerations should they have for their portfolio?
00:35:34 Bill Bengen
Each scenario, I’d have to run it to get the numbers. There’s just no general way. There’s no rule of thumb to generate that kind of information, unfortunately. But as he talked about age 50, you said retiring, I would use a 50-year time horizon, you know, because you could live to a hundred.
I like to have people build in margins of safety into their plan because you don’t want to be dealing with running out of money in your mid-nineties. There’s nowhere to hide in that situation. So just like a bridge builder builds a bridge to handle more than it’s ever expected to, your portfolio should be the same way.
00:36:15 Jon Luskin
Yep. And then going back to earlier in our conversation, we talked about using that 4.1% distribution rate, at least historically, that would have lasted you more than 65 years. So that could be a reasonable starting place for considering just how much money to spend on an annual basis.
00:36:31 Bill Bengen
That’s right. And of course, if you’re actually going to leave a legacy, let’s say a substantial one, that could now go from 4.1% to 3.5% or 3%, depending upon the size of the legacy, or less.
00:36:41 Jon Luskin
Yep. Just depends upon how much money you want to leave behind.
00:36:43 Bill Bengen
That’s right.
00:36:44 Jon Luskin
Let’s talk about the impact of taxes on sustainable spending in retirement. So this you also look at in your book, and you’re right, tax rates have a dramatic effect on the safe withdrawal rate, with taxable accounts likely having a lower safe withdrawal rate.
Now, in your book, you talk about how it’s difficult to accurately crunch the numbers because there are different capital gain rates and there’s rebalancing, et cetera. So it’s hard to create any sort of guidance with respect to how much less one can spend from a taxable account.
With that takeaway, I can’t help but think about something else that you wrote in the book in that the moderate portfolio, the one that’s not necessarily very aggressive or very conservative, that is what retirees want to use for sustainable spending. But since there might be a little bit of a range in there for what is the optimal retiree portfolio, and since stocks, at least under current tax law, are a little bit more tax efficient than bonds, that would suggest all else being equal, biasing your portfolio a little bit more towards stocks just for the tax efficiency consideration.
00:37:53 Bill Bengen
Yeah, I guess I could see the logic of that position. You just have to be careful of increasing it too much because my research is showing as you get to higher equity allocations, you start reducing withdrawal rates. So it’s kind of a trade-off between taxes and withdrawal rates.
00:38:08 Jon Luskin
Yep, absolutely. So that’s certainly an important consideration for folks to think about who have a lot of money in taxable accounts. And usually that’s going to be those folks who are ultra wealthy, right? For the average person, we’re going to have a lot of money in tax advantaged accounts, but as your net worth increases, you know, less and less of your money is in tax advantaged accounts. And that’s when you want to be thinking about, you know, how taxes impact how much you can ultimately spend in retirement.
So we’ve already talked about all-in-one funds using a single balanced fund to invest for investing success. So a static all-in-one fund can be a good option for retirees, touched on earlier, something like a 60%/40% stock-bond mix makes spending in retirement really easy. Another variety of all-in-one funds are target-date funds. These are for pre-retirees. These are going to change their stock-bond mix over time. Initially more aggressive, later more conservative.
You wrote on LinkedIn recently, you’re not a fan of target-date funds. Tell us more.
00:39:06 Bill Bengen
Yeah, because I believe the individual retiree needs to control their asset allocation to what’s appropriate for them. And using a fund like that would be hard to implement, let’s say, a rising equity glidepath plan because they have set asset allocations, which decline in terms of equities over time. That may not be what you want.
When I did my first research over 30 years ago, I studied the effects of reducing your equity allocation during retirement, and it really had a very negative effect on withdrawal rates. So I don’t think they’re the best thing for retirees. They might be better in the retirement accumulation stage.
00:39:49 Jon Luskin
Yeah, I agree. I like target-date funds for pre-retirees. I think once you start drawing down, they don’t make any sense anymore because we’re getting more conservative. Tell us more about your thoughts about those pre-retirees.
I’ve got everything in a tax advantaged account. It’s in a 401(k). I’m shoveling money into my 401(k). It’s in the default target-date fund. And then I retire. Then, hey, it’s in a tax advantaged account. I’m going to go change it to maybe my static all-in-one fund, or maybe I’ll do my rising equity glide path. Could a target-date fund make sense in that sort of scenario?
00:40:21 Bill Bengen
Yeah, I think it could, as long as it starts with a high enough equity allocation.
00:40:26 Jon Luskin
Anything else you’d like to share with the audience? Anything else about safe withdrawal rates?
00:40:31 Bill Bengen
Yeah, plans need to be managed. If you have a 30 or 40-year plan, you just can’t let it sit and be untouched. And there are two circumstances you might run into. One is if you run into a major bear market early in retirement, it’ll make your current withdrawal rate rise. And it may go from 5% to 10%, which seems very scary. But almost universally, the best management thinking is to do nothing and allow the stock market to recover. It’ll almost certainly put you back on plan.
However, if you encounter a period of sustained high inflation, you need to take drastic measures to save your plan. And that means withdrawing withdrawals could be as much as 30% or more. It’s painful to think about, but that’s how dangerous inflation is.
00:41:19 Jon Luskin
I agree with everything you’re saying there on that second point. Updating your plan is an important part of the retirement planning process. We don’t want to pick 4% and never look at our numbers ever again.
And then your own research shows it’s not the big bear market drop that folks should be worrying about. The 4% rule, which is the worst-case scenario, doesn’t come from the Great Depression where we saw almost a 90% market drop. It’s decades past that. It’s high inflation, lackluster stock market returns for quite some time.
So if you are spending moderately, something like the 4% rule, I wouldn’t be too concerned about a big one-time market drop. You’re probably looking at markets recovering in the future. But again, you do want to maintain it on an ongoing basis, evaluation, reevaluation, critical part of any retirement plan.
00:42:12 Bill Bengen
Absolutely. I think that’s sound thinking.
00:42:14 Jon Luskin
Well, Bill, thank you so much. I truly appreciate your time. Anything else you want to say to the Bogleheads® community before I let you go?
00:42:21 Bill Bengen
No, I wish everybody a rich retirement.
00:42:24 Jon Luskin
Bill, thanks so much for joining us. I appreciate it.
00:42:26 Bill Bengen
My pleasure. Thank you, Jon. Enjoyed it.
00:42:29 Jon Luskin
Thank you for joining us for the 92nd Bogleheads® on Investing Podcast. For more things Bogleheads®, be sure to check out videos from the 2025 conference still rolling out on YouTube. Also on YouTube, you can find countless shorts from both the conference and this podcast.
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00:44:03 Jon Luskin
I just really enjoyed, really enjoyed the book, right? Just lots of, you know, great, geeky stuff, but just the way you put it together, it wasn’t a dry read. So I just, I just kept on reading, taking notes and putting in my little Post-It® stamps. Actually, I ran out of blue, had to switch to purple, right? Because I had so many things in here that I wanted to note.
00:44:24 Bill Bengen
Well, I’m glad you feel that way because I wanted to make reading the book fun for such a dry topic, at least. Yeah.
00:44:32 Jon Luskin
Yeah. Well, well done. Well done on the book.
00:44:34 Bill Bengen
Thank you so much.
