Few people have shaken up investing like William Bengen.
In 1994, William Bengen, who at the time was just starting out as a financial advisor—published a paper saying that retirees should start out withdrawing 4% of their assets annually, increase the distribution each year by the inflation rate and rebalance annually, and that their portfolio would last at least 30 years.
Bengen’s research—which became known as the 4% rule—is now one of the guiding principles of personal finance. Millions of Americans use it as a milestone for determining how much money they need to save for a long-lived retirement.
In recent years, as interest rates have plunged, other researchers have estimated the safe withdrawal rate is now as low as 2.4%.
But Bengen, who has continued to do research on the topic, disagrees. His original paper was based on just two asset classes, intermediate-term Treasury bonds and large-cap stocks. He has since concluded that by adding a third asset class, small-cap stocks, investors could safely withdraw as much as 4.5% annually.
