A Richer Retirement

NATIONAL BESTSELLER

Know exactly how much you can safely spend each year after you retire without outliving your nest egg

In A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, entrepreneur, researcher, and financial planner, William P. Bengen, delivers a straightforward, soup-to-nuts guide for maximizing your withdrawals from your investment accounts during your retirement. The author explains how you can draw heavily on your retirement accounts without spending yourself into premature poverty.

This book is a comprehensive roadmap to constructing your personal retirement withdrawal plan. You'll learn how to compute a low-risk maximum withdrawal rate so that you can enjoy your retirement savings to the utmost. You'll also discover guidance on why and how to adjust your withdrawals during retirement to help make sure that your accounts last your entire life.

You'll also find:

• The eight elements of a comprehensive personal retirement withdrawal plan
• Techniques for selecting your withdrawal rate based on the eight elements, inflation, and stock market valuation
• A template for your withdrawal plan that will help you recognize if you're overspending (or underspending!) and exactly how to address that issue

Perfect for well-informed laypeople entering, nearing, or in retirement, A Richer Retirement is a can't-miss retirement playbook for everyone who wants to make the most of their retirement savings without outliving their nest egg. It's also an essential read for financial professionals who serve clients in or close to retirement.

Introduction xvii

Acknowledgments xxi

Chapter 1 The Problem: Outliving Your Retirement Savings 1

1.1 Portfolio Longevity, Bear Markets, and Inflation 2

1.2 My Research Methodology 7

1.3 Genesis of the “4% Rule” 10

1.4 Recent Research 12

1.5 The “Balloon” Analogy 13

Chapter 2 The Solution: Introducing “safemax” 15

2.1 The “Universal SAFEMAX” 15

2.2 A Brief History of the Universal SAFEMAX 18

2.3 Over-Use of the Universal SAFEMAX 19

2.4 “Feeling Lucky” Method for Selecting a Personal SAFEMAX 22

2.5 SAFEMAX and Stock Valuations: The “Kitces Chart” 24

2.6 Inflation and SAFEMAX 27

2.7 How Well Does Our SAFEMAX “Fitted Curve” Agree With History? 36

Chapter 3 THE Eight ELEMENTS OF A PERSONAL RETIREMENT Withdrawal Plan 39

3.1 Element #1: Withdrawal Scheme 40

3.2 Element #2: Planning Horizon 41

3.3 Element #3: Taxable Vs. Non-Taxable Portfolios 42

3.4 Element #4: Leaving a Legacy to Heirs 43

3.5 Element #5: Asset Allocation 43

3.6 Element #6: Portfolio Rebalancing Frequency 44

3.7 Element #7: The Superinvestor: Striving for Above-Market Returns 44

3.8 Element #8: Withdrawal Timing 45

3.9 The “Standard Configuration” for the “4.7% Rule” 45

Chapter 4 Element #1: Withdrawal Schemes 47

4.1 “COLA” Withdrawal Scheme 47

4.2 “Fixed Annuity” Withdrawal Scheme 48

4.3 “Fixed Percentage” Withdrawal Scheme 54

4.4 “Front-Loaded” Withdrawal Scheme 65

4.5 Performance-Based Withdrawal Schemes 68

4.6 David Blanchett’s Retirement “Smile” 75

Chapter 5 Element #2: Planning Horizon 79

5.1 Life Expectancy and Planning Horizon 79

5.2 Universal SAFEMAX Vs. Planning Horizon (Standard Configuration) 80

5.3 SAFEMAX Vs. Planning Horizon (Other Sample Retirees) 82

5.4 Conclusion 85

Chapter 6 Element #3: Taxable Vs. Non-taxable Portfolios 87

6.1 My Initial Dilemma 88

6.2 Investment Characteristics 89

6.3 SAFEMAX and Portfolio Tax Rates 90

6.4 Which PTR Do I Use for My Portfolio? 93

Chapter 7 Element #4: Leaving a Legacy to Your Heirs 95

7.1 SAFEMAX Vs. Legacy for the Standard Configuration 96

7.2 SAFEMAX Vs. Real and Nominal Legacy 97

7.3 SAFEMAX Vs. Legacy for Other Sample Retirees 98

7.4 Conclusion 101

Chapter 8 Element #5: Asset Allocation 103

8.1 The Significance of Asset Allocation 103

8.2 SAFEMAX Vs. Asset Allocation: A Historical Perspective 104

8.3 Which Asset Allocation Is Right for Me? 110

8.4 Treasury Bills Vs. US Government Bonds: What’s the Optimum Mix? 111

8.5 How Do I Allocate Among Multiple Stock Asset Classes? 115

8.6 Even More Asset Classes? 117

8.7 Exotica: Alice in Assetland 118

8.8 Optimum Asset Allocation Vs. Planning Horizon 127

8.9 Varying Equity Allocation During Retirement: Is It Effective? 131

Chapter 9 Element #6: Portfolio Rebalancing 137

9.1 SAFEMAX Vs. Portfolio Rebalancing Interval 138

9.2 Portfolio Rebalancing Vs. Glidepath Investing 143

9.3 Rebalancing and Portfolio Returns 144

Chapter 10 Element #7: the “superinvestor” – Striving for Above-market Returns 149

Chapter 11 Element #8: Timing of Withdrawals 155

Chapter 12 Creating and Managing a Personal Retirement Withdrawal Plan (five Case Studies) 159

12.1 Withdrawal Plan #1 160

12.2 The Current Withdrawal Rate, a Powerful Tool 162

12.3 The Synthetic CWR Template 164

12.4 Synthetic CWR Template for Retiree #1 166

12.5 Managing a Personal Withdrawal Plan 167

12.6 Managing Withdrawal Plan #1 (Early Bear Market) 169

12.7 Withdrawal Plan #2 171

12.8 Managing Withdrawal Plan #2: Unexpected High Inflation 174

12.9 Withdrawal Plan #3 180

12.10 Managing Withdrawal Plan #3 (Front-Loaded Withdrawal Scheme) 188

12.11 Withdrawal Plan #4 191

12.12 Managing Withdrawal Plan #4 (Saving the Best for Later) 193

12.13 Withdrawal Plan #5 197

12.14 Managing Withdrawal Plan #5 (Changing Horses Mid-Stream) 200

Chapter 13 Topics of Special Interest 207

13.1 Has the 4.7% Rule Already Failed? 207

13.2 Required Minimum IRA Distributions and SAFEMAX 212

13.3 Should I “Buy-and-Hold”? 215

13.4 Annuities 217

13.5 When the Shiller CAPE Is “Off the Charts” 219

13.6 Is It Science? 220

13.7 Should I Wait for a Higher SAFEMAX to Retire? 224

Chapter 14 Go Forth and Plan! 229

Appendixes

Appendix A Books Worth Reading 233

Appendix B Articles Worth Reading 235

Appendix C Software Worth Using 239

About the Author 241

Index 243

WILLIAM P. BENGEN is a financial researcher and former Certified Financial Planner licensee. He’s an expert in the sustainability of withdrawals from stock and bond portfolios and is frequently quoted in major financial publications. He’s a recipient of the NAPFA’s Robert J. Underwood Distinguished Service Award.

In A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, William P. Bengen, an entrepreneur, researcher, and financial planner delivers an easy-to-understand, soup-to-nuts guide for maximizing your withdrawals from your investment accounts during your retirement. Bengen explains how you can draw heavily on your retirement accounts without incurring undue risk or spending yourself into premature poverty.

This book is a detailed roadmap to creating your personal retirement withdrawal plan. You’ll learn how to compute a maximum withdrawal rate compatible with your family’s risk tolerance, allowing you to enjoy your retirement savings as much as possible. You’ll also discover guidance on when, why, and how to adjust your withdrawals during retirement to make sure that your savings last your entire life.

A Richer Retirement explains the eight elements of a comprehensive, low-risk personal retirement withdrawal plan, as well as specific techniques for selecting your withdrawal rate based on those elements, inflation, and stock market valuations. The author also includes five withdrawal plan case studies that will help you recognize if you’re over- or under-spending and how to properly adjust the pace of your withdrawals.

Bengen walks you through concepts like “SAFEMAX” — a historically “safe” withdrawal rate — and the materiality of the risk of running out of money in retirement.

Perfect for anyone entering, nearing, or already in retirement, A Richer Retirement is a must-read playbook for those who want to make the most of their savings and retirement accounts without outliving their nest egg. It’s also an essential resource for financial professionals and planners who serve clients preparing for or in retirement.

Praise for A RICHER RETIREMENT

“Bill Bengen has delivered a tour de force of retirement planning. Although written for retail clients, financial advisors and other professionals will benefit from his analysis of the most difficult problem facing retirement planners: how to make one’s ‘nest egg’ last a lifetime. Bengen has quantified the elements and risks underlying how much retirees can spend over a 30-year (or sometimes longer) retirement horizon.”
—ROBERT HUEBSCHER, Founder of Advisor Perspectives, and former Vice Chairman, VettaFi and the Toronto Stock Exchange

“No other researcher has explored so deeply how to navigate the complexities of safely taking income out of a retirement portfolio or explained it so clearly that even a novice investor can understand the how and why.”
—BOB VERES, Owner, Inside Information

“How much retirees can reasonably spend in retirement is the hardest problem in financial planning, and no one has studied it for as long and with as much rigor as William Bengen. A Richer Retirement builds upon his seminal research with the goal of helping retirees maximize their incomes and live their best lives. Chock-full of data and astute observations, it’s a tremendous resource for both retirees and their financial advisors.”
—CHRISTINE BENZ, Director of Personal Finance and Retirement Planning, Morningstar

“Bill Bengen introduced the field of retirement income planning to financial professionals and academics. This book provides a deeper dive into the factors that influence how much a retiree can safely withdraw from investments to create a lifestyle. How should a retiree deal with investment risk, inflation, the high price of stocks, and longer lifespans? In a style that is both comprehensive and a delight to read, Bill demystifies investing and spending for today’s retiree.”
—MICHAEL FINKE, Professor and Expert in Retirement Investing, Income Planning, and Life Satisfaction

“For the past thirty years, William Bengen’s sustainable spending research has served as the heart and soul of the ‘Total Return’ retirement income style. A Richer Retirement documents all he has learned and pushes the analysis forward with new techniques for maximizing the spending power of your retirement investments.”
—WADE PFAU, PhD, CFA, RICP, Author of Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success

“Bengen delivers a well-researched, rigorous, and readable book that clearly presents the methodology and assumptions required to develop a safe withdrawal rate while providing valuable insights into the risks of withdrawal strategies in retirement. Importantly he shows how to manage the strategy throughout retirement.”
—LARRY SWEDROE, Author of 18 books on investing, including Enrich Your Future