Sustainable Withdrawal Strategies to Make Your Money Last in Retirement

Well, hello and welcome to Boomer Banter, where we have real talk about aging. Well, I'm your host, Wendy Greene, and every week we have honest conversations about what it really means to grow older in today's world.

Talk about navigating health purpose, relationships, caregiving, and everything in between. And today, we're talking about our retirement money. So will your money last through your retirement years?

It's a question that keeps many of us awake at night.

I mean, we worked hard, we saved what we could, and yet the uncertainty of markets, inflation, longer lifespans, that leaves us wondering, is it going to be enough? In today's episode, we're going to tackle this head on.

You will hear about the famous 4% rule, the guideline that shaped how retirees planned their withdrawals for decades. But is it still the best approach today? Or do we need a smarter approach to make our savings stretch and give us peace of mind?

Stay tuned as we break it down with clear, practical steps you can use to protect your nest egg, adjust when life changes, and retire, hopefully without fear of outliving your money. This conversation is about more than numbers. It's about giving you confidence and clarity for the years ahead.

Our guest today, William Bill Bengen, is a financial researcher and former certified financial planner licensee.

He's an expert in the sustainability of withdrawals that's important sustainability of withdrawals from stock and bond portfolios and is frequently quoted in financial publications. Bill is the recipient of the NAPFA's Robert J. Underwood Distinguished Service Award.

And more importantly to me, he has a sense of humor and explains the complex financial concepts in terms that I can understand.

Bill's latest book, A Richer retirement supercharging the 4% rule to spend more and enjoy more gave me a clearer picture of what is possible in withdrawal strategies once we retire. So let me bring Bill on and. Hello, Bill.

Hello, Wendy. Thanks for inviting me. I'm looking forward to this.

Oh, me too. Very important conversation I think will be very helpful.

And I wanted to start for those who may not be familiar, because it's, you know, it's interesting. I've heard about the 4% rule, but I talked to several people this week who had not.

So would you take a moment to explain what the 4% rule is and why it was such a breakthrough when you first created it?

Sure.

Back in the early 90s, I was a relatively new financial planner, not a young one, but a relatively new planner, and clients were beginning to ask me questions about retirement. How much did they save and how much can they spend in Retirement. And I couldn't find the answers to those questions anywhere.

I looked in books, looked in magazines, I called other advisors. The answers seemed to be all over the map.

So it just occurred to me, nobody knows the answer to this question because it's a pretty new question because of the long time people were starting to live in retirement, which hadn't happened before. So I sat down with a book of rates of returns and inflation numbers and fired up my Lotus 1, 2, 3 spreadsheet.

Lotus 1, 2, 3. That was a while ago, huh?

24. Yeah, 23. And I came up with an answer.

There were two big bear markets almost back to back, followed by years of inflation. And I'm assuming in my research that withdrawals will be increased with inflation to sustain your lifestyle.

The number that I came up with there was 4.15%, which eventually got short to 4% and became the 4% rule. Even though, you know, I don't advocate any person just looking at that alone.

Okay.

So that got picked up by financial planners around the country and, and everybody started saying, well, if you want your retirement income to last, you can take out 4% a year. Is that right?

That's right, yeah, that's correct. Of course I've upgraded it since then, but that I was correct for 94.

Yeah, yeah. So I did want to start down that path. Like why you revisited the 4% rule and revised it and what your research is showing you now.

Just, we'll get into the details. So just give me the big picture first.

Sure. I began thinking about how I could find a, a consistent rational way to predict.

That's a dangerous use, let's say, to select withdrawal rates that are much higher than the 4% rule. And up until three, four years ago, I didn't have anything.

And then I came across the idea of let's make inflation the most important thing and stock market declines the second.

When I did that, it all fell into place and I was actually, with using additional investment in my portfolio, able to raise to 4.15% to 4.7 where it stands now in today's environment, even though we have very expensive stock market and that's an important consideration for withdrawal rates, I still estimate probably about 5 1/2% over a 30 year horizon should be an acceptable withdrawal rate.

And so when you Say sustainable withdrawal rate. What does that really mean?

Well, it means we're assuming that you're going to spend your last dollar with your dying breath. You know, it's a 30 year planning here reason you're going to run out of money right on December 31st of the 30th year.

Okay. So it's not for people that are thinking about leaving an inheritance.

You can incorporate that into it. You can say we want to, let's say, have $100,000 balance left in this account.

And that of course you have to go through a whole bunch of calculations and it reduces the withdrawal rate significantly.

Yeah, but yeah, of course it would because you're. Yeah, it. So your book made me think, because it asked a lot of questions. You know, like you talk about a 30 year horizon.

So you're going to say, how long do you expect to live? And, and do we want to leave this inheritance? And what is your risk tolerance? And you know, on and on and on.

And it seems like it comes down to crystal ball thinking.

And I, and I told you that my sister kind of just has this idea, well, it's all going to work out, but, but none of us know how long we're going to live. Right.

And we don't know if the stock market's going to go up or down or like it has recently, if we're going to, if we're going to hit a major bear market. And what about inflation? So how do we look in this crystal ball and even start to answer those questions?

Bill? Yeah, fortunately we've got a good database of about 100 years of stock returns in the United States, bond returns and inflation.

And you can use those to construct portfolios, as I have for hypothetical retirees and then stress test them basically against various withdrawal rates.

And every retiree in history has had a different set of circumstances and a different withdrawal rate, but the average over the last hundred years has been 7%. So 4.7% sounds pretty meager compared to that.

So you're saying that the safe, sustainable withdrawal rate, the average over 100 years has been 7%?

That's correct. Although I wouldn't try it now. Circumstances that justify that.

There's nothing been like that since but withdrawal rates were not as affected as you might think because it was a time of deflation. Prices were declining by 10% a year, year after year, and that offset a lot of the losses from the stock market.

And they were fortunate because the next quarter the stock market doubled. You don't see that every day. No, they're off to such a great start. They were able to get 15%, 16% withdrawal rates. Phenomenal.

Okay, so I want to start breaking it down. And the first concept that you introduced in your book, a richer retirement was Safe Max.

So very simply, will you explain what SafeMax is and how you came up with it?

Yeah, I wanted a way to find the highest withdrawal rate for any particular retiree, which you can do through calculation. And once I come up with a number, I call it Safe Max because it's a safe maximum.

Was already safe in quotes because, you know, history in the future might diverge, but that's basically what that's all about.

So that is the safest withdrawal rate that should last for that 30 year horizon.

That's right. And involves increasing your withdrawals by inflation each year and.

Oh, that's right. You had that COLA cost of living adjustment.

That's correct. And also they applies to a tax free account or tax tax deferred account.

Like an IRA or a 401K or something.

Exactly.

Okay, so that's important, right? You didn't, you, you were just focusing on that kind of account.

You didn't look at, you know, how much are you getting from Social Security or a pension or taxed advanced. A taxed account.

I, I agree. I, you know, if you're familiar with the show on tv, only Murders in the Building.

I define my role as a researcher as only things that happen in the investment portfolio. And I don't concern myself with other source of income. I'm trying to maximize withdrawals from an investment account.

If I was a finance advisor, obviously I have to look at that to get a total picture. But the way I define my role, I get off easy.

Well, I mean, I don't know how you could do it any other way. You'd have a 10,000 page book if you did.

Indeed.

So the next factor that you brought into my awareness was something that you called The Shiller Cape C, A, P, E. So would you explain what that is and how that influences the withdrawal strategy?

Sure. If you're familiar with the concept of a price earnings ratio, FE ratio, which is a way to value a stock or a stock market.

Professor Robert Shiller, Yale University, a Nobel laureate, was dissatisfied with the 1 year pes that were banned out by Wall Street.

So he devised a PE ratio based on 10 years of past earnings with inflation adjustments, and that became the Shiller Cape ratio and is very widely used as a measure of valuation for markets.

And you use that as you're evaluating how much you can withdraw. So how does that play into that to the safe max?

Yeah, well, I plot all the, let's say, withdrawal rates for the retirees on one chart and then sort them by shore cape and see what comes out of that. There is no formula, you know, that you can plug numbers into. It's graphical. That's why I have charts and tables in my book.

You can just look up a number given your assumptions about inflation and about market valuation. You can then find your safe Mac.

Right. So you're looking at where the price earnings ratio or how high stocks are valued at the time that you're getting ready to retire.

That's right.

And you use that. You have a table that you can use that and say, okay, so here's the number. Now you can figure out what your withdrawal rate is.

That's right.

Oh, look at me explaining financial stuff. So, so right now I looked at your table and the. It doesn't go as high as the Schiller Cape table, doesn't go as high as where our current number is.

You gave a website where I could look it up and it was like at 32 or something. And so what would be, what would, how, what would I do? How would I start to calculate it then? My SafeMax.

Sure. You have to start with what I call the eight elements, which are eight factors that you can use to customize your plan.

They strictly relate to your choice.

That includes asset allocation and your planning horizon, what type of account you're drawing from, whether you want to leave a legacy balance at the end.

And then once you put all these together, then you can go and take a look at market valuation, the Shiller Cape and your projection for inflation, first 10 years in retirement, and just go to the tables and it gives you a suggested safebank.

Yeah, so as you said to me before we even came on the air, that's a much lower cape Mac today than it might have been a few Years ago, even.

But since then, it's been primarily low sixes and high fives.

Okay, and you say the third one of the third big factors, or you said the first one is the inflation rate. So how does that affect what I would withdraw?

Jerry, if you look at my tables are organized by inflation category. The low inflation, medium inflation, high inflation.

And you have to select one of those to go to the right table, and then you can just look up on the list of Shiller Capes right alongside it, you'll find the withdrawal rate.

So. So right now we're in, I guess, moderate inflation, low inflation, I would call it.

Moderate.

Yeah, moderate.

Okay, so if it should suddenly spike, that would mean that I'd probably have to increase my withdrawal to cover my cost of living, but then that's going to affect how long my money would last, Is that right?

Yeah. That's why I say inflation is the greatest enemy of retirees. You have to be eternally visioned because it can be devastating.

Okay, so you talked about several different strategies. Cola cost of living being one. What are some of the others?

Well, you could withdraw what I would call front loaded, where you decide, just want to spend more the first 10 years retirement and less the second. If that fits your situation. You can use a fixed percentage. Let's say just pick 6% and apply it to your portfolio each year.

The 4% rule does not do that. 4% rule starts with the first year and then adds for inflation.

Fixed percentage will just ignore some place completely and just basically fluctuates for the market because you're always calculating your annual withdrawal based on the portfolio value at the end of the prior year. You can take a fixed arm out if you want to say, I want to just take $10,000 every month. Never worry about inflation.

Maybe you're paying off a mortgage or something from that account. That's a possibility. I think there are almost endless variations to that.

So. So I. I love all of the charts and tables because it makes me feel a little bit more in control of what I might do.

But I, I think still a conversation with my financial advisor to say, okay, so here's the other forms of income that I have and here's my taxable account. And you know, and so we have to pull all of that in to figure out what the really right withdrawal rate would be.

Is that, is that how you would see it?

Well, I agree that if you're doing a retirement plan, which I think people should do with an advisor, you need to include all sources of income.

But even if you had a million dollars a day from some source of income and you had an IRA account of 100,000, the regular be the same for that IRA account if we're looking to maximize it. Although you could always take out less if you want and accumulate well, because.

If you take it out of the ira, you can still reinvest it into your taxable account. You don't have to use it to live on.

Right.

Okay. So I would say now we're the market's been great and what if we suddenly ran into a major bear market like a.

Okay, the market's been great, I retired, I'm at 5% and boom, everything crashes down. Do I adjust my withdrawal rate?

Okay, all right. So when did you retire, Bill, from doing financial planning?

2013.

2013. Is this a hobby for you to just do all this research?

Sometimes it feels like a full time job and I enjoy doing it and making discoveries, so it has that aspect to it. But it's a lot of hard work.

It seems like it. And then you have a website you're keeping up with too. What does that involve?

Well, we're trying to do all there on my website, which is http://www.beng.com is to list documents that I think will be helpful to people planning for retirement, including various retirement scenarios, you know, various horizon withdrawal schemes, various horizon lengths. This kind of counts. Hopefully as time goes on, I had more and more people be able to pick one that will fit their situation, use it.

And do people contact you still and ask your advice about their retirement planning?

Yeah, I can't answer specific questions, you know, but I can answer general questions about my research. That's a feature on the website called Ask Bill. Just click on that and Write me an email. I'll do the best I can to answer.

So your book has. I, I found it very valuable. In fact, I think I want to get copies from my financial planners because I've, I've marked up mine. So.

And, and because I think, I think their plan is a fixed rate. You know, you set well, let's set the rate. And that's what you're going to take out. And rather than the cost of living adjustment, I think.

So I want to get this book for them. But, but more than that, my show is also about aging well in all areas of our lives. Right. Financial, social, health, having a purpose.

So, so what do you do in your own life that you consider helps you age well?

Baseball's gotten too expensive, so I have a lot of things to keep me occupied. And of course, I have a grandson and my wife has got a granddaughter, so they keep us busy, too.

And it's a, it's a new marriage. You said you both are lucky lost spouses and found each other.

So that's.

So living life. You are living life and living large. That's wonderful. I'm glad to hear that.

So what's one thing you want retirees and pre retirees to remember about making their money last?

Remember? It's a. You need to go through the process. You need to look at the eight elements. You need to look at inflation and stock market valuation.

Don't skip steps. You're just shortchanging yourself. If you want to come to a correct number and be prepared to make adjustments if necessary to your plan.

Retirement, like inflation, as you said, rears its ugly head. It's probably a good idea to cut back expenses, at least temporarily until things sort themselves out.

Yeah. So cut back expenses so you don't have to take more out, I guess is the other thing.

As we mentioned, and this will be in the show notes, the website to reach Bill and to see all of you know, I don't want to scare y' all with research. I mean, there's a lot of tables, but the way Bill explains it, it's so understandable.

So first of all, get his book A Richer retirement supercharging the 4% rule to spend more and enjoy more.

And second of all, go to his website, http://www.Ben Bengen B E N G E N F like frank or financial s.com and he said, like he said, you can ask Bill, you have tables there that you can do some of your own calculations.

With the website essentially being an extension of my book, I also have a section or new research where I post. You know, I continue. My research is ongoing, and every once in a while, I come up with something interesting and I'll post it to the website.

That's great. It's a great resource. And. And I really appreciated it. You know, I always am a little nervous reading a financial book, but this one.

Yeah, and you did have a sense of humor in there, too, and it. And it just explained things in a way that made it understandable. So I really appreciate that.

That's great. I appreciate hearing that myself.

Yeah. So today we dug into one of the biggest questions that we all worry about. Will my money last?

And as Bill reminded us that While the old 4% rule changed the way we thought about retirement, the world has shifted, and so must our strategies.

But the good news is, with the right plan flexibility and awareness, which you can get from the book and the website, you can build a retirement income strategy that not only lasts, but also allows you to enjoy your years ahead. So remember, retirement isn't just about money. It's also about our health, relationships, and passion.

But when your finances feel secure, it frees you to focus on what really matters. So if today's conversation left you with new ideas or questions, don't stop here. Pick up Bill's book, A Richer Retirement, and.

And start mapping out your own plan. In addition, be a good friend and share this episode. I mean, really share the whole podcast with your friends.

The good information we share here is not as helpful as it could be if we kept it a secret. One more thing before I let you go, Bill. I just created a new quiz that I think you will find very interesting.

I call it the what's keeping you stuck? Quiz.

And it will help you discover your retirement Stuck type, meaning that you thought retirement was going to be like this wonderful panacea, and all of a sudden you're, like, confused, you're tired. You just don't know what to do with yourself.

So once you've determined your type, you're going to get five customized emails with tips and resources to help you break free.

So I'm going to share that link because it's a little bit too hard to say here online, but I hope you'll go and check it out and see what is your retirement type. And I also wanted to encourage you to go check out this podcast that is done by a friend of mine, Ilana Landsberg. Lewis.

It's called Wisdom at Work, Older women, elder women and grandmothers. And it's about the wisdom of these women and the work that they're doing. It's not about work, life, work. So she's the host.

Elana Landsberg Lewis is the host. And each week she interviews women from around the world who are change makers, activists and passionate about the work they are doing.

You can find her podcast@wisdom work podcast.com and that will also be in the show notes. Thank you, Bill. Thank you for all that you have shared with us in your book and here today.

Thank you for having me. Once again, it was fun.

I'm glad. I'm glad. So enjoy the rest of your day. Maybe go play some tennis.

Okay.

Okay. Bye. Bye.

Bye. Bye.

That.