Unpacking William Bengen’s 4% Rule or His Safe Withdrawal Rate Research

William Bengen sparks off a body of work on retirement income planning when he tries to answer three challenging questions altogether:

1. How much do I need to accumulate for my retirement?
2. How much can I safely spend in retirement so that I do not run out of money?
3. What would be the ideal asset allocation?

All three questions are intertwined in that, you cannot answer one without addressing the others.

Whether we like Bengen’s Safe Withdrawal Rate (SWR for short) or not, we got to know what it is about and what it is not.

What I find very frustrating is people talking as if they know how it works but actually, they don’t really understand how it works:

1. The 4% Rule does not adjust for inflation!
2. The 4% Rule does not account for tough economic times!
3. The 4% Rule spends 4% of the prevailing portfolio!
4. What is the expected return you assume in the 4% rule?

So I decided to do up this video, focusing on telling the financial planning problem that the SWR tries to solve, how he went about determining it is closer to 4%. I also go through some F.A.Q so that we can understand what it is and what it is not better.

Hopefully, we have better discussions about income planning in financial independence after this.

I don’t plan to do many of these long videos, but I felt that… there is no easy way to start talking about the nuances of financial planning without explaining things like the SWR and why a portfolio of low-cost, diversified portfolio should be the staple wealth-building, and wealth decumulation tool for most people.

Most likely, there will be questions that I missed out explaining but with this setup, it would be easier for me to address them.

Let me know if you have further questions in the comments or in my Telegram channel.

If you are interested in a data-packed version, you can read my comprehensive article on the Safe Withdrawal Rate and Financial Independence:

Why the Safe Withdrawal Rate (SWR) is Essential for Your Financial Independence (For Singaporean Investors)

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