Bill Bengen’s New Safe Withdrawal Rate: A 17.5% Raise For Retirees

Core Insights - Bill Bengen has updated the safe withdrawal rate for a 30-year investment horizon from 4.0% to 4.7%, reflecting a shift to a well-diversified portfolio model [2][3] - The new withdrawal rate allows retirees to withdraw $47,000 in the first year from a $1 million portfolio, a 17.5% increase compared to the previous rate [3][4] - The updated framework provides a more tailored approach to withdrawal strategies based on individual investment horizons, ranging from 3 to 50 years [5][6] Summary by Sections Safe Withdrawal Rate Update - The increase in the safe withdrawal rate is based on updated assumptions regarding portfolio diversification, moving away from the previous 50/50 stock-and-bond model [3][4] - The new withdrawal strategy involves starting with 4.7% and adjusting for inflation each year, ensuring retirees can maintain their purchasing power [4] Importance of Investment Horizons - Different investment horizons significantly affect withdrawal rates, with the new model allowing for higher percentages based on individual needs [5][6] - For example, a 10-year investment horizon allows for a safe withdrawal rate of 8.894% for the first 20 years [6] Historical Context and Practical Implications - The updated withdrawal rates are based on historical data, including the worst-case scenario of retirees starting in 1968, demonstrating resilience even in adverse conditions [8] - The practical impact of these changes is substantial, enabling retirees to enjoy a higher quality of life through increased spending on experiences [9] Legacy Considerations - Retirees with legacy goals can adjust their withdrawal rates to ensure they leave a significant inheritance, with projections indicating a potential legacy of at least $500,000 from a $1 million starting point at a reduced withdrawal rate [11] Conclusion - Bill Bengen's updated framework offers a comprehensive and authoritative guide for retirees to manage their withdrawals safely, promoting both financial security and enhanced retirement experiences [14][13]