Comprehensive Overview: The 4% Rule (EP.164)

Today’s episode is the first that takes a new format we are piloting, where we compile clips from the most valuable conversations we have had in different episodes on a given topic. To kick it all off we will be devoting this episode to inflation-adjusted retirement spending and the nuances of the 4% rule. We start off with a clip from our conversation with Bill Bengen, creator of the 4% rule, where he explains the concept. From there, we pull up an excerpt from an interview with Wade Pfau, hearing him weigh in on how this rule only works in the context of the US and Canada. Next up, Fred Vetesse talks about the changes in stock and bond yields and how they further problematize the 4% rule. After that, Professor Moshe Molevsky makes the case for flexible spending, followed by Michale Kitces with his favourite variable spending rules. We grab a segment from our chat with Scott Rieckens where he argues that the 4% rule should be seen as more of a guideline for making financial decisions than a rule. Bill Bengen’s interview then features again as we hear his comments on the effects of small-cap value stocks and cyclically adjusted price-earnings on safe withdrawal rates. Tune in for this fascinating set of highlights, the main point of which is that the 4% rule should rather be used as a guideline for financial planning and that where actual spending is concerned, a flexible approach is more sensible.

Key Points From This Episode:

• Bill Bengen, creator of the 4% rule, explains how the concept relates to inflation-adjusted retirement spending. [0:03:50.8]
• Wade Pfau speaks about how the 4% rule doesn’t work in an international context. [0:09:15.0]
• Fred Vettesse lays out the contrast between today and the period Bill studied. [0:12:31.1]
• The importance of having flexibility in retirement spending with Moshe Milevsky. [0:14:51.8]
• Variable spending rules with Michael Kitces; ratcheting, guardrails, and more. [0:19:27.3]
• Scott Rieckens on the 4% rule as a tool for making financial decisions. [0:32:33.8]
• Bill Bengen comments on the problems that have been found with the 4% rule. [0:38:35.7]
• The effects of small-cap value stocks on the safe withdrawal rate with Bill Bengen. [0:42:52.8]
• The effects of cyclically adjusted price-earnings on safe withdrawal rates with Bill Bengen. [0:47:20.6]
• Final thoughts on the 4% rule with Ben and Cameron. [0:51:37.8]