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Tag: 4% rule

August 3, 2022By Paula Pant

#394: Ask Paula: Inflation is High! How Much Cash Should You Keep?!

Bill listened to our episode with Bill Bengen, father of the 4% rule, and he wants to know if there was a way for him to figure out how much money he should be keeping in cash.

Heather inherited an IRA but MUST empty it within ten years – but she doesn’t need it right now.  What should she do??

Sheryl gets stock from her company, and she would usually sell it…but the stock value has decreased. And now, she isn’t sure what she should do.

Julie and her husband have access to an HSA for ONE MONTH.  Can they max it out before they lose access to it?

In today’s episode, former financial planner Joe Saul-Sehy and I tackle these tough questions.

Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode.

Enjoy!

Keep reading...

April 27, 2022By Paula Pant

#377: How I Discovered The 4 Percent Retirement Rule, with Bill Bengen

Today’s episode is sheer retirement nerd bliss.

We talk to the creator of the 4 percent retirement safe withdrawal rule, Bill Bengen.

If you’re new to retirement planning, you might not yet grasp the gravity of this. Let’s cut to the chase: the 4 percent rule is one of the most revolutionary, groundbreaking insights in the field of retirement research in the past 30 years.

To understand why, let’s climb in our time machines and return to 1994.

Back then, many financial advisors were telling their clients that they could safely withdraw 7 percent of their retirement portfolio each year.

After all, the simplistic logic went, the stock market has historically yielded between 7 to 9 percent returns, so that type of withdrawal rate shouldn’t dwindle the principle … right? ⠀
⠀
Bill Bengen, an MIT graduate and former rocket scientist, decided to build a better model. He looked at the performance of investment portfolios across 30-year time horizons, beginning in 1926.

Under the assumption that the portfolio is invested 50 percent in an S&P 500 Index and 50 percent in intermediate-term bonds, in a tax deferred account, he found that retirees could only withdraw 4.2 percent of their portfolio in the first year of retirement, and that amount adjusted for inflation each subsequent year.

He called this the “safe withdrawal rate” that gave people a reasonable chance of not outliving their money, based on historic performance.

He published the results in the Journal of Financial Planning and caused a stir. This was revolutionary. It upended the assumptions that dominated the field at the time.

And it remains a cornerstone of retirement planning to this day.

We talk to Bill Bengen about his discovery – and his latest research – in today’s episode.

Keep reading...

March 20, 2018Written By Paula Pant

Here’s a Counterintuitive Idea for Your Retirement …

Once upon a time, in southern California in 1994, there lived a man named William Bengen.⠀

His friends called him Bill.

Bill was born in Brooklyn, and he studied aeronautics at MIT. He wrote a big paper on advanced model rocketry. Then he became an executive at a soft drink company. Finally, 17 years […]

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