Bill Bengen is best known for the 4% rule, a guide for retirement withdrawals that has been a standard in financial planning for decades. He recently updated his guidance, noting that the safe withdrawal rate is now closer to 4.7% for a 30 to 35-year retirement horizon. For those looking to manage their assets over longer periods of 60 to 70 years, a rate of 4.1% is more appropriate.
Bengen argues that successful retirement planning requires a specific asset allocation. For investors nearing retirement, he suggests a portfolio composition of 65% in stocks, 30% in intermediate-term bonds, and 5% in cash. The bond portion should include Treasury inflation-protected securities to help maintain purchasing power. Within the stock portion, he advises equal exposure across five specific market segments to reduce concentration risk.
Active management is a core part of this approach. Rather than setting the portfolio aside, investors must rebalance periodically. When certain assets like international stocks or small-cap stocks outperform and exceed their target weightings, they should be sold to restore the balance. The proceeds from these sales are used to fund living expenses and replenish the cash reserve.
This method ties withdrawal needs directly to rebalancing. By having dividends and income payments directed into the cash account, the portfolio stays functional throughout the year. This prevents the need for panic selling during market downturns, as the cash reserve acts as a buffer against volatility. Bengen notes that this approach mirrors a classic 60/40 model, providing a measure of security if equity markets experience significant declines.