Is it time to retire the 4% rule?
The 4% drawdown rule forms the basis of many advisers’ decumulation propositions. However, the results can often vary significantly depending on when you decide to start saving for your retirement and asset allocation decisions.
Where there was once complexity - and expensive portfolio analysis - the rule promises simplicity.
How much can a retired investor draw in income and yet not outlive their savings? This is the crucial question that aeronautical engineer turned financial adviser William ‘Bill’ Bengen set out to solve in the early 1990s.
Known as the 4% rule, Bengen argued that investors could safely set their annual withdrawal rate to 4% of their initial retirement pot and adjust it for inflation without running out of money over a 30-year time horizon.
The 4% rule, often referred to as the Bengen rule, is now commonly used by retiring investors and their financial planners. Where there was once complexity - and expensive portfolio analysis - the rule promises simplicity. Set, forget, and spend (if required). But is it as easy as all that?
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Author(s)
John Southall
Head of Solutions Research
