William Bengen

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William P. Bengen is a certified financial planner, who published what has come to be referred to as The Four Percent Drawdown rule for withdrawal rates from retirement savings (also referred to, idiomatically, as 'tapping into the Nest Egg').

Bengen conducted a number of empirical simulations of historical market behavior and concluded that a person could "draw down" up to 4 percent annually from their portfolio without fear of outliving their money.[1] He published his research in the October 1994 issue of the Journal of Financial Planning. He subsequently published 3 additional papers in the same journal (see References). He is also the author of the book Conserving Client Portfolios During Retirement.

According to the Journal of Financial Planning, William P. Bengen, CFP, is a sole practitioner in El Cajon, California, specializing in investment management.[2]


Contents

[edit] The Four Percent Drawdown rule

Based on his early research of actual stock returns and retirement scenarios over the past 75 years, Bengen found that retirees who draw down no more than 4.2 percent of their portfolio in the initial year, and adjust that amount subsequent every year for inflation, stand a great chance their money will outlive them.[3] In the same article, his analysis showed that "Retirees who draw down 5 percent a year run a 30 percent chance their nest egg will run out of steam before they do."

In his book titled 'The Number,' Lee Eisenberg has written in detail about 'the Four Percent Draw Down.'[1]

[edit] Journal of Financial Planning Articles

Bill Bengen has published five articles in the Journals of Financial Planning. His October 1994 article, on calculating "safe" withdrawal rates and asset allocations based on historical data is the one that led to the formulation of the 4 four percent draw-down rule. The Journal reprinted this article in 2004, the journal's 25th anniversary, counting it among the best content of the Journal.[2] For his other articles published in the same journal, see External Links & Further Reading section.

[edit] References

  1. ^ a b Lee Eisenberg. "The Number"
  2. ^ a b "Journal of Financial Planning"
  3. ^ Bengen's earlier research, which resulted in the "4% drawdown rule", was based on a study of portfolios using only 5-year government bonds and the S&P 500 index. Bengen's more recent research incorporates other asset classes, such as small-company stocks, money market funds, and long-term bonds~~~~. His conclusion from his expanded research is that an initial withdrawal rate of 4.5% to 5% is probably more appropriate for the majority of retirees, who seek to maximize their retirement withdrawals, and who use a diversified portfolio of investments. In him most recent research (2007), Bengen warns that financial planning software is probably required to adjust the raw withdrawal rates generated by his earlier research to accommodate the unique cash flows of any particular client during retirement. Adjustments could be as much as half a percentage point (greater or less) than the 5% rate. "Portfolio strategies for new retirees"

[edit] External Links & Further Reading