Updates By Bengen and The Trinity Study

Obviously, 1994 and 1998 was some time ago.  But fear not.  These two articles have since been updated by their original authors.

In 2006, Bengen wrote a book called Conserving Client Portfolios During Retirement and revised his conclusions.  Rather than generically call it “the 4 percent rule”, he now refers to the minimum safe withdrawal rate as his “SAFEMAX” value.  It has been raised from 4.0% to 4.5%.  His revised strategy also calls for a more diverse portfolio.

In 2011, the Trinity Study authors also updated their research taking into account more recent market activity.  You can read the new article here.

Here is what the revised article concluded:

  • A retiree with a 75/25 stocks and bonds portfolio can now use a withdrawal rate as high as 7.0% for 30 years with a 91% success rate if they do NOT adjust annually for inflation.  If you have a 50/50 stocks and bonds portfolio and use a withdrawal rate of 6.0%, your success rate increases to 98%.
  • A retiree with a 75/25 stocks and bonds portfolio can use a withdrawal rate of 4.0% for 30 years with a 100% success rate if they do make annual adjustments for inflation.  If you have a 50/50 stocks and bonds portfolio, that same withdrawal rate will drop to 96% success rate.  Note that that’s 1% more than it was in 1998!
  • No surprise: Portfolios with higher stock allocations again resulted in higher values over 30 years; approximately as high as 6 times vs 3 times for the two scenarios above.  If leaving money behind to heirs is a priority, then a higher allocation of stocks is in your favor.

Weigh-In’s From Michael Kitces and Wade Pfau

Since its inception, many financial researchers have attempted to recreate the studies made by Bengen and the Trinity Study.

In 2010, financial researcher Dr Wade Pfau re-created the Trinity Study and found that a 4.0% withdrawal rate had increased to a 96% success rate (he did this before the revised Trinity Study was published).

Financial researcher Michael Kitces also recreated their experiment, and added some other unique perspective to the discussion.  He investigated a 60/40 stocks and bonds portfolio going all the way back to 1870, and concluded that:

  • Two-thirds of the time, the retiree finishes with two times their original starting balance! The median value was 2.8 times the original balance.
  • Less than 10% of the time does the retiree EVER finish with less than the starting principal.

I find that second point to be especially interesting.  If you are one of the lucky 90% of people who are retired for 30 years and still have more money than what they started with, then you could effectively launch into a “second phase” of retirement with confidence for an additional 30 years using a 4.0% withdrawal rate all over again!