California Financial Planner Bill Bengen, the author of an influential Old School safe withdrawal rate study (it was Bengen’s study that popularized the infamous “4 percent rule” that has caused millions of middle-class investors to set up wildly irresponsible retirement plans that are now in the process of going bust), was interviewed in the December issue of the Financial Planning Journal. The interview is titled William Bengen on Risk, Volatility, and Safe Withdrawal Rates in Today’s Environment.
Juicy Excerpt #1: Buy-and-Hold in these environments is an invitation to disaster.
Juicy Excerpt #2: We’d have to go much, much lower than we are now, or we did in 2009 even, to consider a higher withdrawal rate. That’s how ridiculously overvalued the stock market has been for 20 years.When something like this goes on for such a long time, people accept it as normal. This is not normal. This is an outlier that has basically been exacerbated by massive deficit spend- ing and borrowing, which is all now coming to its final conclusion. We’ll probably produce some great stock and market values down the road if people are prepared to take advantage of them.
Juicy Excerpt #3: Wade Pfau … I find [Pfau’s ideas] very interesting. Of course, Michael Kitces. Jonathan Guyton has done some excellent stuff. There are other people who have sometimes produced interesting material but those three I think have consistently produced some good stuff.
Juicy Excerpt #4: I’m still recommending 4.5 per- cent from a tax-deferred portfolio, if you think you’re going to live 30 years. I think that’s fair. Of course, it depends on the individual circumstances…. But the basic principle, I think, is sound. I haven’t seen anything yet that would invalidate it. But that doesn’t mean something can’t happen. I don’t know where this financial crisis is taking us. This could be very, very bad. It could be unprecedented.
Juicy Excerpt #5: My research is based on a buy-and-hold approach because it was easy to analyze. I think that more and more, if this situation deteriorates and Europe blows up, the emphasis is going to be more and more on the investment manager, as I mentioned before, to preserve capital and not follow a buy-and-hold approach.
Juicy Excerpt #6: I think that was something … where you vary, now, the investment approach based on some criteria that have yet to be defined, whether it be value or something else. I believe that buy and hold is appropriate under certain circumstances; other circumstances, it’s not. And timing, if you need to depart from it…. So, that’s where I’m looking at, basically, by varying the investment approach, the variable that really hasn’t been explored. I think all the research done has pretty much assumed a portfolio with a pretty constant stock- bond ratio throughout the whole time of the client’s retirement. I think that’s a big key. That’s the one variable you can control. You can’t control what the economy does, you can’t control what stocks return. But you can control how much you own of them. And when you own them.