The 4% Rule Makes 30 Assumptions. Here's Every One

The 4% rule rests on 30 assumptions. Bill Bengen stated some of them in his 1994 paper. Most he never spelled out. In this video, I walk through all 30 so you can see where the rule fits your retirement and where it doesn't.

I start with how the rule actually works. You take 4% of your savings in year one. After that, you adjust that dollar amount for inflation each year, no matter what the markets do.

Then I go through the assumptions in seven groups:

Timing: you retire on January 1, your first withdrawal waits a full year, and retirement lasts 30 years.

Spending: your withdrawals rise with the CPI, your spending never changes after inflation, and your paycheck depends on your balance the day you retire.

Your portfolio: 50% to 75% in stocks, no cash, and a mix that never changes.

Costs: no fees at all. I rerun Bengen's method with a 1% fee and a 2% fee to show what fees do to the safe withdrawal rate.

Market history: the future looks like US history since 1926.

You: you never panic sell, and someone capable manages the money for all 30 years.

Success: ending with $1 counts the same as ending with $1 million.

Along the way I show why two retirees with the same $1.5 million can end up with very different paychecks, and where 4% sits next to the average and best starting years.

By the end you'll know which of these assumptions fit your plan and which ones change your number.

Resources mentioned in the video:

Bill Bengen's 1994 paper (with the appendix): https://robberger.com/research/determining-withdrawal-rates-using-historical-data/
Bengen's 1997 follow-up paper: https://www.financialplanningassociation.org/article/journal/DEC97-conserving-client-portfolios-during-retirement-part-iii
Historical returns data (Damodaran, NYU): https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histret.html
Shiller stock market data: https://shillerdata.com/
Boldin (retirement planning software I mention): https://go.robberger.com/boldin/yt-4-percent-assumptions
ProjectionLab (retirement planning software I mention): https://go.robberger.com/projectionlab/yt-4-percent-assumptions

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0:00 30 assumptions behind the 4% rule
1:21 How the 4% rule actually works
2:59 The 30 assumptions, starting with timing
5:32 Does the month you retire matter? (1929)
6:24 Spending: inflation raises and a paycheck set on day one
10:41 Same money, different paycheck
12:58 Your portfolio: stocks, bonds, and no cash
15:26 Costs: what a 1% or 2% fee does
18:06 Market history: the future looks like the past
21:56 You: no panic selling, other income, who runs it
23:17 Success: surviving the worst start
24:35 Worst, average, and best starting years

ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. I've since sold my websites, bought them back, and started a new website and this YouTube channel.

I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (https://amzn.to/3by10EE)

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

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