Celebrating 20 Years of the 4% Rule

Wade Pfau, Ph.D., CFA

by Wade Pfau, Ph.D., CFA

October 7, 2014

In was 20 years ago today…

The October 1994 issue of the Journal of Financial Planning contained William Bengen’s article, “Determining Withdrawal Rates Using Historical Data.” This article has had a truly profound effect on retirement income planning. In fact, one might argue that the article gave birth to retirement income planning. With this article, it becomes clear that post-retirement and pre-retirement investing are different beasts, as sequence of returns risk plays a bigger role when distributions are taken from the portfolio. In celebration of this 20-year anniversary, the Journal of Financial Planning currently has Bengen’s original article on its main webpage. As well, Jonathan Guyton has written a wonderful cover story about Bengen’s work, placing it in the historical context of where financial planning was in the 1990s, and how much things have changed in the past 20 years. 

That history lesson is especially valuable for me. In the article you will see excerpts from a short interview I had with the journal. One of the questions which was cut was: where was I 20 years ago? Well, I was just getting underway with my senior year of high school. It would still be a long time before I heard about the article. 

It’s also worth noting that precisely 10 years ago in October 2004, Jonathan Guyton’s first groundbreaking article on decision rules to guide retirement spending in response to portfolio performance was published.

In recognition of this anniversary, last week I spoke with financial planner Joshua Sheets on his Radical Personal Finance podcast about the history of the 4% rule. You can hear the podcast here.

Retirement Researcher is owned by McLean Asset Management Corporation (MAMC), which is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.
The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.