Angelica Montagano

February 4, 2021

Historical Data, Retirement, Safe Withdrawal Rates

Episode 135: William Bengen: The 5% Rule for Retirement Spending

Angelica Montagano

February 4, 2021

Historical Data, Retirement, Safe Withdrawal Rates

William P. Bengen practiced fee-only financial planning in Southern California for 25 years. He received a B.S. from MIT in Aeronautics and Astronautics. He retired from financial advising in 2013 but remains active in researching topics related to the so-called "4% rule." He plans an update to his book in late 2021.

In October of 1994 Bengen published his first research paper establishing the so-called "4% rule", which posits limits to safe withdrawals from retirees' investment portfolios. In succeeding years, Bengen published additional research expanding on the original findings. Bengen's articles and quotations have appeared in numerous publications, including the Journal of Financial Planning, Financial Planning magazine, The Wall Street Journal, Business Week, Forbes, the NY Times, Kiplinger's, Financial Advisor magazine, and Bottom Line.

At a time when the financial community provided inconsistent retirement advice, the 4% withdrawal rate was a data-backed strategy that revolutionized retirement planning. Today we speak with William Bengen, a literal rocket scientist and the influential personal advisor who popularised the 4% withdrawal rate, A.K.A, the 4% rule. After exploring what the 4% rule entails and the impact that it had on the financial industry, we talk about updates that William has made to his theory since first publishing about it in 1994. We then unpack more of the rule, talking about its conservative nature, whether young retirees should adhere to it, and if there are situations where you should break the rule. Reflecting on criticisms of the 4% rule, we ask William about how it fits with the notion of dynamic spending. His answers highlight his approach in helping his clients to maintain the same lifestyle that they have when they enter retirement. Later, we touch on tips to keep track of your expenses, whether you should taper your retirement income, the role of bonds and small-cap stocks in your portfolio, and William’s view that financial planning should be fee and not commission-based. We wrap up by discussing William’s career and how he defines success for himself. For more insights into the 4% rule from the man who created it, tune in to hear our incredible conversation with William Bengen.

Key Points From This Episode:

Introducing today’s guest, financial advisor and 4% rule creator William Bengen. [0:00:15]
Exploring William’s original 1994 research that led to the 4% rule. [0:03:58]
Hear why the 4% rule has been so impactful to the world of financial planning. [0:05:06]
William shares details about the ‘hate mail’ his findings inspired. [0:06:07]
Why William updated his theory to include small-cap stocks. [0:07:43]
William’s view that you might be able to get away with withdrawal rates that are higher than 4.5%. [0:08:26]
Whether young retirees should adhere to the 4% rule. [0:11:48]
The scenarios that break the 4% rule. [0:13:02]
How the 4% rule applies in countries outside of Canada and the US. [0:13:55]
Insights into how much you should be spending in your retirement. [0:15:28]
What your triggers should be if you want to deviate from the 4% rule. [0:17:45]
William’s views on dynamic spending. [0:20:09]
Tips on keeping track of your expenses and William’s throughs on fixed annuities. [0:21:20]
Whether you should taper your retirement income. [0:22:54]
The role of bonds versus small-cap stocks in your retirement portfolio. [0:24:04]
From rocket scientist to financial advisor, hear about William’s extraordinary career. [0:28:29]
Reasons why financial planning should be fee and not commission-based. [0:32:02]
Reflecting on the impact that William has made on his client’s lives and in the financial world. [0:32:55]
Details on William’s current research and what most excites him. [0:34:48]\
How William defines success for himself. [0:37:01]

Read the Transcript:

In 1994, your analysis in Determining Withdrawal Rates Using Historical Data, I think it's safe to say changed the way people think about retirement planning. And you're finding is often quoted as the 4% rule. Can you describe what your 1994 research finding was?

Yeah. Your question made me go back and take a look at my original paper and when I re-read, I did so with quite a few smiles. 27 years ago, knowledge has advanced a lot since then. If you were withdrawing during retirement from a tax-deferred account, and you expect to live for 30 years and you want any money to live for 30 years, a 4% withdrawal rate the first year, and then increasing for inflation each year after that has always worked historically. And that was just using two asset classes, that was using large cap stocks and intermediate term treasuries. And the asset allocation that came out of that was about a 50/50. Turned out to be optimal for that.

So you found that with a 50/50 allocation, a 4% withdrawal rate was sustainable. Why do you think that finding, I mean, you published this in a research capacity, but you've also practiced as a financial planner. Why do you think your finding was so impactful to the financial planning industry?

Well, I think once it was very simple, straightforward, and I have it researched, I can back it up. I remember back then, there were a lot of ideas thrown around what was inappropriate withdrawal rates were in retirement. Some people said, "Oh my goodness, you're in retirement now. You got to sell all your stocks. Invest only in bonds. Take out 2% and you'll be fine." Others said, "Oh my goodness, no you have to have a balanced portfolio, return seven and a half percent a year, 8%. You should be able to take out six or 7%, no problem." And so they were all over the map, for the first time I bought something that I had studied and researched and could justify and not everybody liked it. I'll be honest with you. I got a lot of hate mail on from people on those findings, believe it or not.

Can you talk more about that hate mail? That's something that I have not heard.

Yeah. There were a lot of people in the business who advise their clients a certain way. He used different numbers and I convinced their clients. And then here's this upstart financial planner, been in business maybe four or five years and says, no, 4%, is it guys. Sorry, 2% is too conservative. So, I also created problems for them with their clients. And new ideas are always resisted no matter what they are. No matter how justifiable they are. So I did get some pretty nasty mail, but that quieted down after a while. Unfortunately, subsequent studies verified my findings and over time it became accepted. Thank goodness I hate living in fear.

It's kind of ironic if your 4% rule is lower than what a lot of people are using, that would've meant they needed more assets, right. Which is obviously in the advisor's best interest. So it's funny that may have triggered hate mail.

Yeah. I was pretty astonished by the reaction. I never expected that kind of response. I wish I had saved some of those things. I just threw a lot of them out. I said, no, I don't want to deal with this.

Do you think that this reaction came from a lot of people that may have used, just rough rules of thumb as opposed to the more research-based opinion that you came to?

Well yeah, I think that's all that was at that time, pretty much. I imagine that in some sort of sophisticated endowments and pension plans, they probably had done somewhat similar research over the years, but I couldn't find any trace of it when I first looked for it back in the early 90s. So people were just going on gut feeling and gut feeling can sometimes betray you.

Interesting. So after your 94 paper, you updated that 4% rule to a four and a half percent rule. Can you talk about what went into that update?

Yes. I threw in another asset class, excuse me, small cap stocks who has small cap stocks. I chose them as kind of a proxy for a lot of other asset classes. One, because I had a higher rate of return than large cap stocks by about 2%. So they're added in return, and they didn't have a perfect correlation with large cap stocks, so they added some diversification value. And that worked out pretty well. It raised, I think my early work indicator on 4.1, 4.2, and this brought up to almost 4.5. So it was a pretty substantial increase perspective withdrawal rates with that change.

You did another research update very recently in December 2020. And this I found to be fascinating. So you wrote that despite prices being high as measured by the Shiller CAPE, which has Michael Kitces found prior to this, tends to predict lower withdrawal rates when prices are high. So they're high now, but we also have low inflation expectations. And you've found in your most recent research that under those conditions, the withdrawal rate could actually be higher than 4.5%, which is contrary to what a lot of people including me have been saying because of how high prices are. Can you talk a little bit about that research?

Yeah. I know a lot of my colleagues who I respect have been saying, maybe it should be 3.8., maybe it should be 2.8., maybe it should be less than 1%. That four and a half percent withdrawal rate, is the worst case scenario historically, it's based upon the investor who retired in October of 68 and within five years he was hit with two [inaudible 00:09:21] markets. And then after that, he was hit for 10 years of high inflation. And inflation, particularly damaging to investment portfolios, because it forces you to increase your withdrawals. And it's a permanent increase. You can't get it back like you can with markets. So, I don't think today's circumstances quite matched the dire nature of things back in this late 60s, early 70s, even though prospective returns for assets are pretty low.

In fact, if you look at the picture across time, four and a half percent's the worst case, the average investor was able to take out seven. If you just picked a random investor and the maximum was actually 13%, one lucky investor, well a couple of luck invested were able to do that. So the quoting of a 4% rule or four and a half percent rule, I think on a necessarily focus people on a worst case scenario, I think they could be probably more optimistic unless we get into a situation where PEs go to 100, or inflation comes in a big way. That really concerns me, inflation more than anything else.

The thing that I loved about this most recent research is that you grouped withdrawal experiences by CAPE ratios and inflation rates. And you'd found in the research that even when prices have been high, like they are now, if it's been a low inflation environment, withdrawal rates have actually not been so terrifyingly low. That to me was eye opening, looking at both of those components, prices and inflation can yield materially different results. I just found that to be really insightful research.

Yeah. That kind of blew my mind too. That was a discovery I made this summer. I only took me 27 years to find it out. And it's funny because that's really the front end of the withdrawal process. How to choose a withdrawal rate and up to that point, I didn't know how you can specify a withdrawal rate or take advantage of the very high withdrawal rates that occurred in the past. But for the first time, once we throw a place into a picture, as well as stock market valuation, which Michael Kitces had developed, then you have a very, very close correlation between those two factors and what you can withdraw from your retirement portfolio. So it opens up whole new doors like back in 2009, March the market bombed, using those tables I developed six and a half percent, 7% was doable. And if you look at that investor, 10 or 11 years later, he's doing great. His portfolio is up substantiate despite the fact that he's taken out much more than a four and a half percent rate. So hopefully there'll be opportunities for that in the future. No, we can go higher.

So interesting. Do you think it's appropriate for someone who happens to be able to retire younger, they determine their horizon at more than 30 years, do you think it's appropriate for that kind of person to use the 4% rule in their planning?

The withdrawal rate is sensitive to the time horizon. So 30 years, you get four and a half percent. If you go to 40 years, I think it goes down to 4.2. And the longer you plan to live, the longer you plan to be, depending on your portfolio, the lower goal is a little... 4% appears to be for tax to triple [inaudible 00:12:22], even if you live a couple hundred years and the markets operate like this, I call that the Methuselah client, you're going to be okay. You don't have to do much less than 4%. That's my number. My colleague, Ryan McClain, who owns a company that built software that studies this issues, he recently published a study with even higher withdrawal rates that I've been able to generate because he used a lot more asset classes. And he went from 4.2 to 5.0, so that's why I'm not a pessimist. I think if you have a well-diversified portfolio, four and a half percent is pretty cheap. I think five, five and a half percent is doable. Even in this environment.

You mentioned the rule being sensitive to the withdrawal period. If we hold that continent and just say, let's talk about a 30 year period. Are there scenarios where you would say, you know what, under these circumstances, I don't think the 4% rule does or the 4.5% rule does actually make sense anymore?

Yeah. I've played around with scenarios. I wanted to see what would it take to break the 4% rule, or four and a half percent or whatever have it. And I came out one scenario that the retiree encountered double digit inflation for the first 15 years of retirement. And that broke the 4% rule and knocked it down to about 3.8. That's something we've never experienced. It doesn't mean we won't. That's why I say the 4% rule is not a rule of nature, it's just a rule of thumb. An experiential rule. So it could change. And it's changed in the past. And the past, in the fifties, it was not four and a half percent, it was 5%. and it came down because of that big inflation reverse in the 70s.

Along similar lines, other researchers have, since you published your research, they've looked at recreating the same analysis, but in different countries. So I've seen it for up to 23 countries using the [Dimpson Mar Staunton 00:14:05] data going back to 1900, and the Safe Max, as you called it in your research originally of 4% only holds in, I think Canada and New Zealand and the United States. But every other country in the 23 country data set, the 4% rule does not work. And in some cases it's really low, like 0.2% and stuff in Italy, and Japan. Do you think people should take that survivorship bias into account when they're evaluating safe withdrawal rates?

Well, I guess it's country sensitive. I mean, my research has had a very narrow focus. It's basically been focused on U.S. investors, U.S. investments, U.S. bonds, U.S. stocks. So, I'm probably not very well qualified to comment about what's happening outside our borders, but yeah, sure. I could see it could be different if they have different return profiles different inflation profiles, and [inaudible 00:14:54] start them.

Can you talk about the impact of management fees on these numbers? Management fees, like expense ratios?

My research assumes that you are using funds with extremely low cost. So essentially they match their index. And obviously if you're investing in funds that have, or actively manage, or have high fees, you're going to have to reduce your withdrawal rate accordingly. I think it's very important in the context of my research to use very efficient investments that reproduce indices reliably, and don't sour you a lot of unnecessary costs.

So you were also a practitioner, and I'm really curious how you actually help people determine how much they should be spending in their retirement, like a real practical question.

Yeah. That's a tricky process. I used to start out by saying, what do you want to spend? And what kind of lifestyle you want to have? And we sat down and we run numbers and then I'd tell them, or advise whether or not, I think based on the extent of their financial resources, whether they can live their kind of a lifestyle. If not, let's see. Maybe we need to make some changes. I don't think it makes sense to take more risk in your investments to get a higher withdrawal rate. That's dangerous because there's no guarantees that'll happen. People can't control what happens in the markets, but they tend to control what they spend, and how they behave, and how they live. So I generally focused on those aspects rather than trying to promise them something in investment [inaudible 00:16:17] that was not deliverable.

So how often would you follow up on that process, and if they're ahead or behind, would you encourage them to spend more, or to hold back? Like how would that relationship work on an ongoing basis?

Yeah, but in my annual meeting, I used to develop a new forecast and compare it to the original estimate of where their portfolio should be, and [inaudible 00:16:38] diverging one way or the other, I'd say we pre-up a little bit. I've gotten a little bit more sophisticated on that in the last year or two, because I'm starting to use what I call templates, where I actually take a historical year, which starts with the same CPI and [inaudible 00:16:54] that my client happens to have. And use that as a model, a template that they can measure their real portfolios grow the best.

Most retirees, their portfolio will grow, even though they're taking money out, it'll grow substantially during retirement. So I compare it every year and I've been developing an understanding of the triggers that are necessary to recognize that something is seriously wrong and that you need to do something. In some cases, even though it looks like there's large deviations, there may not be a reason to act because the markets may be at a bomb. And they're about to come roaring back and restore your wealth. Other times, if inflation is picking up and starting to become a serious problem, I've learned you need to really start getting cautious early with inflation. Don't wait five years for 8% inflation, it'll chew away at your assets.

I want to dig into that a little bit more. If someone is following the 4% rule or the 4.5% rule, and they've got their head down and they're trying to focus on using this as their long-term spending rule, what would the triggers be, if any, for them to change it? To say, you know what, I'm not going to follow the rule this year. I'm not going to make the inflation adjustment, or I'm going to reduce the equivalent percentage, which are already... Is it inflation or volatility? Like what would the triggers be to make a change?

Well, my method is very graphical. So I would have a chart that shows how their portfolio has grown from day one of retirement. I don't want to have overlaying with that of a chart of the caplet, showing how the caplet portfolio grew. And if they are falling behind in their balances behind what the caplet, we have to start asking questions. Is this a serious problem that we need to do something about? And usually if it's marketing related, it can wait. Because markets take and they give. Inflation just takes. Inflation doesn't give back. So if it's an inflation related issue, I'm probably going to be much more aggressive and advise my client to make changes, to hedge against the possible risk, portfolio risks down the road.

That's a really, really interesting concept. We do something somewhat similar with Monte Carlo where we'll do a retirement projection, and then we'll compare where somebody actually is to where we expected them to be based on the Monte Carlo. And you're talking about doing something similar, but mapping their starting retirement scenario to an actual historical scenario and seeing how they track to that. That's a really cool idea.

Well yeah. Imagine you'd be starting at a CAPE of eight and an inflation rate of zero, the potential for your portfolio of the next 10 to 20 years is enormous. So eight, nine, 10% withdrawal rate may not be crazy. Based on that.

So kind of find a scenario in the past that matches where you are today and do a comparison.

Well, there really isn't one. And that's the issue, we won't know, unfortunately for another 25, 30 years, what really transpired from all of this. But once again I'm more concerned about inflation. I think to a certain extent, even though the CAPE is high, it may be as high for some reasons, related to interest rates and so forth and discount rates. And it may not be as extreme as it appears at first look. It still doesn't mean that the prospects for our returns are pretty muted across most asset classes. That's not a very pretty picture.

We had Professor Moshe, Milevsky join us on the podcast recently. And he argued that having a fixed real withdrawal rate doesn't make sense. And he was quite emphatic about it. And that spending from a portfolio of risky assets should actually be dynamic. What are your thoughts around dynamic spending rules?

I had developed some and looked at them and I mean, to a certain extent, I think most retirees probably do that on their own anyway, the mark order dropped 20, 30% over the next year, a lot of our retirees are going to be pulling their ears in. They're going to be cutting expenses. They just don't feel good about things. That may be a good thing. But I think going into retirement, retirees would feel most comfortable if they establish a lifestyle that they can maintain without very large fluctuations for [inaudible 00:20:54]. For some people that may be very difficult, they may have such high fixing expenses. They can't take a 30% cut, in expenses, or this would be extremely painful. They don't want to do that. So I tried to apply on using an approach where they could establish a lifestyle first day of retirement and maintain that through thick and thin throughout retirement. And that seemed to appeal to my clients. They liked that idea. Opposed to alternatives.

I have another practical question for you, Bill. A lot of people that we work with have a hard time knowing exactly what they're spending per month. Do you have any tricks to help people get their arms around that number? Like, is it a spreadsheet? Is it linking electronic at your bank account? Any advice?

Well yeah, that's a real fundamental, people need to keep track of their expenses. Programs like Quicken for money or something else, which are very easy to use. And they send you a transactions in there, keeping track, develop a budget, and track that against [inaudible 00:21:53], I think that's essential for good financial practices. I encourage all my clients to do it. Not all of them did it, but it benefited those who listened.

Yeah. That's a tough one to get adherence to sometimes with clients because it's real work to maintain a budget where we're talking about retirement income here. Do you have thoughts on using annuities, fixed annuities as part of a retirement income plan?

Yeah. I think every financial instrument has its place somewhere in the spectrum. And there are clients who may be concerned about the depletion of their portfolio coming up into their mid late seventies, where they can get pretty good rates on annuities for what you... It might make sense to do that. Take half a million, quarter million dollars convert it to annuity and take market worry out of their lives. There could be a lot of good reasons to do that. That thing makes sense. You knew your rates are very low now, but I think they're pretty decent if you get up into your seventies. But I think they worth looking at certain circumstances.

What are your thoughts or what is your experience with tapering a retiree's income needs over time. For example, we have a number of clients let's say want more in the first say 15 or 20 years, and they might be more active and then taper later on in life, knowing that may be at risk of perhaps higher healthcare costs later on. Do you have a lot of experience with that with retirees?

Yeah. I took my book about 15 years ago, I took a look at that specific situation because there are clients who want to travel and do other things early first, five, six, seven years retirement, and take her down. And yes, you can do it. The thing is, since you're putting a front-load on your portfolio, and early things that happen earlier in retirement are the most important, you spend more during retirement and then you decided to decline, the drop off is really sharp. You might have to go from 4.8 to 3.5 or something that. So you have to be prepared for the fact that when you spend early, you're going to have a lot less ability to spend later. And maybe that's acceptable for some folks, but your concern there about healthcare and there are some other costs in the picture that shouldn't be ignored.

In reading through your research Bill, one of the things that came up and it comes up in other people's safe withdrawal rate research as well, is that bonds tend to actually make things look worse. People tend to think bonds as safe and as a good retirement asset. But when you look at just the safe withdrawal rates, you can do better by owning stocks. So how do you think investors should be thinking about the role of bonds in their retirement portfolio?

Well, the last 30 years, I think bonds really added value to the portfolio. In fact, I think that if you had invested in 30 year bonds, instead of stocks, you would have done better. Now we're a period of time where interest rates were low and capital appreciation bonds is probably going to be negligible from here, interest rates can't go much lower so that bonds no longer offer diversification. I think so that might be given to reducing bond allocations, at least temporarily until interest rates rise to more comfortable levels. Because they ain't doing much for you. In fact, they'll cause you to lose money, which is not happy.

An extension of that idea of stocks from a safe withdrawal rate perspective, being better than bonds came up in a 2016 paper that you did, or article that you did, where you actually showed that being 100% in small cap stocks gave better results over most time periods. Now this is something within our podcast community that comes up a lot. We know what the evidence says about small cap value stocks. We know they have higher expected returns. So a lot of the people in our community come to the logical conclusion that we should just all be in 100% small cap value stocks. Why do you think, like you've done this research showing that small cap stocks give better safe withdrawal rates, why would retirees not go all in on small cap stocks?

For a couple of reasons, they're a very volatile asset class. I mean we've had years when they've been down 65, 70%, then years when they've been up 150%. So there's enormous range. And not everybody can tolerate that kind of volatility in a portfolio. Portfolio going up 50% or rising, even if you knew, in the back of your mind, it's going to work out, the long term. That's true for clients, I think it's true for advisors too. I think it'd be very uncomfortable for advisors to sit there and explaining to your clients that your portfolio is down 50%, but don't worry about it. That's really a hard story to sell. Also if small caps in general are very small capitalization part of the market. And a whole lot of people have tried to adopt that strategy to be halfway invalidated, just like January Effect, everybody got in and it's no longer there because you're going to lose that high return effect. There's too many people are chasing over your terms.

That was another one of your more recent pieces of research that I read. It was just, fascinating.

Well yeah, I find out that in this research, that you just got to follow where the evidence leads and not try to go ahead with preconceived notions about what I'm going to find. I had no idea what I'd find out when I started that crazy experiment with small cap stocks. I called it like the X Sports of investing, it's going 100%, but there are a lot of years when I've worked 100% allocation to small cap stocks didn't work, and it generated an average withdrawal for the average investor, 13% was the average and the one rocky investor got 25%. It's hard to imagine withdrawing 25% your portfolio, and still having last 30 years, but that's the nature of the beast.

Well listen, we did a podcast episode a few months back where we looked at safe withdrawal rates for a bunch of different equity asset classes. And we found something similar. We found that the best safe withdrawal rate came from U.S. small cap value stocks in the historical data. So it wasn't necessarily a surprise to us, but it is fascinating to think about. And it's hard to think about because we just talked about the behavioral reasons why you wouldn't do it, but like you said, if you had stepped back from that and just think about it logically, it's not easy to say that you shouldn't be all in small cap value stocks. For the reasons that you described, I agree that people probably shouldn't do it, and I wouldn't personally do it, but there's a bit of a cognitive dissonance.

Well for a retiree who's in real trouble, [inaudible 00:28:03] retirement plan and the time of the right circumstances, maybe it's the toward the end of the bear market, and things are starting to look up and small caps or prospects. Maybe that would be the panacea for that particular individual. They're just given that extra kick to make them last 30 years or whatever he needs. So it's just a possibility, another arrow in the quiver.

That would have worked the last six months or so that would have been a... That would've worked pretty good.

So your story Bill, of how you ended up becoming a financial advisor, and then the creator of some science around the safe withdrawal rate, I find to be a fascinating one. Quite a career. You have to tell us a story of how this all happened.

How I became an advisor?

Yeah like your business story leading to financial advisor, leading down this path of research to safe withdrawal rates.

Well, I was a young kid. I was really interested in space exploration. I went to an engineering school, got a degree in aerospace engineering. But when I graduated in 69, that was just a few months before the moon landing. I could see that there was nothing on the horizon, in that field, that it was going to be a desert because the government had spent an enormous amount of money over an accomplishment of objectives. And now they're going to be pulling back and there will be no funding for a lot of projects. I like particularly planetary exploration, what they're doing now, sending probes to Mercury and Pluto and Mars. It just makes my mouth water. I just see, whoa, what a wonderful time to be involved in that field. So I got out of school, really get into that field, spent about a year thinking and wasting time. And eventually my dad convinced me to go into the family business, which was a soft drink, bottling firm in Long Island, which had pretty big area.

It serves seven million customers in the New York metro area. And I swore I would never go into business because I done it as a kid and I thought it was boring. And well it turned out it was a great experience for me. I learned a lot about business, learned a lot about computers because I helped them computerize the business. And I ran up the last five years and the very end was the person told a family it's time to fold my hand folks, it's time to sell. Competitors are getting too big for us to handle. So let's get what we can for the business. And we sold it, which timing turned out to be great because a couple of years after that, a primary brand 7UP collapsed in competition from Coke and Pepsi. And when I moved out to San Diego with my family from New York, I spent about six months just thinking about every options I want to do.

And thought of financial planning since I had some wealth accumulated, I would need to do financial planning for myself. And I said, wow, I learned enough about that, where I can turn that into a career, because I see it was an up and coming profession. Found NAPFA, joined them. Became fee-only and then I had a great 25 years. It was early in my practice of, I guess the early 90s, I started having clients about my age, about 20 years from retirement, 25 years, howling at me and I'm starting to think, "I'm going to be retiring before too long. I've got to start saving money. And I got to know what kind of lifestyle can retirement, how much can I spend? And how can I set up my investments to do this." And I find nothing. I went back, I passed the CFP in 1990 and I went back.

I sat all the textbooks. Couldn't find anything about that. And researched, and back then you didn't have the Internet. Was not as easy to research things as it is today. So I got frustrated and I said, okay, I can't find anything about this. Nobody seems to know anything. I think I'm going to go out and do the research myself. So I got a book of return data on markets, CPI data, sat down in front of my computer, got out my trusty spreadsheet and started cranking numbers. And that was a lot of thought because it was like going out on a voyage of discovery like Columbus. Going out and looking for a new land, not knowing what you're going to find. And there was something new and interesting at every turn in the research, and it continues to this day. Still financing stuff after all these years.

Bill, you were early to the fee-only practice. That's become much more common now in the United States and increasingly so in Canada as well. Our firm in Canada is the Canadian equivalent of an RIA. What do you think about fee models? I mean the fee-based model, which you did, and we do has come under some scrutiny more recently where some people are saying that maybe that's not even the best fee model. What are your thoughts on fee models for financial advice?

I'm not an active practitioner anymore. So that's not an issue that really occupies me to a great degree, but I think you need to have fees of some form to be a professional or they're based on acid values, whether they're based on hourly, whether they're based on some other formula. I think to be a true profession, financial planning has to be fee-based rather than condition-based. That's just my opinion.

Yeah. I absolutely agree with that. One other question on your financial advice business, or your experience in practice, looking back on that career, what do you feel is the biggest value that people who do what we do provide to their clients?

I got a feeling that every day I can make a difference in the life of my client in some way. They're very frustrated, trying to deal... Financial matters are very complex as you well know. There are so many aspects to the financial life, and people will get very frustrated trying to learn about his handling on their own. It was just a sense of relief my clients derive from dealing with me, somebody who had studied the area and worked in it full-time, and could advise them in a very personal way about what they should do about their finances. Me, it was just making a difference every day in clients' lives in a very unique and personal way that was very satisfying.

So looking back, how do you feel about the way the industry has adopted your 4% rule?

Well, I guess people still invite me to talk and write papers, so I guess there's still some level of acceptance, that's pretty neat when you're seven years retired and people still think you're alive and not the alternative. I think most advisers are pretty sophisticated. I don't think most advisors just use the 4% rule and apply it to all clients. Okay, they know the score and they do a lot of research and software work. And I think they're doing the proper thing in applying that research to their clients. So what I'm trying to do now is I'm giving more tools, more ways to help their clients by continuing to research and finding methods that can be used to generate withdrawal rates and track portfolios, and determine when things become a problem and cures for problems. That's the way I think can help, that's very rewarding too. But I think in general, a professional does a great job helping people with their retirement.

Yeah. The professionalization of the financial advice business has been amazing even with the PhD programs in financial planning that have proliferated over the last decade or so.

Yeah.

Bill, you're still doing research, we talked about some of that research that you published in December. From what you're working on right now, what are you most excited about?

Well, that last piece of research I did, I published in October a magazine where I set up those tables within the inflation regimes.

That was the last piece necessary to specify a complete program for specifying and managing withdrawals, what I'm in the process now is writing a... I've written a paper for the journal, financial planning laying that out, but it's a relatively short paper. I'd probably have to wait until my book comes out. I'm going to revise my book, greatly expand it because it's very chart intensive, and lays out a complete method that I recommend to be used for this. So from the get go, from A to Z, soup to nuts, helping clients with our goals.

It's nice for the first time, after all those years, almost set up for three decades to actually have a complete rational method based upon some sort of scientific or historical precedent that we can use. Instead of just saying, what withdrawal a day would you like to take? Take 6%, maybe you have a 60% chance of success, 8%, maybe a 20%. How does a client choose between those percentages? How do they assess that? It's very difficult. But nowadays we can give them and say, hey look, in this environment, this is what's worked. So we recommend you do that. It's a whole different approach.

That most recent research that you've done is one of those things where it's so obvious once you think of it, once you see the empirical results in the framework to think about it, but until reading it, I hadn't thought about it. Go with, and then you see it and now it's so obvious. How has this not always been the way that we've looked at it?

Well, I had that a-ha moment when I saw that you could break inflation to six regimes and then organize things in that structure. But after I did that, I said, I'm going to write a paper about this, but this seems so obvious to me, they've probably all done it already. They figured it out already, I said, I'm looking at it, it just seems so... But some things are like that.

Incredible. Our last question for you, Bill, which we're always curious to hear our guest's answers. How do you define success in your life?

That's a wonderful question for everyone, I guess. Before I go to bed each night, I've done this for a number of years, I ask myself three questions. And the first question is, today, did I learn anything new or did I create something? No. That's one question. The second question is, did I do anything to help anybody, particularly people I love, but even if for a stranger, maybe helping an old lady across the street, or helping a child understand a math problem? And the last point is, have I given proper attention to this, the mystery and wonder of the world in the universe, and being alive and being able to experience all this?

If I can answer yes to all those three questions during the day, I felt I've had a successful day. And if I look back over a period of years and think about all those days, if I felt the preponderance of those days were success that I checked the box and pre spaces, those days I felt my life was a success. But that scattered my first 40 years of my life were total disaster. Not successful at all, but the last 30 years, filing binding financial planning, helping clients helps a lot, but I guess maturing and learning things about life and what's important, what's not. So I just find that three question process helps me keep in mind what's really important to me in life, and try to focus on achieving things in those areas. I think it adds up over time.