Bill Bengen, an RIA and solo practitioner who commanded national attention when he developed the so-called 4% withdrawal rule for retirees, sold his firm earlier this week to Dean Roland Russell, another San Diego-area RIA. Bengen, who turns 66 years old next month, said his decision was based simply on his desire to spend more time with his wife, family and recently born grandson. He added he will be continuing his research on retirement investing.
Dean Roland Russell was “large enough to absorb a firm our size and small enough to take care of my clients in the way they deserved,” he said. “I’ve known Mary [Dean] for years and had enormous respect for her. She has two excellent partners.”
Bengen Financial Services manages about $45 million, mostly in accounts with between $750,000 and $1 million, while Dean, Rowland & Russell has AUM of about $140 million. Bengen will become a consultant to the firm.
Bengen’s influence over the financial planning profession’s evolution towered above the small RIA practice he developed after his family sold the Seven-Up bottling distributorship his father had started on Long Island. Trained as an aerospace engineer at M.I.T., Bengen had hoped to work in the space program, only to graduate just as the government was downsizing NASA in the 1970s after the Apollo moon landings. So he went into the family business, eventually becoming CEO.
He had invested as a child, and after the family business was sold, he and other family members moved to the San Diego area, where he opened Bengen Financial Services in 1989. Bengen discovered that retirees most frequently asked him how much of their assets they could withdraw without the fear of running out of money, and as a result, he conducted extensive research that resulted in the so-called 4% percent rule. The basic idea of the rule is that a person should have enough money for a retirement if she withdraws 4.5 percent of the starting portfolio and adjusts that dollar amount by inflation each year. The withdrawals thus function like an annuity with an annual inflation adjustment.
In the two decades since Bengen’s first article appeared in the Journal of Financial Planning, the 4% rule has been tested and challenged on numerous occasions. Other advisors and academics including Jonathan Guyton, Rob Brown and Wade Pfau have reached alternate conclusions ranging from 2.9% to 5.5%.
In the wake of the financial crisis, Bengen himself revisited the rule in May 2012 issue of Financial Advisor.
The 4% rule isn’t “a hard and fast rule you can apply across the board,” said Harold Evensky, founder of Evensky & Katz in Coral Gables, Fla. “But it is a good behavioral finance tool [to frame the conversation] if someone simply asks you how much of their savings can afford to withdraw before you and the client start doing a lot of serious planning work.”
Bengen said he engaged FP Transitions earlier this year and started looking to sell his firm when he found out that Dean Roland Russell wanted to expand. Though he didn’t disclose the purchase price, he said he was very satisfied with it.
“For years, I thought I was going to be working into my seventies,” he said, admitting that once his practice was up and running he rarely worked less than 40 hours. “A lot of solo advisors assume their practice has no value,” so they never consider selling it. Bengen added that FP Transitions told him the prices for solo practices were at an all-time high.