This is the basis of our WealthVest/Pfau/Shiller dynamic withdrawal rule (named in part for Dr. Pfau, a professor of retirement income at the American College, and Robert Shiller, Nobel laureate and professor of economics at Yale University). The rule’s most dramatic finding is that there is no universal safe withdrawal rule for retirees.

Such a rule would depend on when a person retires. And today is a particularly unfortunate time to become a new retiree. The sustainable withdrawal rates that we forecast is 1.70% for a 60/40 stock-bond portfolio for 30 years and 1.26% for a 60/40 stock-bond portfolio for 40 years. But those results are time-dependent. Next year, a different Shiller PE 10 level and a different U.S.

10-year Treasury bond yield will result in different rates.

Our research uses the U.S. 10-year bond yield as of January 1, 2015, and the Shiller PE 10 recorded on the same day. Once we incorporate the appropriate management fees and average advisor fees, the 10-year trailing after-fee returns for stocks and bonds during these periods are not only far below historic averages, but the equity returns are negative. This has a doubly negative impact on today’s retirees—they are losing money on their investment portfolios and they are reducing the principal amounts for their retirement needs. That means their portfolios would be much reduced if and when the market recovers.


We have never seen a time like today, when a standard 60/40 stock-bond asset allocation could see returns below historic averages on both sides of the investment pie and when they even threaten negative total returns.

Bill Bengen deserves much of the credit for starting the debate on what constitutes a safe withdrawal rate from a retirement investment portfolio—and for coming up with the 4% figure. Since he was dealing with the broad marketplace, he did not include mutual fund management fees or investment advisor fees, which must be added by a financial advisor doing serious planning today. Furthermore, he was working from a more generalized set of market return forecasts.

Our model is focused on the very specific probabilities of safe withdrawal rates at today’s stock and bond market levels. And our analysis strongly suggests that excluding fees and not solving for the specific sequence-of-return risk—the effect of very poor returns or losses early in the life of the portfolio—places retirees at an unreasonably high risk of running out of money, especially given the shape of today’s asset prices. That is why, using the January 1, 2015, numbers, we find there’s a 50% chance that the retiree will run out of money before he or she dies if the 4% rule is employed.

Bengen is not alone in attempting to find a direct and simple way to inform advisors and retirees. Wade Pfau has written extensively on these issues. So have Gordon Pye, Michael Kitces, William Sharpe, Jason Scott, Laurence Kotlikoff and others, often focusing on a consumption-smoothing approach whereby the retiree adjusts spending as assets either appreciate or depreciate.