What caught my eye this week.
I am a couple of weeks late to this. But I can’t be the only investing nerd who hadn’t heard – and was surprised to learn – that Bill Bengen has broken his own 4% rule.
For those new to these parts, a short summary.
In the early 1990s Bengen interrogated the historical return data for US shares and bonds. He determined that a 4% withdrawal rate from a retirement pot – increased with inflation after the first year – would nearly always see you through a 30-year retirement without you running out of money.
For more detail read our articles on sustainable withdrawal rates [1].
I’m not delving into the specifics today. What’s fascinating to me is the man made famous for partially solving the retirement problem / neatly branding a nifty bit of data-mining (pick your poison) has bailed on it in his 70th year.
Alas the primary source for the Bengen revelation lies behind a Wall Street Journal [2] paywall (though a reader letter [2] in response is viewable). I picked up the news on a recent Animal Spirits [3] podcast.
In the podcast retirement demigod Wade Pfau says he hopes the news that Bengen was now 70% in cash will make people realize there’s no one-size-fits-all approach to income after work.
Indeed Pfau estimates that only about a third of the population have the right mindset for an equity-heavy total return drawdown strategy in retirement.
If that’s right then it means most people should be doing something different!
There’s not one rule to rule them all
Too often discussions of alternative approaches to retirement income (such as our old contributor The Greybeard’s equity income [4] trust preference) get talked down as irrational or atavistic.
But in my view the only investing that ever works long-term is the style that works for you.
And as I’ve said many times before, in retirement a different set of problems may mean you’re best off turning to a different solution.
Of course if people making unfounded claims – that dividend income gives you a free lunch, or that an annuity is the only sensible way to invest your retirement pot, or that buy-to-let properties guarantee superior results, or that you need active managers to get you through a bear market (Merryn Somerset-Webb’s latest [5] in the FT ) – then such specifics can be challenged.
My point is simply that there are trade-offs and advantages to all the approaches.
And that includes the ‘4% of a total return’ route – which might still, equally, be exactly right for you.
For once though you don’t have to take my word for it. Just look at the lived reality of Bill Bengen.
The man who wrote the rule on retirement investing is breaking that rule in spectacular fashion, because it turned out not to work for him. I commend him for sharing this so (sort-of) publicly.
Have a great weekend!
From Monevator
Free social care options available to everyone – Monevator [6]
From the archive-ator: Strategies for investing in bear markets – Monevator [7]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [8]
Interest rate raised to 1% by Bank of England – Sky News [9]
Average cost of a UK home reaches record of £286,079 – Guardian [10]
Monthly mortgage borrowing hits £7bn as house prices surge – Yahoo Finance [11]
Klarna to start reporting UK customer debts to credit agencies – Guardian [12]
UK economic snapshot mini-special
Warning of UK economic slowdown as interest rates rise – BBC [13]
Bank of England warns of UK recession this year as it lifts interest rate [Search result] – FT [14]
BOE chief sees ‘unprecedented shock’ to people’s incomes – CNBC [15]
The fudging is over, as MPC reveals 10.2% inflation forecast – Guardian [16]
Extent of damage to UK economy from Brexit has been masked – Irish Times [17]
Forget extra NHS cash, Brexit costs UK £173m every week, or £1m per hour – City AM [18]
Both Leavers and Remainers think Brexit has increased the cost of living – Survey [19]
[20]
UK-German trade falls sharply since Brexit vote, data show [Search result] – FT [21]
Jacob Rees-Mogg, in what world is Brexit in its entirety not an ‘act of self-harm?’ – Herald [22]
Products and services
DIY retirement savers blocked from transferring final salary pensions [Search result] – FT [23]
Barclays, Santander, and TSB up rates following BOE decision – ThisIsMoney [24]
Open an account with InvestEngine via our link and get £25 when you invest £100 (T&Cs apply) – InvestEngine [25]
Crypto’s evolution adds new risks to potential rewards [Search result] – FT [26]
Start a child’s pension the day they’re born – ThisIsMoney [27]
Should you be sharing your streaming accounts? – Be Clever With Your Cash [28]
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor [29]
Car insurance costs fall to lowest level in seven years as ‘loyalty premiums’ curbed – ThisIsMoney [30]
Homes for sale with relaxing bedrooms, in pictures – Guardian [31]
Comment and opinion
When inflation is high, says Warren Buffett, the best investment is yourself – CNBC [32]
Ominous predictions – Humble Dollar [33]
Why workers are choosing pay packets over flexibility – BBC [34]
Sell in May and go away? – Albert Bridge Capital [35]
When the stock market makes you cry – Banker on FIRE [36]
Morgan Housel on how to invest like an optimist [Podcast] – via Apple [37]
Surveying the sell-off mini-special
Attitude adjustment – The Reformed Broker [38]
Good news and bad news about the [US but relevant] market – A.W.O.C.S. [39]
Nobody wants to tell you this – Tony Isola [40]
No pain, no gain – Investing Caffeine [41]
Why it feels worse if you’re a typical stockpicker – The Irrelevant Investor [42]
Naughty corner: Active antics
Spotify is a broken record for investors – The Honest Broker [43]
The highs and lows of the cannabis ETF investing mania – Factor Research [44]
Lessons from the 2022 Berkshire meeting – Novel Investor [45]
Growth crash vs. value splash mini-special
Have growth stocks bottomed? – Morningstar [46]
Evaluating the current arguments in the value vs. growth debate – Validea [47]
European value could top US growth for a decade – MarketWatch [48]
Kindle book bargains
Two Hundred Years of Muddling Through: The surprising story of Britain’s economy from boom to bust and back again by Duncan Weldon – £0.99 on Kindle [49]
Elon Musk: How the Billionaire CEO is Shaping Our Future by Ashlee Vance – £1.99 on Kindle [50]
Human Frontiers: The Future of Big Ideas in an Age of Small Thinking by Michael Bhaskar – £0.99 on Kindle [51]
Why You?: 101 Interview Questions You’ll Never Fear Again by James Reed – £0.99 on Kindle [52]
Environmental factors
This is what we need to invent to fight climate change – Vox [53]
Scientists are hoping to grow coral reefs at the base of wind turbines – CNBC [54]
How the shipping industry sails through legal loopholes – Hakai Magazine [55]
Off our beat
103 bits of advice from Kevin Kelly at 70 – The Technium [56]
We’re flushing some of our best Covid data down the toilet – Slate [57]
London’s lost ringways – Works in Progress [58]
“Embarrassed to be British”: Brexit study reveals impact on UK citizens in EU – Guardian [59]
Quartermass: the sci-fi series that terrified a generation – BBC [60]
Escape to Zoom island – GQ [61]
Hacking Russia was off-limits. The war has made it a free-for-all – WSJ [62]
As good as it gets [On death, cancer] – Get Rich Slowly [63]
Everything’s a WeWork now – Wired [64]
The machine learning job market in 2022 [Very curious piece] – Eric Jang [65]
And finally…
“Wealth is not an absolute. It is relative to desire. Every time we yearn for something we cannot afford, we grow poorer, whatever our resources. And every time we feel satisfied with what we have, we can be counted as rich, however little we may actually possess..”
– Alain de Botton, Status Anxiety [66]
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