But he talked about a floor and ceiling approach where you spend a fixed percentage of what.
Bengen floor and ceiling rule.
Constant inflation adjusted spending bengen s floor and ceiling rule and guyton and klinger s decision rules.
Exhibit 1 illustrates what happens when initial spending remains at 4 and spending fluctuates only within the band allowed by the rule.
In later publications by bengen he proposed a more dynamic approach for making retirement withdraws where your rate fluctuated between self imposed floor and ceiling values based on the current market performance.
In a 2013 article a vanguard research team headed by colleen jaconetti developed an alternative form of the floor and ceiling spending rule that relies on percentages rather than hard dollar amounts.
The rule was later further popularized by the trinity study 1998 based on the same data and similar analysis.
The bengen floor and ceiling rule lets you spend 15 more initially at the start of retirement and then if markets don t as you expect your spending drops back to where you would be if just.
Bengen s floor and ceiling method.
With their framework the ceiling refers to a maximum percentage increase in spending each year while the floor refers to a maximum percentage drop in spending for each year.
You may be interested to know that in 2001 bengen offered a new twist to the 4 percent rule proposing an updated strategy called the floor and ceiling method.
One of my favorites is actually from bill bengen and he s the one who created the 4 rule initially.
Bengen is a retired financial adviser who first articulated the 4 withdrawal rate four percent rule as a rule of thumb for withdrawal rates from retirement savings in bengen 1994.
More complex withdrawal strategies have also been created.
Here s how it works.
Much like the 4 percent rule the retiree would start off their retirement using some safe percentage of the initial nest egg balance as the baseline.
Bengen determined that the floor and ceiling rule increased the historical worst case initial spending rate by 10 thanks to its allowance to cut spending when markets perform poorly.
William bengen first wrote about the 4 rule in a 1994 research paper for the journal of financial planning called determining withdrawal rates using historical data he proposed a safe withdrawal rate of 4 of a portfolio s value in the first year of retirement an amount which is used as a baseline for spending going forward.
Bengen determined that the floor and ceiling rule increased the historical worst case initial spending rate by 10 thanks to its allowance to cut spending when markets perform poorly.
