Turns Out an Age-Old Investment Rule Is Just Plain Wrong

The biggest problems an investor faces are internal, not external. Your decision-making will have the biggest effect on your success over the long-term, regardless of what the market does. It’s been said human nature is a terrible investor. That’s because what we think is the natural choice often turns out to be the worst choice in the world of investment decisions.

For decades, many people who were trying to decide how much of their investments should be in stocks versus bonds/cash locked onto the “100 minus your age rule.” Simply put, the rule says subtract your current age from 100, and that’s how much should be in stocks. So, a 30-year-old should have 70% in stocks and a 70-year-old should have 30% in stocks. There are many reasons for the popularity of the rule, including that it is pretty simple to apply and it seems to jibe with human nature wherein the older we get the more conservative we should be in everything (think about that pool of water on the sidewalk that you use to run and jump over that you now walk around).

In recent years the “100 minus your age” rule was put through historical scenarios by some very well-respected financial analysts, including Bill Bengen, Wade Pfau and Michael Kitces. They all came to the same conclusion: Rather than decreasing your allocation of stocks as you age you should do the exact opposite and increase the allocation of stocks versus bonds each year of retirement. To be specific, you start retirement with a base stock allocation, let’s say 55% for example, and you increase that by one percentage point per year starting in year two of retirement. This technique is called the “increasing glide path” retirement planning.

While this might seem counterintuitive (good investing decisions often do) it really makes sense if you think about it. Your biggest challenge during your retirement years is not a volatile stock market. It’s inflation eating up your spending power, and stocks are the antidote to counter inflation. Between growth in stock prices and growth in dividends, stock values have risen faster than inflation for decades. Therefore, decreasing your allocation of stocks as you age is hampering the ultimate inflation slayer, and a bad idea. In addition, if it turns out that you had the bad luck of having a big stock market downturn early in your retirement, using the increasing glide path is in essence dollar cost averaging into a down market.

The proof is in the statistical pudding so to speak. Bill Bengen found that the increasing glide path approach increased the SAFEMAX withdrawal rate I wrote about last week from 4.68% to 4.84%. That is a substantial change and puts to bed the fallacy of the 100 minus your age rule.

Fun Fact: The oldest living verified person was Jean Calment of France who lived 122 years, 164 days. Currently, the oldest living person in the U.S. is Naomi Whitehead, who turned 115 last month.  I’m sure you wouldn’t have to convince either of them about the effects of inflation over their lifetimes.

Now, Let’s Talk About What You Really Can Spend in Retirement

Last week I wrote a piece about what current research shows people typically spend in retirement. Most people spend far less than they could. Over a 30-year period, people with a net worth of $560,000 or more could typically spend over $1 million more than they do and still never run out of money. I discussed several factors as to why this occurs, but the most important is simply not being educated on what a safe withdrawal rate looks like.

William P. Bengen is one of the fathers of safe withdrawal rates. His research over 20 years ago established what many call the “4% Rule” which in reality was the 4.15% rule– it just got rounded down to make it easier to remember. The purpose of the “4% Rule” was to establish a safe annual withdrawal rate that would assure retirees that they would never run out of money. Bengen tested 400 retirees (1926-1976) and found that the absolute worst performing retirement portfolio (for the person who retired in 1968) still lasted over 30 years using an initial 4.15% withdrawal rate.

Here’s the details of how it worked:

1. Add up all of your retirement accounts and then multiply the total by .0415 (4.15%) and that gives you the safe withdrawal amount for year 1 of retirement.
2. In subsequent years (Years 2-30, assuming a 30-year retirement) simply increase the dollar amount you withdraw each subsequent year by the inflation rate. For example: a $1 million investment portfolio would have a safe withdrawal amount in year 1 of $41,500. ($1 million x .0415). In year 2, assuming a 2.5% inflation rate, the safe withdrawal amount would be $42,538 ($41,500×1.025). In year 3, assuming a 2.75% inflation rate, the safe withdrawal amount would be $43,708 ($42,538 x 1.0275). Each year thereafter you check the annual inflation rate and apply the same formula.
3. For the original rule, Bengen relied upon an asset allocation of 60% stocks and 40% bonds, and only used two asset classes: “US Large-Company Stocks” and US Treasury Bonds.

I just finished Bengen’s new book A Richer Retirement, Supercharging the 4% Rule to Spend More and Enjoy More wherein Bill shows his new findings primarily based on the expansion of asset classes. He revisited safe withdrawal rates using equal investments in 5 equity classes: US Large Cap, US Small Cap, US Mid Cap, US Micro Cap and International stocks. For bonds, he used 5% US Treasury Bills and 40% Intermediate Government Bond Funds. Overall, he primarily tested an asset allocation of 55% stocks, 40% bonds and 5% cash.

The result of using a much more diversified portfolio and then retesting the withdrawal rates over 30 years is a new safe withdrawal rate (now called SAFEMAX) of 4.7%. There’s no change in the formula set forth above; just start with 4.7% instead of 4.15%. While that is a great starting point to see if you are on track to retire, you should also be aware of the following:

1. No one, not even William P. Bengen, can guarantee that what has worked in the past will continue to work in the future.
2. The SAFEMAX of 4.7% is based upon the absolute worst investing environment he tested. Most of the retiree time periods allowed for a greater “safe” withdrawal rate and the average SAFEMAX for all retirees studied was 7.1%. On average, even with the 4.7% withdrawal rate the average retiree will die still having about 5 times what they started with.
3. While not 100% guaranteed under the research a 5.25% withdrawal rate had a 95.7% success rate.
4. The SAFEMAX withdrawal rate does not factor in leaving a legacy to heirs or charities. Decrease the withdrawal slightly to do that.
5. Bengen’s website offers updates even to his recent book. On September 18, 2025, he updated the research to now recommend an allocation of 65% stocks, 30% bonds and 5% cash for higher upside potential.

As I mentioned last week, life was so much easier for retirees when they could just add up their guaranteed income from pensions and Social Security to figure out how much they could spend each month. Times have changed and now with large defined contribution plans like 401(k)s and 403(b)s, retirees must find a way to create their own “pension” to be added to their guaranteed income like Social Security.

The 4.7% rule is a good starting point. Figure out what your expected monthly expenses will be and then subtract Social Security and any pension income. Whatever you have left is what you are going to have to cover with your retirement nest egg and now you can apply the 4.7% rule to see where you stand.

Fun Fact: Michigan’s only bear is the black bear, which has a lifespan of about 10 years. Male black bears live in an area of about 100 square miles, females live in a 10-20 mile area. There are about 12,000 black bears in Michigan and the number is increasing annually. A male black bear can reach 500 lbs.

In Retirement: What You Can Spend vs. What You Will Spend

Most people spend all of their working lives saving and investing so they have a nice nest egg to withdraw from once their working days end. I’ll put together a synopsis on what you can safely withdraw in retirement in a future Up Early, but not until I finish the new book by Bill Bengen who originated the “4% rule” 20 years ago.

For now, let’s look at some interesting research on how much retirees feel comfortable withdrawing from their investments during retirement (i.e. what you will likely spend).  The findings might surprise you.

In December 2024, David Blanchett and Michael S. Finke published a paper entitled “Retirees Spend Lifetime Income, Not Savings”. Their findings are that retirees spend less than what was originally predicted, and likely, less than their parents. That makes sense for two reasons:

1. Earlier generations of workers had what are called defined benefit plans. Those are your good old-fashioned traditional pensions which are nearly extinct except for government employees at the federal and state levels. Under the traditional pension, the retiree knew exactly how much their monthly income would be and could spend 100% of it comfortably knowing that next month the same check would arrive again. Today’s workers rely on defined contribution plans, primarily consisting of 403(b)s, 401(k)s and IRAs. Under these current plans, there is no monthly check in retirement, and the retiree has to decide how much to withdraw from their accumulated retirement savings.
2. There are many unknowns that retirees must grapple with these days, including their lifespan, future Social Security earnings and stock market volatility. Those unknowns, combined with the lack of a set amount in a monthly check from a traditional pension all lead to the same result: retirees spend less than they could in retirement because of both fear of running out of money and lack of knowledge on safe withdrawal rates.

Blanchett and Finke’s article summarized the statistics supporting that finding as follows:

1. Retirees spend only around 50% of their savings over their lifetime.
2. Married 65-year-olds with at least $100,000 in assets typically withdraw just 2.1% per year from qualified and non-qualified investment accounts.
3. Over a 30-year period, retirees in the top 20% of net worth (currently approximately $560,000) could spend over $1 million more than they do and not come close to running out of money.

These findings are no surprise to me from my experience as a financial planner and also as a personal investor. It is very hard psychologically to shift from saving and investing to what’s called the “the decumulation phase” when you need to start liquidating investments and begin systematic withdrawals. For most people, this is why professional help is a must in retirement.

A good financial planner can give you confidence in many ways, including in your ability to safely withdraw more than you probably would otherwise take from your investments. That doesn’t mean that you must increase spending on “things”, but perhaps for example, it would allow you to make lifetime gifts to watch the enjoyment it brings to family members and yourself rather than waiting until your demise. Alternatively, getting a warm appreciative letter from a charity for a donation is a great feel-good moment. Perhaps a family trip to a special place is really within your budget!

Fun Fact: Did you ever wonder at what age people are the happiest? German and Swiss researchers studied over 460,000 people around the world and found age 70 to be the happiest age. I’ve seen other studies that differed from that finding. One had age 23 and a study at Harvard found 35 to be the happiest age. For me, I will keep abiding by the words of Jonathan Swift: “No wise man ever wished to be younger.” – Experience is the best teacher!