(audience applauding) - Folks, my name is John Luskin. You may remember me from such shows as Bogleheads Live and doing a brief stint on the Bogleheads on Investing podcast. Today I am here to once again interview Bill Bangin. I previously interviewed Bill on episode 35 of the Bogleheads Live show.

If you guys wanna check that out, go to boglecenter.net. And if you like what you hear, you can also go to boglecenter.net/donate where your tax-deductible donation is appreciated. Let me introduce a man that needs no introduction. Bill Bangin received his BS from MIT in aerospace engineering. He's had four careers, including his third in fee-only financial planning, where in the early '90s, in an attempt to answer questions from clients, he began his research on sustainable spending in retirement leading to the 4% rule of thumb that we all know today.

Bill, welcome to the 2024 Bogleheads Conference. - Yeah, thanks. I appreciate the invitation. (audience applauding) - Folks, I am gonna start asking Bill some questions that I got beforehand from the Bogleheads communities online but if you have a question, go ahead, get a pen, some paper, write it down.

And then Karen is gonna be going around collecting the questions. There she is. Fantastic. So let's start with the basics. Tell us about the 4% rule. What is it? - I have no idea, quite frankly. (audience laughing) We're really talking about something that technically doesn't exist, or at least I never created it.

I did a paper in '94, October, it's almost 30 years ago, next month, in which I took a very preliminary look at what kind of withdrawal rate, safe withdrawal rate retirees could use under the worst conditions, worst case conditions. And that turned out to be 4.15%. And I just put that paper out there.

And I wrote other papers but they kind of got ignored and people focused on that first paper and they approximated the 4.15% to 4% and then they went further and said, "Well, that's a rule we can all follow." Which I never said because my belief as a financial advisor, every individual, every client has unique needs in retirement and the process for getting to a quote number is a lot more complicated than using just a simple one size fits all rule.

- Wonderful. Tell us about some of your more recent research. What have you found continuing to research this subject? How has the answer changed? - Okay, well now we have, I think, the 5% rule, if you will. I've been, over time, I've been making my research more sophisticated. I've been adding ACID classes.

My first paper used only two ACID classes, which is hardly a diversified portfolio. When I added small caps in 2006, just one more ACID class, it went from 4.15% to 4.5, which was a nice jump, but that's still a long way from a diversified portfolio. And more recently, I used seven ACID classes, adding mid caps and international stock, micro caps.

And when I did that, I got up to just about 4.7%. Once again, this is for the worst case scenario. Yeah, I studied 400 retirees retiring on the first date of each quarter, beginning in January 1st, 1926. So there's almost 400, 100 years of data there. And only one of those 400 individuals was constrained with that low worst case rate.

Everyone else was higher. Most were quite a bit higher. The average for all retirees across that 100-year period is 7%. If you wanna have a rule, you gotta use a 7% rule, you know? Although, for the last 25 years, I've not been able to find a retiree who was average.

It's because of the high valuations in the stock market. We've been toward the lower end of the spectrum, but still, you know, above 5%, in my opinion. - That's a great segue into another question related to what we had to find from the community. Given that valuations are high, what impact do valuations have on sustainable spending in retirement?

- Okay, that's really an interesting question. And that leads into the conclusion I reached early in my research, which everybody knows, that if you run into a major bear market in stocks early in retirement, it damages your portfolio, and therefore, will reduce your retirement withdrawal rate. And to get to that point where you have a major bear market early in retirement, they almost all occur from periods of high valuation.

With stock markets rarely collapse when they have a P/E of 10 or 12 or something like that. Almost all the major bear markets in history have come from much higher. And we certainly know that in this century. And in 2008, a colleague of mine, Michael Kitsies, who you probably know, a brilliant guy, published a paper, actually in his newsletter, and a wonderful chart in which he tracked stock market valuations year by year since 1926, even back further, against the withdrawal rate that would have applied to that particular year.

And it's an amazing chart because it shows that withdrawal rates and stock market valuation move in opposite directions, which you'd kind of expect. In other words, the more expensive the stock market is early in retirement, the more likely you are to have a bear market and the lower the withdrawal rate.

However, if you were fortunate enough to retire at a time of really low stock market valuations, you would be able to take quite a bit more, quite a bit above average. And when I saw that chart, I nearly jumped out of my chair. I remember the moment, opening that publication, looking and saying, my gosh, this is the answer.

Because up to that point, what guidance could I have given my clients to decide what their withdrawal rate would be? That was a real issue in the early years. I could draw a chart, I could count the number of retirees, let's say, who could retire successfully at 4 1/2%.

That was 100%, let's say, in my earlier research. And then if I increased the withdrawal rate to 5%, maybe 95% of the people would have been able to successfully negotiate retirement. Then I went to 5 1/2%, maybe it was 90, and I go through the whole list. And so I have a chart which basically assigned to each withdrawal rate, up to 10, 12, 13%, the probability, based on history, that you would have been able to successfully withdraw.

The problem is with that, how does an individual choose what's the appropriate probability for them to use? What criteria? I always felt when I gave a client this chart and said, here it is, you can figure out the probability, I don't have a clue, it was kind of like sending them off to Vegas with one of those blackjack charts where it kind of says hold on 17 and get hit on 16 and split eights and take insurance and do this.

So I felt very uncomfortable with that whole issue. And really, particularly uncomfortable because it's at the very beginning of the process. If you're developing a plan for your withdrawals, that's one of the first issues you want to take a look at. And it wasn't until three summers ago, actually 27 years into my research, that I found what I call a missing link, which is inflation.

I knew inflation had to be a factor 'cause we know stock market, bear markets, are really powerful determinants of withdrawal rates, but the correlation is not close enough to confidently predict what the withdrawal rate should be based upon the stock market valuation. There's just too much slosh, it's maybe only a 75% correlation.

I needed higher and I used to sit and look and think and drive myself crazy and say, no, inflation is in there somewhere, but I keep drawing charts of stock market valuation and I put down the inflation rates associated with it and it's a messy chart, I don't see a pattern.

And then I remember one summer morning, I got up early and I was just thinking about this problem and I just had this flash. I said, wow, what if instead of treating withdrawal of the stock market valuation first, why don't we make inflation the most important factor? Very powerful because you have to increase your withdrawal rates, they're gonna get stuck at this higher level for the rest of retirement.

So what I did was create six inflation regimes, three in the inflation side, moderate, low and high inflation, three on the deflation side, moderate, low and high deflation, and then put the stock market valuation within them and the chart was beautiful. So I was able to, from that, create a chart starting with the inflation regime you think you're in and within it list the stock market valuations of Shiller CAPE and that gave me a tool that's about 85 to 90% correlation.

That gave me the confidence to say, "I can now, somebody comes to me "and tells me when they retire, "the stock market's valued this high "and on top of it, we have the inflation rate we know, "I can suggest now a withdrawal rate "which might not be the worst case.

"It might be five, might be six, "might be seven, might be 10 if we get lucky "and we get a low stock market valuation." So finally that problem for the first time after, I'm sorry, it took 27 years folks to get that done, but it looks like I've got a solution to that problem there.

- Wonderful. Let's geek out a little bit on the numbers as we're all investment fans here. Let's talk about some of the data and some of the approach that you used. So we got a question here that asks about how fees show up in a distribution rate. So certainly if we're using a low cost index fund, that's gonna be easy 'cause it's gonna have a very small effect on how much we're spending.

Has your research looked at the different fees in the various indices that you've used? For example, small cap funds, those might be more expensive to trade given illiquidity. Has that shown up in your research as well as relatedly a question here about advisor fees? What work would be done on fees and how that impacts portfolio distribution rates?

- Yeah, that's a really good question. In my research, I don't concern myself with fees. I'm assuming today, at least as far as funds, using fund investments, what I assume I'm using in my research, that there will be none. And we've practically come to that point. There are no commissions really on trades anymore.

We're in a commission free environment. When I first did my research 30 years ago, if you'd asked me that question, I might have been a little bit embarrassed because wow, they were still a factor, but not anymore. The advisor fees are though, and I had a friend some years ago did a study of that.

You have advisor fees of 1%, 1.25%. They're a significant factor. But I don't take them into consideration for the simple reason that they vary so much from individual to individual. I can't give a consistent result. And what I suggest is that people, when you do your budget for retirement, your expense budget, is that is an expense item and it's different for everyone.

So, but actually it has to be taken into account. - All right. And folks, if you have a question, write it down, Karen will collect it and then she'll bring it up here and we can ask Bill Bangor your question. Let's jump to some other questions we got from the Bogleheads community beforehand.

This one comes from Fender Strat Guy from Bogleheads Reddit. Shout out to Bogleheads Reddit, by the way. They asked some great questions. He wants to know what your thoughts are on your research, which looks at historical data versus a Monte Carlo simulation. - Yeah. Theoretically they should both give similar results and I think they do.

I'm kind of anomaly. I don't think too many do the way I'm looking at it myself right now. Most people are using Monte Carlo simulations. They're both legitimate approaches. I just feel comfortable using historical data because I kind of enjoy talking to people about 1947 there, we had an inflation outbreak and it affected the withdrawal rate or 1962.

Some people can relate, I think, a lot easier to actual historical periods they may have lived through to thousands of anonymous trials. But as a technical tool, it's perfectly valid. A lot of people do their research, I respect it and fortunately we come up something fairly close. - And for those who aren't super investment nerds, as you may already know, probably doesn't need much explanation, Bill's research looks at what has happened in the past, what could I have spent in the past from my portfolio.

Monte Carlo simulation, we're gonna tell a computer, "Hey, this is what investment returns were. "Now I want you to make up what investment returns "are gonna be in the future." And then do that maybe 1,000 or 10,000 times. How many of those times did the particular situation run out of money or have enough?

And that's gonna be a success rate, that is a Monte Carlo simulation. Christine Benz, who we'll get to chat with later, she used that in doing her research on sustainable spending in retirement. - John, can I make just a brief comment? - Yeah, no, please. - Out of the blue.

I'm just curious, this conference is named after John Bogle, a great man. I'm just curious how many out in the audience might have had a fortune enough to have met Mr. Bogle at some time? - Not too many, I just wanna say it's a privilege to be at a conference named after him.

I did meet him once. It was in my early years as an advisor, early '90s, I think, I got asked to join what Vanguard called their advisory council. And twice a year, we'd fly out to Valley Forge and we'd meet with the executives at Vanguard and we'd talk about items of mutual interest.

And one year, Mr. Bogle came out to talk with us and Mr. Bogle was my hero and still is a hero for me. He was an extraordinary individual and a very imposing individual. He was big and big boned and he had this magnificent voice. I mean, he probably could have put James Earl Jones out of business as Darth Vader if he wanted to.

He was powerful, but he was also a very kind man. And he answered my ignorant early year questions as an advisor with great consideration. And I just think it's wonderful you've named this organization as a conference after him because he is deserving, in my opinion, he was a titan and still is a titan of the financial world.

So privileged to speak at a conference named after him. - Wonderful. - Do we have some, okay, great. Thank you, Karen. All right, let's jump to another question from the BogleHeads community that we got from beforehand. This one is from Man of Clouds from BogleHeads Reddit and he asks about, I have traditional 401k, I've got a Roth IRA, I've got a plain vanilla taxable account.

What should I be thinking about with respect to distributions for the 4% rule across these different types of accounts? - Yeah, that's a good question. I assume in my research that you're probably gonna have one primary account for which you're gonna withdraw during retirement. And that's very important, whether it's a taxable or tax deferred or tax advantage count.

There are different withdrawal rates for each one. That's one of eight factors I looked at. I'm just finishing up a book on this whole thing. We're gonna take my whole 30 years of experience and put it out for the world to see. And that's one of the, what I call, one of the eight important elements to compute your withdrawal rate is knowing what type of account you have.

Withdrawal rates for taxable accounts are obviously less than they are for tax advantage accounts. But it depends upon the tax rate. In my book, I use what I call a computed average tax rate for your account. Then I'll have a chart showing you what the withdrawal rate would be.

It could be 10% less, could be 20% less or more than for a tax deferred account. - All right, so let's talk about how does the 4% rule apply to early retirees, folks who have a long retirement in front of them. - Sure, this is one of the eight factors in, which is planning horizon, essentially.

It's a very important issue. The so-called 4% rule applied to 30 years. For folks, let's say, who have very short retirements, let's say 10 years, you could get up to 8% or 9%. When you get to longer retirements, which I know a lot of folks are very interested in, 40 years, 50 years, or more, the retirement rate, let's say we were at 5%, starts to decline, but it kind of does so, somebody would use asymptotically, where it approaches a level of around 4.3%.

And this is a worst-case scenario. We're talking, once again, so that if you get out even 100 years or 150 years, you're gonna be about 4.3% or so. I don't know what the exact number is, but it's pretty close to that. So that, yes, the withdrawal rate is very sensitive to the time horizon that you use.

- So what withdrawal rate would you suggest for someone who has a long timeline in front of them? - What would I suggest here? Well, you know, I'd have to look at all the eight factors. In addition, that's just one of the eight factors. That's why I'm trying to get away from the use of the term rule, 4% rule.

Oh, I must admit, I'm a complete hypocrite in that regard, 'cause I recently changed my Arizona license plate to read Mr. 4%. (audience laughing) And part of the reason is because every time that I go to a hotel, park my car, they ask me for the license plate, which I could never remember.

Now I can remember my license plate when they ask it. - That's great, that's great. Thoughts on 3% as a distribution rate for early retirees. - I'm sorry? - Oh, what are your thoughts on a 3% distribution rate for early retirees? - 3% seems unnecessarily penurous. I think you're gonna find yourself late in retirement extremely wealthy with a lot of regret, in my opinion.

If you want to have a decent lifestyle, I don't know why you would want to necessarily spend it all unless you're very fearful about something that I'm, you know, I tend to be an optimist overall. I think we'll get through our situations, whatever we're facing, you know. I think 3% is overdoing it a bit.

I can't, you know, I run models. When somebody asked me a question, I said, well, what kind of combination of circumstances would it take to force somebody into a worst case 3%? It would take probably 20 years of 10% inflation and a 70% bear market. And we haven't seen that coming.

I hope we don't, you know. But that's kind of the thing it would take to force this into 3%, in my opinion, yeah. - So in your research, you looked at, original research rather, you looked at large cap and intermediate term treasuries for the portfolio. This question asks, when you do pay yourself, when you do make your distributions, should you sell equally across both stocks and bonds?

- Oh, rebalancing at the end of the year, which is another important factor. Generally, you will be selling off the assets who have outperformed, whether it be stocks or bonds, and, you know, then buying assets that have underperformed. And that has a beautiful, rebalancing, it's just so important in doing that in a portfolio.

I have some illustrations in my book. If you take a look at the seven asset classes I have and calculate an expected one-year return, I think you come out with around 8.5%, something like that. But if you look at the portfolios run over 50-year periods, compounding and rebalancing once a year, they average 10% a year.

That extra return is generated by the benefits of rebalancing, where you're naturally selling off assets that have done well and probably about to do less well, and buying assets that have probably done less well on average and about to do better. And it's amazing. And if we didn't have that rebalancing effect, we wouldn't be anywhere near 5%.

It'd probably be 1, 1.5% less. Then it would make sense to take out 3%, maybe, yeah. - So here's a good introductory question that asks a little bit more about sustainable distributions and retirement, and that is how inflation is taken into account into spending from your portfolio. So maybe since we've sort of skipped over that point, I'll let you talk a little bit about how inflation is computed into the sustainable distribution rate.

- Yeah, in my models, I use the CPI from tables over time. And we all know that that's a statistic that's widely available. But each individual probably has their own inflation rate. If you really want to get sophisticated, you might want to do your forecast and a determination withdrawal rate based on your personal rate of inflation.

Some people might have lower, some people might have higher due to a lot of things. Maybe some people, a mortgage is a big factor, a fixed mortgage, and it might be lower inflation rate. Some people might have very high medical costs, and they're facing high medical insurance rates. So yeah, inflation is very critical, and to a certain extent, it limits the applicability of my research because I'm using a standard figure which may not apply to everybody, but it's a starting point.

- And at the risk of maybe answering this question too, basically, but I want to make sure that it does get answered, we are going to assume that inflation is built into every successive year distribution. That's to say, if you've got a million dollar portfolio, let's say you're targeting 4%, first year you're going to take out 40,000, next year it's going to be 40,000 plus whatever inflation is for that year.

All right, if I am retiring right now, what spending percentage do you suggest? - That's a great question. Because I have this method where I use the current stock value evaluation, which is very high. By anything I look, whether you use the Shiller CAPE or you use Warren Buffett's stock market value to GDP.

And inflation is what you would call moderate, pretty close to the historical average of about 3%. And quite frankly, there is nothing in the historical record that really compares to this current situation. So I'm kind of on the horns of a dilemma being a historical researcher. So my instinct, if I was recommending to a person, I'd say, I don't think we're in a worst case situation.

I don't think we're anywhere near what happened in the 1970s where inflation was raging and stock market valuations were in the '60s were high and they came down quite a bit. But I would say if I'm recommending 5% as being a worst case, maybe 5.5%. In fact, 5.5% for the one, the individual retired in July of 2001, which is not a great time to retire 'cause he ran into a huge bear market.

You all remember the dot-com bust. That was, that retiree with 24 years of data, I think would have been able to withdraw 5.5% from a tax deferred account. The 2007 retiree before that 58% monster in 2007, not 5.25%, so I suspect we're probably in that class given the valuations we're at and the inflation level we're at.

Somewhere in the 5.25, 5.5% range would make sense to me. I don't think you need to go all the way down to five. - Okay. Yeah, one thing that really strikes me about using any sort of valuation metrics is that you just never know where valuations are gonna go in the future.

I think about a paper I did on doing dollar cost averaging. Yes or no, in light of valuations, the only conclusion I found is that, yes, you can do that. You can do a dollar cost averaging or lump sum investing given what valuations may be at the time, but there's no guarantee that high valuations won't go higher.

- That's true. They've done that in the past. No question. - Certainly one wrinkle in investing. - All right, what are your thoughts on some alternative withdrawal strategies? - Yeah, I've studied a number of those. I've looked at something called what I call a percentage of portfolio value where you basically take 5% of whatever your portfolio value is at the start of the year.

That's a very popular concept because when I first did my research, a lot of people thought that was how the 4% rule worked. You know, you would take 5% of every year and it took a while to get people understand. No, we kind of work more like social security, you know, where we're taking a figure and then giving ourselves a cola.

But in this method, we're taking a percentage 5%, let's say the portfolio each year. That works in some cases, if you're lucky enough to retire into a big bull market and it fails miserably in other cases. It's true, you'll never run out of money 'cause you're taking a percentage.

But, you know, if your portfolio drops to $1 in value, you're gonna get 20 cents for your next year withdrawal. That probably doesn't cut it for most folks, my understanding. So that's not an exciting option. I wouldn't recommend it. Another option I've studied closely is what I call the cliff method, where basically a retiree says, "Look, for the first 10 years of my retirement, "I'm gonna do a lot more traveling, "a lot of other exciting stuff.

"I need more money. "So I wanna take above the safe withdrawal rate "in my early years. "And then I wanna cut back after 10 years. "I have the discipline to cut back to whatever it takes "to put me back on the safe path." And that works just fine. You just have to recognize that the cliff going from the beginning, end of the 10th year into the 11th can be pretty steep.

And the friskier you get with your expenses early in retirement, if you say, "I wanna take 15 or 20% more on the safe level," the bigger that cliff is, it might be 30, 35% or more. It can work. You have to run the numbers and make sure you understand well ahead of time, this is what you'll be facing, and this is how you will have to need to operate and be realistic with yourself.

But there's no reason that can't work. I've looked at fixed annuity withdrawal rates with a little bit over 5%. And there are other variations. I'm still, there always seems to be something new, exciting for me to study. That's why I'm still doing this after 30 years, is people come up with ideas, they come up with a smile kind of a way.

You start with a high level of expenses and they decline your retirement, then they actually go up. I haven't looked at that in detail, so I can't give you an answer, but I'll be doing that soon. - I'm looking forward to it. - All right, it's an interesting question.

Some folks want to preserve the real value of their assets for the next generation, right? So given that, how would that change the withdrawal rate? What would be a sustainable withdrawal rate to preserve the real principle of their portfolio? - Okay, they want to retain 100% of the real value of their portfolio.

You can do that, and that's one of the eight factors I looked at, which is what I call legacy. Do you want to leave money to your heirs? Because in my original research, I assumed that with your last dying breath, after 30 years, you were going to go to a zero balance.

And most of us don't have that kind of timing, quite frankly, to figure that good. I don't know if I will, but it does sound highly improbable, which is I recommend people probably select a time planning horizon that's at least 10 years longer than they actually think that lives.

But all the plans that I develop, eventually end up running to 100% withdrawal rate at the end with a zero balance. If you specify that you want to have a balance, I've looked at those, it'll be in the book, have a chart showing, depending upon how much value you want left in your portfolio at the end of your retirement, to keep 100% of your portfolio value really a steep cut in withdrawal rate.

We're looking like going from 5% down probably into the twos somewhere. So it's steep. It can be done once again, you know? - Yeah, that certainly sounds right. All right. All right, if I plan to retire in a country other than the US, what sort of safe withdrawal rate should I plan to use?

- Oh, I think you can do 19%, no problem. (audience laughing) You know, that's a tough question 'cause I've been focusing primarily on US investors. I'm not xenophobic, it's just that there's so much work just in that area for me. I know Wade Fowler's done some work in that area and he's determined that the withdrawal rates would probably be lesser 'cause we've been fortunate.

You know, United States investors have had a great stock market and access to those kinds of investments for a long time. Not everyone has stock markets that perform as well or has access to those kinds of investments. So for me, that's a really tough question to answer. I'm gonna beg out on that if you don't mind.

I don't know. - Yeah, no, that's fine. You know, I think another way I look at this question isn't necessarily that I'm going to be investing internationally so much as I'm perhaps investing domestically but living abroad, right? And so that's a scenario. If you look at exchange rates and what the inflation-- - Local tax rates and so forth, yeah, what kind of account you have, yeah.

- Yeah, what the inflation would be in that other country. All right. Isn't it a disadvantage to rebalance given the recognition of taxes? - Well, obviously rebalancing, if you're using a taxable account and you're selling investments to rebalance, there'll be some consequence of that. But the importance of rebalancing is so great.

It adds so much value to the portfolio and your withdrawal rate. It overwhelms tax considerations in the computations I do. I look at that once again in the book. I look at different rebalancing periods. I found six to 12 as optimal, but there have been years where you could go 30 years without rebalancing and end up with a higher withdrawal rate.

It's very, very, it's unique. There aren't too many situations like that. They're all over the map. I just wouldn't count on you retiring into a period like that. I think the standard of practice of one year rebalancing or slightly less, I pretty well agree with based on my data.

- All right, we have another case study question. If I want to assume inflation is 3%, I'm 73 years old, what would be a safe withdrawal rate? - And what's the age? - 73. - Okay. I don't know. My research doesn't assume a particular inflation rate will be in the future.

We don't know. It's based on what's happened historically with a wide range of inflation rates. I mean, someone could do a calculation on a spreadsheet with that, but it's dangerous because if you're looking over a 30-year period, who knows what inflation will be? Who knows what returns will be?

Who knows what the economic environment will be? We could get an answer to that question and it'd probably be, you know, but it'd be using today's inflation regime, today's stock market valuations because that we know fairly certainly. That question really is one for Nostradamus, not for me. - Yeah, certainly to your point, at least with respect to assuming living 10 years longer than you would guess, using 30-year data, 73-year-old, that could be a relatively conservative way to look at that.

All right, here's a fun one. What method of withdrawal you use for your own retirement? - Oh, that's a good question. I retired in 2013 and at that time, four and a half percent was the worst case. So I said, let's do the worst case, you know, and I've been fortunate that I retired into a nice bull market that's gone on for a number of years.

So if you look at my current withdrawal rate, you can calculate, it's quite a bit less than four and a half percent now. So I'm a very happy person, you know, in that regard, it's worked out nicely. I still think we got some kind of ugly bear market lurking somewhere in the not so distant future, but things have gone well enough here the first 10 years that, you know, midterm bear markets are not as devastating as an early bear market, you know.

- Yeah, and given that you've had so much success investing early on in your retirement and that's where all the risk is, it's the beginning of retirement, it's that sequence risk, have you adjusted your distribution rate? Have you increased it given the lucky outset of your retirement investing experience?

- Well, you know, what I try to do, I haven't actually made much adjustments, but I've tried to increase the amount of money I give my children. That's why, you know, some people will say your expenses will go down in retirement. I haven't seen that because I treat my gifting to my children as an expense.

And so I keep that up as high as it is. It keeps my expenses basically growing pretty much with inflation on a steady basis. - Now that bond yields are higher, how has that impacted your research? What does that mean for sustainable spending now that bonds are paying higher interest rates?

- Well, I'm glad to see them there. You know, for years we had the TINA condition. There are no alternative to stocks, which was absolutely nuts. Now there is an alternative, and we're approaching more closely to an historically average situation. So I'd say, since I'm a historical researcher, it increases my confidence in my current forecast, you know, using my methodology.

It's good to see. We'll see what happens, you know, to bond yields in coming years. Summer forecast in the 10 year could go down into the twos again. I don't know. Once again, that's not my job to forecast the future. I have a hard enough time studying the past.

But it's reassuring to get back there to a more normal situation. - Absolutely. Another interesting case study. What if you're retiring into ongoing health issues? Any thoughts or recommendations in that situation? - Okay, I'm sorry. - Oh, retiring with ongoing health issues. So I'm assuming lots of high medical expenses.

- Sure. - How does that impact distribution planning in retirement? - Well, it means your expenses potentially, you're going to then, it's really a budgeting scene more of a drawl issue. I mean, my job is to figure out the most you can get out of your retirement accounts safely, you know, without taking unnecessary risk.

If you have an unusual situation in terms of your expenses, that's going to have to be dealt pretty much on the expense side, because portfolio can only stand so much, no matter what your physical condition is, you know. Portfolio doesn't care. It's going to do what it's going to do.

And hopefully, closely follow historical, you know, patterns. - Yeah, it's really an issue of how terminal, right, the health issue is. Is it something that's chronic on ongoing? Am I going to have those expenses for a long time? Or is it going to be more short-lived and very expensive?

- That's right. And then it becomes a planning horizon issue. - This question also from Boglehead's Reddit, from username Buffanita. This one asks about if retirement is a long time away for them in the future, what sort of thoughts or considerations should they be giving to the research that they're coming across now versus weighing that against future research?

How seriously should they take the 4% rule, the Trinity study, et cetera, for something that may come out when they actually are ready to retire? - So that's an interesting situation where people perhaps with 30 years to retirement are wondering whether or not the research I've done will still be applicable in the future.

That's really a very tough question to answer. To a certain extent, there are a lot of underlying assumptions to my research, is one is that markets will behave pretty much the same as they have in the past, that the U.S. economy will behave pretty much as it has in the past.

I've seen some people who feel that the U.S. growth rate, the GDP, well, there we are, that was not predictable. (audience laughing) - I guess that was our five-minute warning. - As usual, I find myself in the dark, and that does raise a lot of tough questions that I don't know how to answer other than I suspect the United States will continue to be a powerful engine of growth for a long time into the future, and that we may slow down a little bit our growth rate for demographic reasons or for other considerations, but I wouldn't necessarily have a pessimistic view about the future, at least neutral, and I think it's even happier to be optimistic, so I'd be an optimist.

- Yeah, I think with respect to considering your research, looking at what has worked in the past for spending sustainably in retirement, that worst case, October '68, that period of high inflation, that's where we get that 4% guideline, so if there is worse performance over the next 30 years, that was just a lower level of spending than that, but absent that, 4% would still, or 4% higher given the additional other asset classes.

- Yeah, and you know, it's possible. I'm never gonna claim that the current levels, historical precedents, are gonna last forever, 'cause we know they haven't, because they changed in 1968. Prior to 1968, there was a higher withdrawal rate, you know, it would've been, and if you look at the very start, you know, 1926, it was around 5 3/4, 6%, and then the Great Depression brought that down, and then World War II, and things, and so gradually, we went from like about 6% down to about 5%, and it could happen.

We could enter a period of history where some terrible things could happen, and you'll end up with a new worst case scenario. I fully admit that, but I had, you know, this current one's lasted for 50 years, which is the longest time any withdrawal, worst case withdrawal rate has lasted in the last 100, so hopefully we get a few more years out of it, decades.

- Yeah, we'll certainly know 30 years from now. - Yeah. - All right. What role did dividends play in your research? - I don't specifically isolate dividends. You know, basically, my research is based on a total return basis, where your portfolio earns interest, and dividends, and capital appreciation, and if it's a taxable portfolio, you know, we're gonna tax them differently, but if it's a tax-deferred portfolio, they're all kind of lumped together, and just basically grows your portfolio on a total basis.

I know some folks like high-dividend stocks, and from the perspective of my research, it really doesn't make too much difference, but I can see a positive. The hardest thing when you establish an investment plan is sticking with it, particularly when the big bear market comes, and if dividend-paying stocks continue to pay good dividends, they're a bear market, and give an investor a sense of security, and less panic, because they're still earning some dividend.

I think that's a plus for that particular strategy. If it can keep you on your plan, you know, I'd go for it. - We've got a couple minutes left. Tell us about some of the newer asset classes that you've added to your research. Certainly, we started with the S&P 500, intermediary from treasuries.

What are those other asset classes that you shunned? - Yeah, I started out with, of course, just two asset classes, U.S. large-cap stocks, and U.S. intermediate-term government bonds, and I added 2006, I added U.S. small-cap stocks, and then I added, and recently, several years ago, I added international stocks, I added U.S.

micro-cap stocks, U.S. mid-cap stocks, and treasury bills as a cash surrogate. And I wonder, and those, of course, elevated the portfolio. I suspect, you know, because I didn't get that large a bump when I added those four asset classes recently, they were probably approaching diminishing returns. There are other asset classes that we could use.

We could use REITs, commodities, we could use gold, alternatives, I suspect, though, that the correlations between the assets are gonna become more difficult to be advantageous in that you're gonna find that we may get 5.1, 5.2, but we're probably getting pretty close to the limits of what we can get with a diversified portfolio.

- Did each of those sub-asset classes add to the distribution rate? - I didn't, you know, that's an interesting question. I didn't try to add them one at a time and see what the effect was. I added them as a lump, you know, 'cause I was trying to replicate what most investors would use, a well-diversified portfolio.

- Okay. - Yeah. - Yeah, I wonder if bills were a little bit of a drag. - Yeah. I'll add that to my list, though. Thank you, John. One more thing to do. - Happy to add to your list. Well, folks, that is gonna be it. That is the end of our interview with Bill Bang, and he will be returning in a couple hours to rumble with Christine Benz and Carson Jeske for our withdrawal rate rumble in a couple hours.

Back here in the big room when we merge it all together. We'll see you there soon. - Knives out. (audience applauding) - Thank you all. (audience applauding) you you