BiggerPockets Money Podcast - 4% Rule Creator Bill Bengen Reveals His NEW 5% Retirement Strategy

Episode Date: June 6, 2025

The 4% rule just got a major update! Bill Bengen, the creator of the famous 4% withdrawal rule, returns to share his latest research that's changing retirement planning forever. Welcome back to the BiggerPockets Money podcast! Discover why he's now recommending a 4.7% withdrawal rate and what this means for YOUR retirement strategy. In this episode, you'll learn: Why Bill Bengen updated his iconic 4% rule after decades of research The psychology behind why retirees struggle to actually spend their money How market conditions should influence your withdrawal strategy The role real estate plays in a well-diversified retirement portfolio Active vs. passive management strategies for retirees How younger retirees should approach their investment timeline differently Why protecting your principal matters more than maximizing returns The importance of controlling expenses and finding purpose beyond money And SO Much More! Whether you're planning for retirement or already retired, this conversation will reshape how you think about withdrawal rates, portfolio management, and creating a sustainable financial future. Learn more about your ad choices. Visit megaphone.fm/adchoices

You have followed the 4% rule for years. You've stayed diligently and you've dreamed about that early retirement. But what if everything you knew about the fire movement just changed? Today, we're joined by Bill Bangan, the Bill Bangan, the original 4% rule study author. And we are going to be talking about the 5% rule. So what does this mean for your retirement date, your withdrawal strategy, or your entire financial future? That's what we'll be to be discussing. discussing today. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen, and with me as always is my 4% rule enthusiast, co-host Scott Trench. Thanks, Mindy, great to be here, and I couldn't be more excited to withdraw some really intense knowledge from a man with the legend

himself, Bill Bangin. Bigger Pockets has the goal of creating one million millionaires. You're in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone no matter when or where you're starting. And might be a little sooner than you think. We are so excited to be once again joined by Bill Bing and today to talk about the 5% rule and his new book that will be released in August, a richer retirement, supercharging the 4% rule to spend more and enjoy more. Bill, welcome back to the Bigger Pockets Money podcast. Pleasure to be back here again. Thanks for having me. I'm so excited to talk to you, Bill. Huge fan, huge fan of your work, love your original study

and cannot wait to read this new book. As a reference, fresher for our audience who may not know when did you create the 4% rule and why? I wrote an article for the Journal of Financial Planning back in October of 1994, which was the first work I'd done on the subject. And my goal in writing that was to find out very simply looking back at history, which was the unlucky retiree who was forced to retire with the smallest withdrawal amount. Somebody who ran into a buzzfall of bad market conditions and high inflation. It turned out that was the October 1968 retiree, who, you know, the 70s was a terrible

period for investing and it's reflected in the withdrawal rate. Tom, I wrote the article. I only used two investments. I use large company U.S. stocks. I use five-year U.S. government bonds, and those two yielded a withdrawal rate of four-point at 1.5% for this individual. That's the most they could have taken out to have their money last for 30 years withdrawing from a text to for an account. I actually didn't call it a rule in that paper. And I was kind of surprised when after it started circulating, I saw a newspaper

articles about the 4% rule or the Bingen rule. I was saying, wait, wait, what is this? But eventually I decided I wasn't going to fight City Halls, but I've adopted that. But it's really important that people understand that the original 4% rule, which I've upgraded now to 4.7% is really the worst case in history. My database goes back 100 years. I studied 400 retirees in a period of time, and only one of them was stuck with that awful low rate of 4.7%. All the rest could take out higher, many much higher. So when you use that rule, make sure that you know what you're doing. It's ultra-conservative, and you probably can do better off with a higher withdrawal rate today.

Bill, remind us what the allocation between stocks and bonds are for this rule? Fixed allocation during retirement of about 60% overall stocks, about 35% – well, actually, in the book, I use 55% stocks, 40% bonds, and 5% treasury bills are cash or money market funds. They're all roughly the same thing. Got it. Okay. So this does assume that allocation here. And then remind us what the big, you know, we had 4.1%. Could you just give us another layer of depth on what your updated research has uncovered that has moved that to an updated 5% or 4.7%? Excuse me. Rule.

Yeah, nothing's changed in the outside world. It's all on the Bill Banging world, so to speak. I've made my research more sophisticated. I've increased a number of investments from two to seven. I've included international stock. I've included treasury bills. I've included some other classes of U.S. stocks like microcap stocks, small cap stocks. All these investments increase the diversification of the portfolio and increased the returns. That's one of the free lunches investors have by using diversification. Very, very important. And they bumped up the withdrawal rate.

But it appears to me that the last round of increases I got was really small. I added four investments and got only at two percent. two-tenths of one percent pump in the withdrawal rate. So we're probably approaching a natural limit of sorts beyond which adding additional classes like gold or real estate or emerging markets, commodities probably won't weave the needle much. Got it. What is that new allocation? So we have 55% stocks, 40% bonds, 5% treasury bills for the old 4.1 or 4% rule. And for the new one, what does that allocation look like? Actually, the original, maybe I misspoke. The original was probably closer to 60 to 65% stocks, the new allocation for the more de-a-fired portfolio

actually lets you use a lower allocation to stocks, like 55%. And that creates a less volatile portfolio, which is an additional benefit. Interesting. Walk us through maybe some other observations on this. One would one conjecture. Does this reduce the volatility of the portfolio? it probably also narrows the range of outcomes in terms of terminal wealth at the end of 30 years, one would suppose with less of an allocation to stocks as well in that front. Do you find anything interesting like that as you updated this rule if you used the 4.7% or 5% rule? There weren't too many changes from the euros, at least not dramatic changes, but I came to the same conclusion that if you go below the ideal allocation,

the ideal allocation is somewhere between 45 and 70 some percent stock. If you stay in that range, you end up with about the same withdrawal rate, 4.7%. It doesn't matter, which is, I think, quite interesting. But if you get brave and you use a higher allocation of stocks, I'd say 80%, you actually penalize yourself. You reduce the withdrawal rate because when you run into a bad bad market, it really chews up the portfolio with a high percentage of stocks. On the other end, if you use a very low percentage of stocks and a high percentage of bonds, the portfolio just doesn't have enough oom to generate the returns necessarily.

to get a decent grow rate. So that also, so you kind of think of a chart, it looks like a mesa where it falls off sharply on both sides, and you have a nice flat spot in the middle, which is anywhere in that middle spot, you're okay. And for that stock portfolio, walk us through what the allocation to U.S. versus international stocks would look like in the updated rule. Sure. I had, the most recent portfolio I've used has five classes of stocks, four from the United States, which includes large company, mid-company, micro-company, small-company stocks, and also an allocation to international stocks. And each of those five asset classes, for the 4.7% rule are allocated equally. So if we have 55% overall, and five stock classes,

each one has about 11%. And then the bonds get 40% and cash gets 5%. Awesome. So super simple there. And this is all detailed in the book, of course, for folks who want to really get into the theory and understand that those allocations in there and really internalize the why behind this. Is that right? That's right. And could I add one more point? I wanted to make, this is another free lunch I've identified. There are four free lunches I've identified by research in the book. And one of them is if you, the highest returning acid classes are U.S. small cap stocks and U.S. microcap stocks. They're around 12 percent versus. let's say 10% for the other ones. If you slightly tilt your portfolio toward those asset classes, I'm not saying a major shift, maybe go from 11% to 13%

and reduce the other stock allocations, acid classes accordingly. That will give you a worthwhile bump in your withdrawal rate. It'll knock you from 4.7 to almost 5%. So there's another free lunch. You can add to higher withdrawal rate without taking any additional risk,

which is what I'm always looking for. We have to take a quick ad break, but while we're away, we'd like to ask you to head on over to YouTube to subscribe to our channel. That's YouTube.com slash bigger pockets money. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going. And more importantly, where your tax refund can make the biggest impact.

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Audible has been indispensable for me over 10 years. kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. Welcome back to the show. Okay, Bill, your original research was for traditional aged retirees and had a 30-year retirement timeline. Does your advice change for people who are retiring earlier and have a longer timeline? Yes, the timeline, the length of planning horizon, very, very important. along of the planning horizon, the lower the withdrawal rate. Up to a certain point, as it turns out, if you get out to very, very long time horizons,

like 50 years or 60 years, let's say you're going to retire at age 18 or something like that. You've got an early billionaire. It actually hits a floor, and it doesn't go below that. So 4.7% is for the 30 year for very, very long horizons, let's say, 60, 70 years. it drops down to about 4.1% and doesn't go below that. Awesome. So the 4% rules a great floor with this portfolio, right? This assumes that you have this allocation that you've discussed here.

That's correct. For early retirees, the people in the fire community who are most likely listening to this podcast. That's awesome. And that's been, I think, a major point of debate in the community is how does that work on a perpetual basis? But yeah, the math between 30-year time horizons and infinity is not that different. So I'm not surprised that it still works within 60. tens of a percentage point on your withdrawal rate.

Walk us through one of the items I think that might be on someone's mind is, okay, this, that's is awesome, right? I can retire earlier than I thought. But when you think about the, like, and again, the audience listening to this will be somebody who is trying to retire early, like in their 30s, 40s, 50s, and they have a little bit longer time horizon. There's a temptation to be very aggressive with your portfolio while you're building towards this number, right?

let's say I need $2.5 million to retire at this number and withdraw 4.7 or 5% here. And I want to be all in stocks for as much of that accumulation period as I possibly can because that tends to perform better than bonds on average while I'm building towards this number. How do you think about that flip? When is it time to begin the shift towards this allocation that can actually sustain retirement? And do you think there should be a – should I start from the beginning? Should I flip it a couple years in advance? Should it be at the last moment?

How do you think about that for folks planning on this? I like the idea of being heavy in stocks during the accumulation phase when you're trying to build your wealth because you want to build it as fast and as large as possible. I think when you get within five years of retirement, it's time to reassess where you are. You want to take a look at the market. You want to take a look at valuations. What are the likelihood in the next few years of having a major bare market that might, you know, lop half off your portfolio, which, you know, would be very, very painful. And perhaps get more conservative,

start getting more conservative, starting to approach maybe the ideal 60, 40, or 55, 4545, portfolio I've outlined in my book. Got it. So five years before, start making those moves and gradually move in there by the, by the last few years. That's right. I think that's a reasonable time period. You want to get as much as you can in the growth phase, but you've got to Leave yourself from margin of error. So when you make the transition, you know, you don't have an accident. Bill, one of the things that we've found in the community is, you know, if we poll our audience that I think I'm this way too, I'm going to have a lot of trouble actually selling off equity positions, harvesting the principle, spending that on fun and trips here in my 30s or 40s as a early retiree or aspiring early retiree. I'm going to have a lot of trouble doing that.

I want to spend a portion of the cash flow generated by my portfolio. And this is apparently a common theme in financial planning for savers, really hard to make that pivot or switch. Do you have any thoughts into that psychological problem and how to bridge that? If I understand the 4% rule, I agree with your research. The math is there. The research is there. I trust it.

I just can't bring myself to actually harvest principle. How would that change things for you as a planner? Yeah, that's a fair question. because I use what's called a total return approach where withdrawals are funded by all the investment results, including capital appreciation. So there are times when you will be selling off a portion of your stocks. In good years, you may not.

You may get so much growth in your portfolio. You can live off the cash flow. It's just a little difficult, particularly in this environment, to generate, let's say we want to start out, we get into a more favorable situation where I determine you can take out 6% or 6.5% in your portfolio instead of the 4.7. It's hard to create a portfolio where you can generate on today that kind of income from just dividends and yields and interest. Wouldn't you agree? Absolutely. It's really difficult to do that. It seems tough today to do that. So you're going to have to get into the appreciation.

I think what you have to do is trust history, trust what's happened. You know, I've been through this for 30 years that I've seen. It's pretty dependable, pretty dependable place. The stock market occasionally has these big declines, but it gets by them. It goes on and builds new wealth. And as long as we can trust that process, I think you're okay. And I hate to see people enjoy life less than they could by following a philosophy that may be too conservative. Got it. So that the answer is get over that. If that's a blocker T is, you get like harvesting principle. I saw a great analysis of this the other day. I think it was on Reddit or something like that. But it was like, look, the harvesting the appreciation, a lot of these companies

reinvest their cash flows or are not distributing the dividends because it's tax inefficient on there. That's still going in to the equity value of a stock portfolio into a large degree. In fact, the majority of those cash flows are probably being reinvested in a lot of ways into these companies. And harvesting that is not actually reducing your wealth. It's just harvesting tiny portions of that cash flow in a more tax-efficient way, so that was put. And I think that's kind of what you're saying. That's another way of putting, I think, some of the things you're saying here. I know a lot of the fire folks, you know, been using that number of 4%, you know,

from a tax deferred account for a very, very long time horizon. But in this environment, for 30-year horizon, I think 5-a-quarter to 5.5% is reasonably a reasonable thing to take out based on inflation and market valuation. So I would think a person, fireperson retiring today would, let's say, a 60-year horizon, could probably do more like 4.5 to 4.6%. And that's a big increase from 4. That's a significant increase in lifestyle. So I want to make sure they understand that. It's much better today than it was in the 70s. Now, does that allocation of those rules ever change with market valuations relative to earnings, for example, in the stock market relative to interest yields on debt?

Like if interest yields skyrocketed to 15, 18 percent, would that change this optimal portfolio that you're discussing here for this person in terms of their withdrawal rate? Something like that would definitely have a bad effect on the stock market, as they did in the 70s, higher interest rates. So you might want to make your portfolio a little bit more toward the conservative end instead of, you know, having a 60% go down to the 50% or 47% of the stocks. But it's really hard to predict for me what would happen in that kind of environment. Other than they would be ugly for people who are trying to keep up with inflation because high interest rates means high inflation and that means increasing withdrawal very rapidly.

I don't think any of us can predict the future. I was just wondering if we were in the 70s, for example, or the 80s and interest rates were that high, would the optimal allocation have changed at that point? Would you be saying, hey, you should be heavy in bonds right now because yields are so high on this, would that have changed this at all? Actually, this 60-40 works well, the best for the worst-case scenario, and that if you were lucky enough to retire into a, a rate, bull market, let's say you retired in 1982, you could probably put 80, 90% of your money in stocks if you were bold enough to do so and write it through retirement. You know, because you've got a huge tailwind of returns. It sounds a little risky and it probably is, but if you look at the numbers, that's what happened. People who retired into a bull market could use more aggressive allocations and those who retired into a bank. market, or less favorable, favorable, favorable, favorable, favorable, favorable, favorable, favorable

conservative in their allocation. Bill, how frequently would you rebalance your portfolio or recommend someone to rebalance their portfolio? Let's say they're in this bare market and they wanted to be 60, 40 stocks, bonds, but then the stocks just went crazy. Do you rebalance frequently? Yeah, I think anywhere between six months to a year in my book, I have a whole chapter devoted to that particular topic.

It's a very interesting topic because overall, for the first. retirees, it's not that big a deal. Believe it or not, rebalancing is not. Except in certain cases, it becomes very, very important. If you're, for example, start your retirement in 1982, you don't want to rebalance for a long time because you've got this bull market for 20 years in stocks. You just want to let that run. On the other hand, if you retire, you know, in 1968, you're just facing two big bear markets back to back, and you want to rebalance every 15 minutes if you can't. It seems like that.

So in general, I think as a general rule, since with no one is sure where we are, six months to a year frequency, I recommend based on the research shutdown. Bill, one of the problems, I think a challenge that a lot of people have, myself included, is bonds, the bond allocation, because the yield. are so low. And, you know, for someone who's not, not, who's trying to retire early, for example, by definition, you just haven't had the decades to build up a big portfolio in a tax-advantaged account, like a 401k or a Roth. So it's just simple interest for the portion of that yield that's paid out in a lot of cases on that. So, you know, if you're in, if you're in a reasonably high income tax bracket, especially approaching that, that's, that's, that's, that's, that's, that's, that's cutting your yield by 30, 40%, depending on, on where you're at personally or what state you live in.

I also think that, you know, from one of the challenges with bonds for me is they don't preserve the principal value relative to inflation. So it's all on the cash flow component. And it's kind of a bet on rates coming down fundamentally, which is a great hedge for the portfolio. You want that in the 1968 portfolio situation, right, on there. Sorry, it's a bet against bad market conditions. Excuse me. But real estate, you know, we're a real estate platform here at Bigger Pockets. and I'm a real estate investor.

And when I think of a paid off rental property, forget leverage and all this other kind of stuff, just a paid off rental property, I view it as a inflation adjusted store of value and an inflation adjusted income stream that will wax and wane. It's some work on there. But for me, I've replaced bonds to a large degree in my portfolio with this kind of concept and just plan to pay off the properties and let them rip and ride there. have you done any exploration of real estate? And if so or if not, do you have any reaction to that philosophy that I have? No, you know, it seems to make sense to me. I understand. I haven't done any definitive research because I can't find databases that have, you know,

detailed data going back 100 years representing actual returns on that. And you come across something like that. I'd love to because I'd like to integrate it to my research. But, yeah, bonds are. awful until you need them, you know, basically, which is basically in a bare market. And then you're very, very happy you have them. I know back in 2008 and 2000 and 73, 74, people were very, very happy they had their bonds because the world was collapsing around them in equities, you know. But yeah, when it's not a, when it's a stock bull market, you just go,

wow, why do I have these things? Yeah. And when bond yielded, are super low, right? Like if we were to go back four or five years ago, would that change your mind as well in terms of the bond allocation if they were truly basically zero percent interest rate environment in that situation? That was a really painful period of time. I'm pressing at it, you know? So it's so recent, in fact, that I can't even make sense out of it for my examination of the historical record because we haven't seen 15, 20 years from that time. What was the impact, you know, on withdrawal rate? So I'm hoping. a living long enough to get answers to the questions, you know.

Awesome. Well, in that case, I'll also ask, how about Bitcoin? I think, you know, just a personal opinion, Bitcoin makes sense as part of a diversified portfolio. You know, I know some people like Charlie Munger didn't like them at all, but there are other people whose opinion I respect who think it's a legitimate investment. And I've got a small portion of my, like 1% of my portfolio on Bitcoin. Love it.

Do you include gold or other? other of those types of things in that cash. Would you put that in like the 5% cash or money market section of the portfolio? Or how would you think about sprinkling those in? I would just quote that. If you think of 60% of portfolios and growth investments, including stocks and real estate and gold commodities, things that can fluctuate and value very substantially and don't necessarily produce any income.

Some do. Some don't. Real estate does, obviously. But yet gold, I think, is essential today. And we'll probably will be for a time. I don't know what we're going to get out of this deficit spending syndrome around the world with huge debt. But as long as that remains, I think gold would be very good. So I guess that's a question that I would love to follow up with in here is you outline this portfolio of 55% stocks, 40% bonds, 5% T bills or cash equivalents in there.

What does your portfolio personally mirror that or do you deviate from that? Because this is a research back portfolio. It may not be the optimal portfolio, right? Sure. I used to be what you call a passive investor, a buy and hold investor. And then 20 years ago, the central bank started playing with monetary supplies and with interest rates and trying to affect equity markets. And we started getting these really large bear markets, you know, 2000, 2008, and gosh knows what the next one will be. And once I retired, I decided I didn't want my portfolio.

portfolio to be subject to the kind of declines people saw in 2008 when they're fully exposed to stock. So I've become an active manager and I rely on a third-party service to guide me to adjust my equity allocation to their perception of risk in the stock market. And right now, the service I use is recommending roughly keep about 50% of what you normally have in the stock market. So if your normal allocation is 60, you're saying keep 30 and keep the rest of that allocation in cash, treasury bills and so forth. And that's worked pretty well for me. I mean, this recent decline didn't bother me at all. I think I got like a one and a half percent loss at worth and my portfolio is at all-time highs right now, even though the market is not. So I think

for retirees, you've got to protect your nest egg. I would not. be a buy and hold investor retirement. It makes sense in the accumulation phase, but not during the retirement phase. It's just my personal opinion. I was going to say, does that advice change based on the age of the retiree? Because a large portion of our listeners are retiring in their 40s and early 50s.

Would you still consider that to be advice that they should take? Once you cross the Rubicon, you become a full-fledged retiree, yes. It does because your nest is your nest egg, depending upon it, to generate a certain level of income, perhaps for many years, you have to protect it. Well, if it drops below a certain threshold, it loses its ability to generate the income you need. This is our final ad break. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening.

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And we'll be back with more right after this. Thanks for sticking with us. I guess the question I think about it would be in a lot of people's minds. It's certainly on mine here is, and look, I agree with you. I read all the research. I have all this, the optimal portfolio allocations. My portfolio currently today, I have made this change in February is about 30% real estate, 30% cash, 30% stocks, 10% bonds. And that's a big change from having it in 75, 80% stocks through the end of last year in there with the real estate allocation. With the rest, with the, with the, the, remaining portion being mostly in real estate. It was very aggressive in my retirement accounts, and I made that change as well to something more like what you just described. That seemed like a good move about two months ago, and then the market has completely rebounded, essentially, to where it was in February at the beginning of the year at this point here. But how do you, how do you think about, how do you marry the fact that you are the pioneer of this research? You've done all of the work. You have all the historical data sets. You've written the rule. You're cited

constantly with these portfolios, and yours is different from that, from that. portfolio that's in your book. Well, I explain that in the book. I devote us checks into risk management. You know, what I do is not what I consider market timing. A lot of people poo-poo the whole thing because that's market timing never works. Well, market timing for me is trying to sell everything at the bottom or sell everything at the top and buy at the bottom. No one in God's creation has been successful doing that over multiple market cycles. To me, it makes a lot more sense to use the third party, you know, who has the expertise and experience and track record of preserving capital. That's what the name of the game is, in hospital and retirement.

So my original research was based upon buy and hold. It's an easiest way to analyze because it's very hard to analyze a portfolio if you're not doing buy and hold because, you know, what are the parameters you using for changing the level of stocks? But just because I did most of my analysis and that does not mean I preclude advising folks to look at alternative ways of managing a portfolio to improve the safety, lower the risks that they face in retirement. It's really something I take out of the personal campaign, you know, that buying hold is not the best for retirees. So we've been following your original research and we call it the 4% rule.

How should we flip? How should we implement now the 5% rule? Does that mean that we have to save less money? Or does that mean that we could just spend more? I guess both. And in fact, yeah, you need a smaller nest egg than I estimated before. And you'll take out at a higher rate. So that it's a nice situation, less stress during accumulation and more fun during retirement.

I got an interesting one that you may not have ever gotten before. Maybe you have on this. But let's use the original 4% rule. We can use the 5% rule as well on this. But let's say we have, I want to walk through some funky math that I've observed with respect to retirement and mortgages in here. Because the mortgage, many people, for example, in our community will have 25 years left on a mortgage, many of them refinanced in 2020, 2021 in the low interest rate environment.

And if you have a low interest rate mortgage, I'll say, you know, 4.5% on a $320,000 loan balance, right? Let's say have that remaining. You're paying $1,600 a month. $1,600 times $12,000, $19,200. To fund $19,200 at the 4% rule you'd need, let me do this math here, divided by 0.04. 480,000. But you have $320,000 left on your mortgage on that front. So I've kind of come to the conclusion that if you're one of these followers of the 4% rule and your research bill, that you ought to pay off the mortgage in that situation because it will actually accelerate this inflection point that the math shows in your portfolio.

And you would change that, of course, to 4.7 or 5% now with the updated research. But what's your reaction to that phenomenon and my observation of it? Yeah. It's not part of my research. I want to let you know my research focus is so narrow. I'm in a little corner of a very large room, you know, working by myself, but a lot of the folks are looking at other interesting issues like you just raised. But my own instinct is to agree with you that you probably want to get rid of that mortgage,

if you can, before you get into retirement. Yeah, and I think it's just the observation of that the 4% rule, the research is so exhaustive. It just covers all of these scenarios, including the worst cases in history. And the mortgage is just a fixed, unrelenting obligation that you have to pay every month. And so that's why, even at lower interest rates than the 4% rule, I think that would actually be true at 3% as well. You actually need a larger asset base than your mortgage balance to a... Of course, unless we got into a very inflation and environment, you've got a fixed rate mortgage that's at 7% and inflation is at 8 or 9. I don't know. Maybe it's better off to stay in the mortgage. I don't know.

I think the paradox is that in most cases it'd be better to keep that mortgage in place for 30 years. Yeah, that's right. portfolio, but you just, it wouldn't comply with the 4% rule. You wouldn't be, you wouldn't be covering your, you wouldn't be sure or as close to shore as the historical data lets us be, that you could sustain your payments and your lifestyle on the way you want. Yeah, debt always introduce an element of risk in the portfolio, and in those life situations. You have to beware of that. The debt is not necessarily evil or bad, but it's risky and technically retirees.

So I have opted to keep my mortgage, even though I could pay it off, because my feeling is I can take that chunk of money and put it into the stock market and make more than I would, like, I can pay my mortgage based on like that money. I could pay my mortgage and still have stuff left over. Okay. Well, let me ask your question. What would you estimate would be prospective returns for U.S. stocks over the next 10 years? Do you have an idea what that might in your mind? based on current valuations? Because I see estimates anywhere from plus 2 to minus 5% a year, compounded annually for 10 years. That usually includes a bare market which distorts things. I'm not sure over the next 10, 12 years, that logic will work out for you.

I suspect that the returns we're on stocks will be a lot less than interest you're paying on your mortgage. In a normal situation, if we had normal stock valuations, yeah, that logic might apply, we're nosebleed levels right now, evaluation. We also have been trying to have a recession for the last 10 years and nothing sticks. We had a global pandemic and the stock market was like, oh, we're going to tank. Oh, wait, no, we're not.

And they're back. What was it like a six month, six month downfall? We just did tariffs and that lasted a month. We're trying so hard to tank the economy and it's just not happening. I guess we're just not trying hard enough, huh? No, my view of that is that we're in a very unnatural period of time, that the United States government and a lot of other governments are running enormous deficits. You know, for an economic theory, when governments run deficits,

that money pours into other sectors of the economy and inflates corporate profits and growth rates. The problem is how long can we continue to do that? I don't think, you know, that much longer. I could be wrong. Maybe we're going to do this for another 30 years. I hate to think where we'd be at the end of 30 years. But we're in a very unnatural and unstable situation with respect to our deficit spending, which is keeping us, I think, out of recession.

So that when that of everly comes to an end, well, I'm not sure I want to be looking out over the landscape. The millennials will bail us out. Oh, yeah, that's nice. Yeah, they're good, they're good folks. We love them. That's super interesting here. What is the driver, in your view, of those forecasts of two to negative 5% total stock market returns over the next 10 years? Is it the threat of recession in government spending? Is it price to earnings ratios? What is it that you think is driving? It's just a historical relationship between stock market valuation and subsequent returns. That's been well established over many years when you get to very- Is that stock market? market valuation in absolute terms or relative to its earnings in a given year? It's a P.E. ratio. Let's say you're familiar with Schiller sickly adjusted P.E.

ratio. That's a number I use frequently in my research. That's now at around 36, 37. Historically, its average is around 17. So the U.S. stock market from that metric is about double its normal evaluation, and it is from a lot of others. Warren Buffett's favorite indicator the market valuation of the GDP. A lot of things are in the camera, were very overvalued. And when you look through history and you get to those levels

and there aren't been too many times we've gotten as high, the stock market performs very poorly for the subsequent decade or more afterwards. But it's not a forecast because I don't forecast. That's not no good at that. Yeah, but you do move your personal portfolio in relation to this analysis in there.

And I do too. And I think that that's the fascinating thing is there's all this research, there's all this stuff that goes on. And you are managing your portfolio in relation to some of these items here in these metrics and in response to interest rates and price to earnings ratios as they move over time. Take a look at Warren Buffett's Berkshire Hathaway portfolio. He's got $350 billion in cash. That's the largest balance. It's still only about 35 percent or 40 percent maybe of his overall. So he still has a lot in a stock market, and he always will.

But, you know, that is a lot of buying power, you know. That's when the time comes, when the market bottoms, that cash is what's going to pull us back up into a new bull market. You want to be, it's important to, you know, prepare yourself in a bear market and get to serve. But it's equally important to take advantage of a new bull market and get in back in as soon as you get. And that's why I use that service, because my timing was rotten. Theirs is much better than mine. And they, you know, make it takes the emotion.

I have to take the emotion. It's so easy to get emotionally involved in the stock market. Are you friends with Robert Schiller and some of these folks that you've mentioned here? Have you met them in your career? No, I never have. I wish I had. I really admire him of the work he's done. I've emailed him a couple of times at his Yale email, and he has not responded to come

on the Bigger Pockets Money podcast. If anyone listening knows Robert Schiller, he would be a dream guest just like Bill here. It is on our show here. Yeah, we'd love to talk to him. I read his book, Irrational Exuberance earlier this year. He's brilliant. I just find his Shiller Cape is very, very useful to me in my work, you know. That was the first Michael Kitsy's back in 2008 published an article where he tracked the Sheller Cape against annual withdrawal rates, safe withdrawal rates,

because he computed for every single retiree. And so there's a real strong correlation, the more expensive the Cape got, more expensive stocks are, the lower your withdrawal rate and vice versa. And unfortunately, it wasn't enough to predict the Cape, but I had to add inflation. When I added inflation to that about three years ago, I got this breakthrough moment in my office, the same office I'm sitting here right now, same chair. And when I put inflation, it increased dramatically the ability to recommend higher withdrawal rates. when the time is right. It's not now. You can't do 6% an hour. Even the other 7% average. They're just so expensive, you know. And that's where it's a reflection of probably we're pretty close to a major bear market. One of the other observations that I have about the 4%

rule, because you can tell I've gone down the rabbit hole with that stuff on the mortgage versus the asset balance and all that kind of stuff. But is that the simplest observation, and it's just not stated enough is the more you can reduce your fixed expenses and eliminate them relative to inflation, the better off, the less you need from a portfolio perspective, right? That's the paid off mortgage. You know, you can get wild and go into solar panels or these types of things that reduce your monthly outlay on there. It's just so much better of a defense mechanism, I believe, in terms of long-term financial planning and the ability to retire,

than even the portfolio allocation, the slight tweaks in the portfolio allocation, obviously the overall balance and getting that macro view reasonably close to what is backed research is critical. But that's the most important thing folks can do. And if you can ensure your lifestyle against those inflationary pressures, it just makes this game so much easier in terms of being able to retire in the lifestyle you want. That makes a lot of sense to me. I think my philosophy in life is you control the things you can control. There's not much you can do about inflation. There's not much you can do about the stock market, but you control what you spend and you control what you have invested in stocks. And, you know, so to a certain extent,

your destinies in your own hands in those regards. All right, Bill, where can people find a richer retirement supercharging the 4% rule to spend more and enjoy more? Sure. It's not going to be in the bookstores until about August 11th, I think it's the latest date. But you can go, any online bookseller go to their website and you can pre-order a copy on Amazon, Barnes & Noble, Books, a Million Pals. They all were taking pre-orders now.

Co-orders are nice because, from my perspective, I didn't know this by learning from my publisher that the more pre-orders you get, the larger the orders that the book sellers will place and, you know, the more copies available for sale and likely more sale. So it all kind of like works together. And I will say this. If you've ever planned on retiring using the 4% rule or use that as a goalpost for measuring your progress or that inspired you or whatever, this man, Bill, just made that happen.

And he's updated that research here. And so one thing you can do to return the favor there is get a copy of the book. Maybe it'll accelerate your retirement even more. Help them get those pre-orders in place, get those big orders in the bookstores. And let's make it a New York Times bestseller if we can out there. All those orders, pre-orders count for those first week sales. And that's what you need to get into the bestseller lists. So go get it.

Go pick up a copy. We are not affiliated with Bill. We are just fans of Bill. We have no, we get nothing out of this. But that's a thank you for all you do for the community here. and we'll be picking up the copies of the books in addition to the very nice PDF that you sent us here. I would love to be affiliated with Bill. I just placed my order, Bill. I'm super excited to get a copy of your book. I really appreciate your time today. Thank you so much. It was my pleasure. I really enjoyed it. Okay, Scott, that was Bill Bangin. That was the Bill Bangin. And that was so much fun talking to him. He is just so sharp. He could be lying on a beach, drinking margaritas. But instead, his phone

His idea of fun is doing research and continuing to look into all of these different financial models. And I just, I'm so excited to talk to him. That was such a great show. What did you think? I mean, this guy is the legend. He's the guy he started at all, right? I mean, he wrote the 4% rule research. And I told him afterwards, he directly changed my life because Mr. Money Mustache wrote an article,

you know, in 2012 or whatever that I stumbled across sometime around then or thereafter, discussing the math of early retirement and the 4% role study that was citing Bill Bingen's research, right? I mean, it's just a direct cascade to what I do and to anybody who else who's been inspired by the 4% of early retirement. This is the foundational math that has kind of spurred that on and got us going. And I just, I love talking to Bill because he's got this great philosophy, this great research set that he went back, that he, that is back tested.

It's his passion in life. and he also invests in different ways relative to that portfolio. This is a right answer, but it wasn't the right answer for him on there. And I think that that's what's fascinating about what we do, Mindy, in this world of planning for financial independence retire early and figuring out how to get there is there's so many different paths to it. There's so many different personal preferences that come along. There's so much research that's back tested.

Everyone can argue about it until they're blue in the face, and you've got to just do what's right for you. And I think I'm increasingly coming around to the idea of I can talk to Bill Bang in 10 times and have that privilege of a lifetime with you here. And I'm still probably going to need to build a portfolio. I'm still going to, I've built a portfolio will need to depend on just spending less than the cash flow generated by my portfolio to feel comfortable personally. Well, and I think that's a good point, Scott. I can talk to him and I still need to do this to feel comfortable. And how many times have we said personal finances personal?

if you don't feel comfortable with spending the money that you're spending, you're not going to sleep well at night. You're going to constantly be second-guessing yourself. And what that means for you specifically is that you need to build a little bit of a larger portfolio than perhaps I would because I trust Bill implicitly and his four now five percent rule. So it's just it's a personal choice. But it's, and we call it a rule. It's a rule of thumb. And the of thumb always gets lopped off, but it's a rule of thumb. Scott is a little bit less excited about the 4% rule and wants to do, you know,

3.25 or 3.75. And I'm super cool with it and I'm going to do 7%. We're in different positions in our life. We're in different, you know, we have a lot of different expenses coming up. I've got college coming up. You've got pre-K through 12 coming up and then college. So, you know, having a different withdrawal strategy is totally full. fine, what I want people to do is think about what they're doing, not just I read it someplace

once, so that's what I'm going to do. And I think that's, I think that's what you're doing. You've thought about it and you're like, well, to make myself comfortable, it's got to be this instead. Mindy, are you going to buy Bitcoin now? No. Me neither. I love that Bill Bingen, the professor of finance, he's not a professor, but Bill Bingen says his portfolio is, 1% Bitcoin. If you have more than 1% Bitcoin, I hope you're way wealthier than Bill. I was surprised by how much he has allocated to Bitcoin. I read that as an endorsement of Bitcoin from Bill. So I read that. I heard that, right? We just talked about it. So you can see, I'm a visual thinker. But yeah. I heard him say, it's an interesting thing. I'm going to test it

with 1% of my portfolio. And yeah, 1% is still really, really high. I own zero. percent of my portfolio in Bitcoin. I have the same allocation as you. Yeah. And that's okay. That's what I'm comfortable with. And honestly, I haven't done that much research into Bitcoin because it's something I heard. I'm like, I don't know that I like that so much.

I'm doing okay. I mean, I'm not hurting because I don't have money in Bitcoin. Well, help us out if you're listening to this. Let us know what you thought of the episode and the show notes here. And if you get an idea for where you're, where we could get a data set that would help kind of supplement the research that Bill has done on stocks and bonds that with a real estate portfolio, we'd love to get a link to that at some point. That would be really fun to think through or noodle on or do bang out in an Excel spreadsheet

or just send a bill in case he wants to work on it at some point. That would be really interesting. We'd love to see that. That's something that's been bothering me. And I asked the question because of that to Bill today on the podcast. So please send that to Scott at BiggerPocketsmoney.com or Mindy at BiggerPocketsmoney.com. It's a little bit of an update. We've got BiggerPockets money email addresses.

In addition, of course, you can email us at Scott at Bigger Pockets or Mindy at BiggerPockets.com. Awesome. Scott, thank you so much for having such a great conversation with me with Bill. Thank you, Mindy, for inviting Bill on the podcast. Should we get out of here? Let's do it. Okay. And our listeners, go check out his book.

It's going to be worth its weight in gold. That's not actually true. But it's going to be such a great book. I'm so excited for it. All right. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trent. I am, Andy.

Did I just pronounce my name wrong? You did. Bye, Mandy. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying farewell, Blue Bell. Yeah, Scott Trent and Mandy Jensen. Yep, there you go.

Bye, everyone.