engineering

William Bengen

William Bengen is a engineering topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand William Bengen rather than just read about it. In short: William P. Bengen is a retired financial adviser who first articulated the 4% withdrawal rate ("four percent rule") as a rule of thumb for withdrawal rates from retirement savings; it is eponymously known as the "Bengen rule".

Key takeaways

William Bengen belongs to engineering; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect William Bengen to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of William Bengen from memory before moving on to harder problems.

Reference excerpt

William P. Bengen is a retired financial adviser who first articulated the 4% withdrawal rate ("four percent rule") as a rule of thumb for withdrawal rates from retirement savings; it is eponymously known as the "Bengen rule". The rule was later further popularized by the Trinity study (1998), based on the same data and similar analysis. Bengen later called this rate the SAFEMAX rate, for "the maximum 'safe' historical withdrawal rate", and later revised it to 4.5% if tax-free and 4.1% for taxable. In low-inflation economic environments the rate may even be higher.

Withdrawal rate

Bengen conducted a number of empirical simulations of historical market behavior and concluded that a person could "draw down", withdraw, up to 4 percent annually from their portfolio without fear of outliving their money. He published his research in the October 1994 issue of the Journal of Financial Planning. He is also the author of the book Conserving Client Portfolios During Retirement, where he revised and updated his analysis. He gave a brief update in Bengen (2012). Bengen later stated the 4% guideline was intended as a "worst case scenario" for retirees in United States, using a hypothetical example of someone who retired in 1968 at a stock market peak before a protracted recession and high inflation through the 1970s. In that scenario, a 4% withdrawal rate allowed the investor's funds to last 30 years. Historically, Bengen says closer to 7% is an average safe withdrawal rate and at other times withdrawal rates up to 13% have been feasible. The withdrawal rate has since become a staple of the financial service industry, adopted by several major financial firms.

Career

Early life and education A native of Brooklyn, born in 1947, Bengen received a B.S. from MIT in aeronautics and astronautics. He is a co-author of Topics in Advanced Model Rocketry, originally published by the MIT Press in 1973. He worked for 17 years with his family-owned soft-drink-bottling franchise firm in the New York metropolitan area, during which he served tenure as president and COO; the company was sold in 1987.

Financial career Following the sale of the family business, Bengen moved to Southern California and began a Certified Financial Planner practice, Bengen Financial Services, earning his certification in 1990 and his master's degree in financial planning in 1993. He ran the firm as a fee-only (no commission) practice for twenty years, then sold the firm and retired in 2013.

The Four Percent Drawdown rule

Based on his early research of actual stock returns and retirement scenarios over the past 75 years, Bengen found that retirees who draw down no more than 4.2 percent of their portfolio in the initial year, and adjust that amount every subsequent year for inflation, stand a great chance that their money will outlive them. The 4% Rule is sometimes also called the Rule of 300. Criticism of the 4% withdrawal rule include references to its assumption of one's investment portfolio, the differences in historical and current interest rates, as well as the reality that most people's spending habits are not consistently linear. Bengen later updated his findings based on further research to suggest 4.7 percent as the safe withdrawal rate in one's first year of retirement.

Notes

References

Further reading Mercado, Darla (2013-06-06). "15 transformational advisers: William P. Bengen".

Worked examples

Example 1 — a first encounter with William Bengen

Start with the simplest possible case. Write down what William Bengen claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In engineering, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to William Bengen before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about William Bengen ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of William Bengen

In research: William Bengen appears in engineering research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses William Bengen in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: William Bengen is common in secondary-school and first-year university syllabi. It links to neighbouring topics 1947 births, American chief operating officers, American finance and investment writers, so understanding it makes those chapters shorter.
In everyday life: Look for William Bengen outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study William Bengen in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what William Bengen means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain William Bengen out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is William Bengen in simple terms?

Why does William Bengen matter?

Because it connects several engineering ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study William Bengen?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on William Bengen.