by William P. Bengen, CFP®
Reviewed by Gary W. Silverman, CFP®
I recently read William P. Bengen's new book, Conserving Client Portfolios During Retirement. If this was a client meeting, I would begin making submarine klaxon noises and warning you about potential bias. I am a student of the four articles written by Bengen since 1994, as appeared in the Journal of Financial Planning. Much of my counsel to clients concerning sustainable withdrawal rates is based on his work. To disagree with this book would be to disagree with the advice I've given over the last decade. Fat chance of that.
For now, never mind the potential for bias. Face it: Everywhere you turn in both the popular and financial press, the mythical 4 percent withdrawal rate is written as if from above. That myth began with Bengen's studies. Thus, bias or no bias, it would be prudent for anyone giving advice concerning investment withdrawal during retirement to be familiar with Bengen's work.
If you have read Bengen's four articles (available on the Journal of Financial Planning's Web site at www.fpajournal.org, then you are familiar with much of what the book is about. But it is not just a compilation of his earlier pieces; rather it's a reorganization and expansion of the principles he introduced. The book also allows Bengen to delve into other related areas.
After introducing the basics of a safe maximum withdrawal rate ("SAFEMAX"), Bengen moves on to add a third asset class in his analysis. He then stretches and shrinks the "standard" 30-year retirement to see its effect, along with modified withdrawal regimes. I appreciated the discussion on how SAFEMAX is influenced by tax rates in nonqualified accounts.
And that's just the first half of the book.
The new fun is in the second half. Here we are startled by his conclusions of research on the optimum frequency of rebalancing and the effect on SAFEMAX. Those of you familiar with Daryanani's work know that he proposed incredibly short time periods for checking a portfolio for rebalancing if a wide differential from the target allocation exists. This was to produce the greatest average portfolio return. In this book, Bengen recommends extremely long rebalancing periods to maximize SAFEMAX. I look forward to future articles trying to reconcile these two positions.
Another surprising turn is Bengen's look at an asset that could replace intermediate-term bonds for the fixed-income part of his investment model. He has some compelling evidence that would allow the abandonment of bonds in favor of Treasury bills or money-market mutual funds.
Other tidbits await you in this book, Conserving Client Portfolios During Retirement. I completely recommend you get it, all bias aside.
Gary W. Silverman, CFP®, owns a fee-only financial planning firm in Wichita Falls, Texas. He is the host of the television show Falls Informer, editor of the financial newsletter Personal Money Planning, and a frequent contributor to the print and broadcast media. He also teaches university courses in finance and management.
FPA Press, 2006
$55.00 FPA members