Page 107 - Ready Set Retire

Ready. Set. Retire!

Ready Step 7: From Saving to
Spending

B ack in the mid 90’s a planner from San Diego
named William Bengen determined that a retiree
could prudently begin retirement by withdrawing
4% from savings, and then add a 3% inflation adjustment each
year, and expect to have enough money for 30 years of
retirement utilizing a 50/50 mix of stocks and bonds. He
derived these numbers by looking at 75 years of prior data and
modeling retirements of up to 50 years, commencing in every
one of those 75 years. For years which would put retirement
out into the future, he assumed business as usual for the first
decade of the 21st Century.

Later, software vendors incorporated “Monte Carlo”
algorithms into their software to wow advisors and fool clients,
using the same, faulty data from the past, and surprise, they
came up with similar results. Monte Carlo planning is a
stochastic method of measuring statistical randomness in a
population first employed by physicists at the Manhattan
Project. By introducing random outside influences and
measuring the response, the process can produce highly
accurate statistical outcomes based on various inputs.
Sometimes. For example, it worked well for nuclear physics

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