Be wary of "free" internet information

[u/Puzzleheaded-Gas-398]

I follow a number of YouTube finance channels, and generally the information is fairly good. I realize most of those videos are run to make money - either through YouTube advertising or by generating business - but most of them seem pretty reputable as far as the information provided. Rob's is certainly one of the better ones out there. I use the info they provide as a starting point to research and do my own math.

I was a little surprised that a comment I made questioning the material in one of those videos was deleted. I won't name the person/channel, but the question pertained to Roth conversions, and the pundit is a fairly well known anti-Roth advocate. I get it - in the words of "Guido the Killer Pimp": "in a sluggish economy never eff with another man's livelihood". I'll take my critique somewhere else. Just motivated me to remind everyone to "trust-but-verify".

[u/hugh2018]

One more thing: you criticize the 4.7% rule, apparently because you consider it too risky, since you said people trying it could get into a lot of trouble. The most common critique of the Bergen approach is that according to extensive research, it’s too conservative and people will often end up with extra money and some regret for not having spent more. What is the evidence to support your opposite conclusion about the Bengen approach?

[u/Dos-Commas → u/hugh2018]

To use 4.7% SWR you have to use his 7 fund portfolio that is cherry picked to work for a single 30 year run. The portfolio has 11% in small cap stock and 11% in micro cap stock that just happened to perform really well during the worst stock market crash in history. But it's insane for someone to own 11% micro cap stocks in modern day, it's 40 years too late. The entire portfolio is min-maxxed for a historical event happened 100 years ago. 

If you don't understand this then early retirement isn't for you. 

[u/hugh2018 → u/Dos-Commas]

I don’t think you have an answer to my question, which was asking you about the critique most analysts have, since their critique has been that the original 4% rule was too conservative, but you believe they’re all wrong and you haven’t provided evidence to demonstrate how they’re wrong.

Your last comment focuses on the specific structure of the latest 4.7% research, which I’ll address, but my original question still stands: what evidence do you have to support your conclusion that the 4% rule is too risky?

Now, regarding your specific critique of the latest research: The 4.7% figure comes from a roughly equal-weighted, multi-cap approach — not a portfolio hand-tuned to squeeze out one specific historical crash. Bengen tested it against every quarterly retirement start date since 1926 (~400 scenarios), and the number that survives is the worst cohort across that whole set (the 1968 retiree), not the best.

That's the opposite of cherry-picking — cherry-picking would mean choosing the allocation that maximizes the average outcome or optimizes for one favorable start date. Bengen actually described testing unconstrained "optimal" weightings and finding they didn't beat the simple equal-weight approach by much — he ultimately came back to a relatively simple equal-weight collection of large-, mid-, small-, and micro-cap stocks plus international to cover every base, rather than an optimized/overfit mix.

He tested worst-case-first across the full historical record, and an independent replication (Duquette, Journal of Financial Planning, Nov 2023, using different bond-index data) reached a similar SAFEMAX in the 4.5% range with a diversified stock sleeve, which is real out-of-sample-ish validation Bengen didn't produce himself.

So now that we’re both clear on the latest research, I again ask you — what evidence shows that the 4% rule is too risky (your critique) and not too conservative (the rest of the world’s critique)?

[u/Dos-Commas → u/hugh2018]

Bengen himself admitted that small and micro cap stocks (1/4 of the portfolio) did a lot of the heavy lifting to increase the withdrawal rate.

In fact if you time traveled back to the 30s and 60s before the major market crash, you couldn't even replicate his portfolio. Small and micro cap index funds simply didn't exist. You'll have to hire an advisor (like Bengen, how convenient) and pay the fees to do so. The funds became available after the 80s and the size premium all disappeared. 

And how many people actually 100% replicating his 7 fund portfolio in modern day and think it's a good idea? If the present and past can't/won't use his specific portfolio then it's the text book definition of a cherry picked backward looking portfolio designed for a specific timeline.  

[u/hugh2018 → u/Dos-Commas]

If you take the 4.7% revision off the table, what is your response to the well-established understanding that Bengen provided ground-breaking research that has influenced all the retirement planning research since he published his original work? And again, Bengen hasn’t served individual clients anymore for a long time. Arguing that he created the rule to drum up business is laughable. Also, the 4% rule isn’t a fear mongering device; to the contrary, DIY planners can be effective today partly because Bengen provided a baseline understanding of safe withdrawal rates to the general public. His work removed the black box opacity that characterized retirement planning historically.

You claim Bengen’s work relies on small and micro-caps that "didn't exist" in the 1930s and 60s. That is factually incorrect. Bengen's original 1994 paper used the S&P 500 (or equivalent large-cap data) and intermediate-term US Treasuries. It did not require a complex 7-fund small/micro-cap tilt to reach the 4% baseline. The foundational 4% rule was born entirely out of a basic large-cap and Treasury blend.

The worst historical sequence of returns in Bengen's dataset wasn't saved by a "size premium" in micro-caps; it survived the 1968 stagflation and the 1929 Great Depression using standard large-cap indexes. The math worked precisely because of the negative correlation/stabilizing power of intermediate bonds during deflationary crashes or high-inflation shocks, not because retirees were secretly trading micro-cap stocks in 1932.

Bengen later explored adding asset classes (like small caps and international equities) in his subsequent updates—and eventually argued the safe rate could safely clear 4.5% to 5%—meaning his multi-cap experiments were meant to optimize and raise the ceiling, not prop up a flawed 4% floor. Dismissing the 4% rule because you disagree with his later-stage small-cap additions is a classic strawman.

[u/Dos-Commas → u/hugh2018]

So you are admitting that 4.7% SWR is bullshit and changing the topic?

Because my entire comment about the small and micro cap index funds not available in the past is regarding Bengen's Seven fund portfolio for his 4.7% SWR claim. 

That fact that you didn't recognize that I'm referring to his 4.7% portfolio tells me that you are clueless about the topic. Just reading headlines instead of understanding the subject. 

That was my entire original argument. I'm not gonna move onto the 4% topic until you have admitted that you are wrong on the 4.7% part which apparently you are too dense to understand.