In October 1994, a California financial planner published a paper in a small trade journal…
Three decades later, his idea is recited like scripture.
You know it as the 4% rule.
William Bengen ran the historical numbers for a retiree holding 50% shares, 50% government bonds.
He wanted to find the largest amount they could withdraw each year (rising with inflation, without running out of money over 30 years)
Even through the worst stretches of the century, a withdrawl rate 4% survived.
That was useful research…
But somewhere along the way, it hardened into a commandment.
Advisers quote it… retirement calculators are built on it… couples at kitchen tables decide whether they can afford to stop working because of it.
The crazy part is that Bengen himself has spent years trying to talk people down.
He’s since raised his own number twice, to 4.5% and then 4.7%.
He even went on record as saying the 4% rule is "designed for only the most conservative person to use in retirement planning"
Think about what designing for the worst case means…
The rule is built to survive someone retiring on the eve of the Great Depression, or in 1966, just ahead of a decade of stagflation.
Most people don't retire into either.
Retirement researcher Michael Kitces ran the history.
A retiree following the 4% rule typically finished 30 years with nearly 2.8x the money they started with.
90% of the time they were still up after 30 years, even with those withdrawals…
Put that on a $300,000 portfolio. The rule lets you take $1,000 a month in year 1. Barely enough to make a dent… yet the typical retiree who obeyed it finished with roughly $840,000 left, before inflation.
That's a lot of holidays never taken… and a lot of retirements delayed to reach a larger number.
There's a deeper problem though…
The rule assumes every dollar of that $1,000 a month comes from selling shares.
Think of your portfolio as an orchard…
The 4% rule pays you by chopping down a few trees each year and selling the wood.
Meanign the whole debate over withdrawal rate is an argument over how many trees you can fell before the orchard is no more…
Nobody at the kitchen table asks the farmer’s question. How much fruit can these trees produce while they’re still standing?
What we do inside Options Cashflow Accelerator lives on the fruit…
When I sell a put, someone pays me upfront for my promise to buy their shares at a set price. My capital sits in cash… and when I own shares, I sell covered calls against them and get paid again.
The trees stay in the ground - because my principal is still intact
Meaning for the vast majority of people… you actually need far less capital than you think to afford a comfortable retirement…
And yes, I have a 4% rule of my own. I never risk more than 4% of my account on a single trade.
Because an idea from 1994 shouldn't decide when you get to stop working.
Oliver