Trinity Study, William Bengen, Safe Withdrawal Rates – Women and Early Retirement

We’ve all likely heard of the Trinity study – the study that led to the 4% rule, or having 25 times your expenses saved. But have you actually read the Trinity study? Did you ever wonder how it applies to women, or early retirees? And have you heard of William Bengen, the financial advisor who laid the groundwork for the Trinity study? Well you’re in for a treat today.

And if you’re in the mood for something less technical and more fun, you can check out last week’s post about making an owl cake.

Why I Decided To Take An In Depth Look

With personal finance, I’m a big advocate of doing your own research rather than relying on someone else to do it for you. In this case, I’d heard of the Trinity study, and the “4% rule”, but had never actually read it. What assumptions were buried in the study that might not be apparent from internet discussions? Did it address the needs and concerns of women, or early retirees? I realized that I didn’t know.

So I took off on the internet to find the original, actual Trinity study.

For those that aren’t familiar with this study, I’ll give a brief recap of its findings and impacts on your eventual retirement. If you’re rolling your eyes here because you’ve read about a million articles on the Trinity study already, scroll down a bit to where I dig into the studies, more recent research, and implications for women and early retirees.

The Disclaimer

First, a disclaimer for the rest of this article. I’m not a financial professional. I’m an accounting undergrad, with an MBA, and a personal finance hobbyist. I’m not a PHd in Economics like ERN, or an actuary like AOF. These are my observations from my own research. So don’t take anything I say as gospel.

Ironically, my friend Actuary on FIRE also wrote a post about the Trinity Study today. It’s like we planned it – only we totally didn’t! Go check it out here.

What Is The 4% “Rule”, and What Are The Implications For Retirement

The four percent “rule”, as it’s called, is the simple concept that you can withdraw 4% from your portfolio every year and sustain yourself through retirement. This is also sometimes framed as having saved 25 times your expenses. Sometimes people struggle with the idea of the 4% rule, but immediately grasp having 25 times your expenses.

Let me provide an example:

Say Jane has $60,000 per year in expenses and doesn’t expect to get social security or a pension. Or Kate is an early retiree, retired before social security age, and needs to sustain her spending for a while without risking running out of money. She also doesn’t want to trust that social security will still be there in the same form when she reaches the right age, so she’s going to ignore that for now. How much do these women need to have in order to cover their expenses and not risk running out of money?

The very simple answer, if you ignore taxes, is they need to have 25 times their expenses – or in this case, $1.5 million. $60,000 x 25 = $1,500,000.  For every $1 you want to be able to spend each year in retirement, you need to have $25.

You can also calculate this using the “4% rule”. If you take 4% of $1,500,000, you get… $60,000.  Same math in reverse.

Side Note – You Can’t Really Ignore Taxes

Notice how I said “ignoring taxes”. The “rule” really states that you can withdraw 4% of your portfolio each year without running out of money. You still have to pay taxes on that money, if it’s in a tax-deferred account like a 401k or a Traditional IRA.

That’s why saying “25 times expenses” is imperfect, because you need to know where that money is and whether you have to pay taxes on it in order to say for sure if the person has enough money.

If you take taxes into account, the numbers grow-quickly. Say you want to spend $60k per year, and you pay an overall effective tax of 20%. In order to have $60k cash in hand you’ll have to withdraw $75,000. Twenty percent of that $75k will go to taxes, which is $15k, and you’ll have $60k cash in hand for spending.

In order to withdraw $75k per year from a portfolio using the 4% rule, $1,875,000. You’ll note this is $375k more than you need in the example where I ignored taxes.

Maybe you wondered why you hear so much about getting money into a Roth IRA, instead of a traditional tax-deferred account. Well this is why. You can find out more here about the good, the bad, and the ugly of the Roth at some of my prior articles.

Where Did The 4% “Rule” Come From?

You might say “the Trinity study!” if you’ve been hanging out on the personal finance internet for a while. Or you might have had no idea, but now you’re saying “the Trinity study!” because you just read that sentence.

No, not exactly.

It actually came originally from a paper called Determining Withdrawal Rate Using Historical Data by William Bengen. This paper was written in 1994 – four years before the Trinity study.

If you’ve ever talked about the Trinity study online – have you ever actually read it? Or have you only read other people talking about it, and then copied those people?

Well wait no more – here’s the link to the actual, real, original Trinity study from 1998. Took me a while to find this, so I hope you’ll click and read it (or bookmark this article and read it later, if you don’t have time now).

Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable – aka The Original Trinity Study – by Philip L. Cooley, Carl M. Hubbard, and Daniel T. Walz

There is a not-insignificant difference between these two studies. The original one from William Bengen used a combination of stocks and treasuries for his asset allocation. The Trinity study used high-grade corporate bonds instead.

Both Studies Maxed Out at 30 Years In Retirement

Looking at the Bengen study I found this interesting chart.

Bengen Chart

Two things I noticed-

  • This caps out at 50 years. I’ll talk more about longevity risk and women/early retirees in a bit.
  • There are several timeframes that the portfolio lasts significantly less than 50 years. In the worst cases it lasts just over thirty years.

In fact here’s a direct quote from the paper:

Assuming a minimum requirement of 30 years of portfolio longevity, a firstyear
withdrawal of 4 percent [Figure l(b)], followed by inflation-adjusted withdrawals in subsequent years, should be safe.

The Trinity study provides all values capping out at 30 years in retirement as well. Here’s a sample chart, in case you haven’t had the time to read the study yet.

Terminal Value of 1000 after withdrawals.png


You’ll note that the 4% column is the only one where you don’t see a “minimum” portfolio value of zero. That’s what you want in retirement, assuming you want to eliminate your chance of running out of money. You never want your portfolio to hit zero.

Why Is A 20 Year Old Study The Golden Standard? More Recent Research

Fortunately, the past twenty years haven’t gone by without people expanding on the original Trinity study. Wade Pfau has done a lot with the Trinity study, most recently making some updates for 2018. In this research, he’s expanded it to represent the performance of a portfolio for 40 years of retirement.

You’ll notice there’s a pretty big drop between the 30 and 40 year marks. Look at this example with the asset allocation that performs the best at a 4% withdrawal rate over 40 years.

Wade Pfau Chart.png

Here is where I’ll pause for a minute to reflect on the advice that “some” (one) financial personalities provide that you can withdraw 8% per year out of your portfolio safely. If you hear anyone parrot that advice, send them here or to Wade’s article, and ask them if they really want to have a more than 60% chance of running out of money.

A 98% vs. 92% doesn’t sound huge – heck it’s still an A in school, right? – but that’s a pretty big difference. You’ve essentially quadrupled your chance of running out of money from 2% to 8%. Plus, as I mentioned, this is the case where the portfolio performed the best over 40 years at 4% withdrawals. The other cases were:

  • 100% Stocks – 89%
  • 50% Stocks – 87%
  • 25% Stocks – 45%
  • 0% Stocks – 11%

I highly recommend also checking out the assessment that Early Retirement Now did on safe withdrawal rates. This assessment goes much more in depth into safe withdrawal rates over much longer periods of time, using the same 100/75/50/25/0 stock allocation model. If you are interested in an in-depth, thorough analysis of safe withdrawal rates you must check it out.

You’ll notice that 4% withdrawal rates do relatively well at 100% and 75% stock allocations.

There is much debate about 4% being too aggressive. For an example, you can refer to Vanguard paper indicating in today’s low-yield environment a lower safe rate is prudent. Refer also to ERN’s research above showing that you will run out of money at 4% withdrawal rates, a small amount of the time. Only you can decide if the risk is worth taking.

Safe Withdrawal Rate Vanguard.png
Note that these are below 4%. Also, this has a 15% failure rate

A Note On Asset Allocation

All these studies make assumptions regarding your asset allocation. William Bengen assumed you were balanced between stocks and intermediate term Treasuries. The Trinity study authors assumed you were balanced between stocks and corporate bonds. Both papers were written in the 90’s.

Both studies seemed to find that ranges between 75% and 25% stocks and either bonds or treasuries was the sweet spot for asset allocation. Why not 100% stocks, when stocks outperform bonds and T-bills over time? Because you’re increasing the risk of going to zero by doing so. Having something to offset those “Black Swan” events that can occur, and might decide to occur right after you retire, is key.

Specifically, the biggest “Black Swan” event in the past 100 years was clearly the Great Depression. And although stocks have been performing well the past ten years since the Great Recession, we never know when the next event will happen. Or what it will be.

Longevity Risk – Impact on Women and Early Retirees

Back to the premise of this article – I wanted to talk a bit about how all these studies specifically impact women, and early retirees.

Yes, I’m talking about longevity risk.

For early retirees, the math equation is obvious – right? If you’re retiring at 35 to travel the world, and want to be living off your portfolio, you need that portfolio to last you until you bounce the last check you write. Otherwise you’ll be living off the “kindness” of the government, sharing a room in a Medicaid-paid nursing home, with them taking your social security check (if it’s still around). And those Medicaid homes are…not the best.

Yes, I know it’s hard to believe that one day you too will be old, infirm, and unable to take care of yourself. More than likely, you will.

We all die.

The fortunate among us get to deal with longevity risk.

And it’s a real risk – particularly for women. If you make it to age 65, a woman can expect to live about 20-21 more years. A man can expect to live a bit more than 17 more years, projected to go up to nearly 20 years by 2030. That information comes from this article, which also sadly demonstrates how much the US lags behind other countries in life expectancy. Why? Income disparities, and the lack of generous retirement benefits/universal health care are the reasons provided.

This isn’t so bad then, you might be thinking. If people on average live around another 20 years if they hit age 65, then a portfolio lasting 30 years will take you way beyond that! You can leave a big pile of money to your heirs, or maybe spend more than 4% because you only need your money to last for 20 years.

Not so fast.

Take a look at this tidbit, also from Wade Pfau, in a different article:

…10% of males will have died by 74.3, the median age is 88.9, and 10% are still alive by 98.4. The corresponding numbers for females are 75.8, 90.5, and 100.1

He adds “These wide ranges can make planning difficult”. Yes. That would be true.

Think about that for a minute. 10% of women are still alive at 100.1. The median age is 90.5. For men, 10% are still alive at 98. So if you want to retire at, say, 50 – not ultra-early like a 30 or 40 something – there’s a 10% chance your money has to last fifty years. FIFTY YEARS.

Health Care Costs – Women and Long Term Care

According to Fidelity, the average couple will need $280,000 in retirement for health care.

Excluding long-term care.

So what does long-term care cost? About $92k per  year, according to a study by Genworth financial. Someone turning 65 has an almost 70% chance of needing long term care. Women need care longer than men – an average of 3.7 years, versus 2.2 years for men.

At $92k per year, you would need to add $340k for women and $202k for men to that $280k figure above.

These costs regularly increase more than inflation. For this year, costs are expected to rise by 6.5%.

This is why so many folks closer to a traditional retirement age worry about medical costs.

In Closing – The Trinity Study, William Bengen, Women and Early Retirees

Of course the Trinity study and William Bengen’s research applies regardless of gender. The same is true of more recent research. Money is genderless, as I’ve talked about before.  They simply guide us on what portfolio withdrawal rate will reduce the risk of running out of money in retirement.

But when planning for retirement – and especially early retirement – you can’t ignore longevity risk, and projected medical costs in your later years. If you’re a couple you will need over $800k set aside in order to cover after health costs, and anticipated long term care costs.

Women need long-term care for longer than men, on average, and also live longer. So although our money is genderless, the amount of time we need that money for is not. You need to take this into account when planning for financial independence.

After all, you’re not financially independent if you become dependent on the government in old age because you ran out of money.

Want to be financially free? You can see all my financial freedom strategy and articles here.

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19 thoughts on “Trinity Study, William Bengen, Safe Withdrawal Rates – Women and Early Retirement”

  1. Awesome article CMO! You covered so much ground and managed to keep it understandable without dumbing it down! I particularly liked to reference to longevity, that is often neglected. The actuarial rule of thumb is women live three years longer than males, so it is really relevant to your discussion.

    I also did not know that the Bengen study used Treasuries and not Corporate bonds (shame on me!).
    I’m gonna make you an honorary actuary – join the club 🙂

    1. chiefmomofficer

      Woo hoo! Now I get to know the secret of where you host those amazing actuary parties! I was trying to make it understandable without simplifying it so much that it became inaccurate-happy to know I succeeded.

  2. Thank for all the details Liz – completely agree it is something us women need to seriously consider. Although medical care is free in the UK, old age care is not unless you are penniless. There is a dementia home at the end of my road, which charges £900 a week, which is a hefty amount.

    I’m prepared to take the risk of my funds running out. If my investments run dry, I’ll have a property to sell – which would give me likely 10 years of care. So many things are likely to change between me now at 37, and needing care at 70 plus. Nearer the time I’ll be able to see how things have panned out, and cut my cloth accordingly.

    1. chiefmomofficer

      Personally I’m very risk averse-I don’t want to have the risk of my money running out. I’d much rather have a great life and a great end of life, with enough money that my kids don’t have to worry about paying for my care in old age. Then they can focus on spending time with me instead of stressing about my care or money. That’s just my preference, though.

      1. I line up more with Ms Zi – a 90% chance of never needing to tap my home equity seems pretty good to me. But like Ms Xi I have the backstop of universal health care, plus my home equity exceeds my investment assets so it’s not really much of a risk as long as I can match inflation after my first retirement plan has “failed”.

        A bigger risk is probably things like war or mass evacuation, I have a solid plan for physical security but presumably would be without my financial assets if I had to flee.

  3. The thing people always seem to forget with these studies is they measure the likelihood of running out of money during the time period, not ending with the same funds. The problem of course being each day you are restarting another thirty year timeframe. So if you get to the end of the first thirty year period, if you don’t meet the four percent rule then, you are no longer fi. Each thirty years is independent.

    Great article and great research to find the originals.

    1. chiefmomofficer

      Correct, they all measure whether or not you go to zero (and how likely that is) during the period at that withdrawal rate. Longevity risk is a legitimate concern.

  4. Great article! Love going to original source. I’d disagree about reasons for our lagging US longevity, though, and lay it more at the doorstep of lifestyle and what we have allowed to happen to our food, water and environment. If “universal healthcare” addressed that, we might have a shot, but nothing in a doctor’s office can solve chronic illness unless the patient is willing to make huge changes in the lifestyle that got them there in the first place. I’d like to see our tax dollars support that. Just my personal soapbox…

  5. mamafishsaves

    Great article! So considering you are risk averse and the potential cost of long term care, what do you think about long term care insurance? Do you plan to get it or just try to amass the assets to protect yourself?

    1. chiefmomofficer

      I’ll probably run a cost/benefit analysis of coverage in my 50’s to see if it’s worth buying. There’s a lot of LTC insurance issues, like companies going under, policies becoming less generous, and premiums going way up. I’ll probably err on the side of having the assets, and then running the numbers to see whether or not I should use those assets to pay for a policy. And you’re right that I’m rather risk averse.

  6. Very nice article. My long term idea is to live of dividends. If I could create a portfolio which pays 3% in dividends. The 4% rule might be obtainable.

    1. chiefmomofficer

      Smart idea-that’s why a dividend strategy can be powerful. It helps minimize the chance of running out because you don’t touch principal

      1. bullincaptivity

        Nice job on the article, it’s crazy how much of an impact the original 4% rule made.

        I’m a big fan of dividends because companies tend to avoid decreasing dividend payments even during a downturn.

        It is important to note though that these studies use total return which already includes a dividend return. If an investor is living off of dividends of 3%, this will have the same result as a 3% withdrawal rate of principle because the dividends would be reinvested.

        -Professor S

  7. Great post. As an old adviser, I can say the 4% concept was used with clients as a “rule of thumb” for capital drawdowns in retirement. But the reality of actual client outcomes was different. There are so many dramatic financial events that throw in “curve balls” during retirement years, that can render forward calculations of retirement funds beyond 12 months ( in my experience ) as pointless. Often the mathamatical side of retirement planning overshadows the realities of living.

    Additionally a 4% drawdown may preserve funds but it does require an initial lump sum to be susbstative enough for the income generated to be adequate.

    Unfortunately not everyone is the same and we all have totally different incomes through our lives for whatever reasons. Therefore 4% may be the most appropriate rate of drawdown for capital preservation, but the actual income being produced will vary wildly across indiduals. A retirement planning cunundrum.

    Creating an optimum drawdown rate to preserve capital 30 years into the future is probably a better theoretical excercise than a pratical application.

    Thank you for your great, thought provoking post. Regards Adrian

    1. chiefmomofficer

      Retirement planning is quite difficult-especially when you’re young. There are so many future unknowns around rates of return, tax rates, medical costs, longevity and inflation. Plus there’s sequence of returns risk. I can see why projections beyond 12 months would be essentially pointless.

  8. I’m really surprised by how the 100% stock and 50% stock portfolios have pretty similar failure rates but it definitely highlights the advantages of the 75% stock /25% bond portfolios. I’ve been seeing a lot of people advocating for the pure stock portfolios, especially after the past couple years with the huge run up in values.

    Articles like this make me feel lot better about planning for retirement given how much uncertainty and unknowns there are about the future.

  9. I had to Google this article because I was quite bummed with William Bengen’s theory. It makes no sense, too simplcistic without tax components and longetivity risks to be counted. Thanks for correcting the $1 millions and withdrawal rate that so many sites called it “4% forever” magic number! In fact most early young retires in their 30s, that are profiled in many sites, do not own houdes as part of key diversification strategy. As an example, Ms Livingston lives in NYC but it appears she still works to earn from her blog. Semi retirement would be a fair choice of wording.

    There would be another approach to get half a million invested, yielding an average 10% return over 25 years horizon would result in higher nestegg, while assuming effective 3-4% withdrawal and the rest to be reinvested. One million isn’t necessarily the prerequisite amount is all am saying. That plus a paid off home would be the path to the ultimate financial freedom lol!

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