Lynn O'Shaughnessy

Have you seen the commercial in which a guy carts around his nest egg - about the size of a Mini Cooper - everywhere he goes? Presumably he does this so nothing bad happens to his money. The commercial is silly, but our strong desire to protect our life savings is all too real.

In fact, one of the questions uppermost in the minds of many retirees and those eyeing that milestone is how they can prevent some destructive force from rolling over their nest eggs and leaving nothing behind but tread marks.

The answer isn't as complicated as you might think. In fact, you'll find it in what many would consider an unlikely place. The best advice, you see, didn't originate at a Wall Street brokerage house. You didn't hear it from a frequent guest on CNBC or an esteemed economics professor from the Wharton School.

Rather, the words of wisdom are coming from an unassuming certified financial planner, who works out of his home office in El Cajon, Calif.

Back in 1994, William P. Bengen published an ambitious study in the Journal of Financial Planning that pinpointed how much you or I should be able to withdraw each year from our retirement accounts without busting the bank. If historic investment returns can be believed, anyone following his prescription for a financially healthy retirement shouldn't run out of money for at least three decades.

Bengen's study, which shredded the conventional wisdom on this subject, elevated the fee-only planner's standing in the financial community from "Who's he?" to something akin to Paul Bunyon.

Specifically, Bengen figured out the maximum percentage of your money that you can withdraw safely. He also made recommendations on what mix of investments your portfolio should contain to ensure a nest egg's longevity. In the intervening years, Bengen's sagacious advice has been adopted by financial planners across the country, as well as Wall Street's big boys.

Not long ago, Bengen decided to revisit his calculations to see if they still stood up. He discovered that they had.

He included his findings, with updated figures, in his new book, "Conserving Client Portfolios During Retirement." In the book, you'll discover his magic number: 4.15. That's the percentage of your portfolio that you should be able to withdraw when you first retire.

After this initial calculation, however, you can discard that percentage forever. Instead, each year you take the amount of the previous year's withdrawal and increase it by the inflation rate.


Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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