In 1994, a financial planner named William Bengen published an article that would take the retirement planning industry by storm. The paper had a simple yet powerful idea — using average returns and inflation in retirement planning can mislead retirees with disastrous results. Instead, use the ups and downs of actual, historical data.
The conclusion Bengen reached was that for a 30-year retirement, retirees could take an initial withdrawal of about 4% of their savings. Each year thereafter, they could adjust the amount by the rate of inflation. Based on historical data, he concluded that this approach would survive any 30-year retirement since 1926. Subsequent research has confirmed these results dating back to just after the Civil War.