How much can you withdraw from your retirement portfolio each year?
For many investors, the go-to answer is 4%.
Researcher Bill Bengen developed that rule of thumb back in 1994, meaning an annual withdrawal rate of 4% is the amount that will see investors through retirement in any economic scenario. (Check out our interview with Bengen from 2021 to hear how he thought the rule had held up.)
In 2021, against a backdrop of historically low bond yields and high equity valuations, we decided to reevaluate Bengen’s seminal work. The key difference is that our research embedded forward-looking return forecasts for the major asset classes, whereas Bengen relied on historical market returns.
Our inaugural research concluded that 3.3% was a more realistic estimate of a safe starting withdrawal rate in 2021—assuming a balanced portfolio, fixed real withdrawals over a 30-year retirement, and a 90% probability of success.
That number has fluctuated in the years since. In 2022, we estimated a 3.8% starting withdrawal rate. In 2023, as the inflation forecast started to moderate and yields on bonds and cash increased, we estimated 4.0%. In 2024, we estimated 3.7%, due to higher equity valuations and slightly lower bond yields.
Our latest estimate is a 3.9% starting withdrawal rate.
The Flexible Withdrawal Strategies We Evaluate in Our Research
That said, these are conservative estimates for fixed real withdrawals. Our research also explores flexible withdrawal systems that retirees can use to enlarge their starting and lifetime withdrawals.
Our research has explored the potential benefits of the following strategies:
- Following annual portfolio loss, don’t fully adjust your withdrawal rate for inflation. For example, a person following this strategy wouldn’t increase withdrawals after the 2022 bear market, despite the large jump in inflation that occurred at the same time.
- Take withdrawals in line with required minimum distributions. Retirees can use the same framework that underpins RMDs from IRAs: Divide portfolio value by life expectancy to calculate an appropriate withdrawal rate.
- Implement guardrails on your portfolio. That is, take less in down markets and set a limit on how much more you can take during good ones.
- Assume spending declines in line with historical data. In 2023, we began exploring how retirees’ withdrawal rates can incorporate the decline in spending that typically occurs over retirement.
- Take a fixed percentage of your portfolio each year. Taking a constant percentage of the portfolio will ensure that a retiree never fully depletes it, but it can lead to potentially large changes in year-to-year spending.
- Take a constant percentage of your portfolio’s 10-year average value. This method borrows a strategy used by university endowments to smooth out some of the spending volatility of the fixed-percentage strategy.
- Apply probability-based guardrails to your withdrawals. By recalculating the probability of success, retirees can adjust their spending to account for changing market conditions.
- Use the Vanguard dynamic spending method. Like applying guardrails, retirees can adjust their spending based on portfolio performance. The Vanguard method sets a floor and ceiling for how large those adjustments are from year to year.
Our Latest Retirement-Income Research
Explore key takeaways and actionable insights from our research on safe starting withdrawal rates.
Previous Retirement-Income Research
As the markets and economic environment continue to evolve, we expect so will our estimates. Retirement withdrawal rates can be a tough nut to crack, but the right level of flexibility can help set retirees up for success.
For more from our research and how it’s evolved over the years, check out the content below.