Withdrawal rate in these times

I heard that the withdrawal rate is >4% based on current moderate interest rate, and inflation (and closer to 5% if inflation rates were to moderate).
They were <4% when the interest rates were low and the stocks value relatively high.
Can one explain how this adjustment of withdrawal rate according to interest rate and inflation conditions works?
Would that depend on how much bonds one has in his or her portfolio? Are those adjustment valid only for 60% stock/40% bond portfolio?


Here we go again. Another SWR thread. Personally I’m more comfortable with 3% than 4%, but the study shows that 4% worked through all of the good times and bad times of the last 125 years or so.

when you say that, do you consider how your portfolio is allocated in terms of stock/bond?
or what you sell or take out from your portfolio? or do you apply that 3% on all your portfolio components equally?


The SWR is backwards looking, it isn’t based on current anything. There were two main failure points. One was 1929. We all know what happened to the stock market there. That was a period of deflation, not inflation. The other was 1966 which was followed by a period of high inflation and poor stock market returns.


The more formal studies were generally based on a 60/40 stock/bond allocation with annual rebalancing. Some studies compared different allocations, but 60/40 seemed to allow the highest withdrawal rates with the fewest failures.

If you vary from that allocation, your withdrawal rate needs to be adjusted to reflect that difference.


The safe withdrawal rate was calculated by looking at all 30-year periods since 1900 or so and seeing if any of those 30-year periods fail (“fail” = “run out of money before end of period”). The period beginning in 1929 is the worst case.

Therefore, you can withdraw more than 4% if, and only if, you believe that a sequence of 30 years as bad as that one can never happen again.

That said, there have been all sorts of variations on the standard SWR study done over the years. There are “reset” ones, where you reset your withdrawal each year, or every few years, as your portfolio goes up or down. There are SWR studies done for 100/0, 50/50, 20/80 portfolios. Etc.

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I think the period beginning on our about 1966 was even worse than 1929. But it looked different. Because it was about a 15 year period of inflation, versus a sudden crash in 1929.

Frustrating to rehash that issue hundreds of times over the years with multiple cites to studies and firecalc only to have all of the history deleted.


Take a look at retireearlyhomepage.com, or contact @intercst


The 4% rate is only an estimate to guide your planning. Precise calculations don’t matter much. And to me a waste of time.

If you are in range you can consider retiring. Then you do the precise budgeting and planning. The 4% number is useful for setting your savings and investment goals.

4% should give your retirement minimum. Reserves over that figure are a good idea. And of course in retirement you can adjust as time goes on. 4% assumes fixed investments for life but you have many opportunities to adjust as events develop and circumstances change.


For what it’s worth I’ve been retired just shy of 20 years. I decided on a number for my monthly draw and every year I tell the money people to increase my draw by the amount of the COLA increase we get for Social Security. It’s worked great for me and it’s less than the glorified 4%. Also I now live on way more than I ever did during my working career. It makes sense though since I no longer have to contribute to Savings Bonds, Thrift Fund, 401-K, etc. Also my estate is way bigger than what I started with in 2003.

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The “glorified 4%” is frequently misunderstood. Apparently in this post as well. The 4% rule-of-thumb is really very simple. You can safely withdraw 4% of your total savings IN THE FIRST YEAR, and then increase the amount by the inflation rate each year thereafter.

That’s what you are doing essentially … increasing your withdrawal by the inflation rate each year.