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    Safe Withdrawal Rate

    How much can you spend each year without running out?

    The classic "4% rule"

    From a famous 1994 study (Bengen). For a 30-year retirement, withdraw 4% of your initial portfolio in year 1, then adjust for inflation each year. Historically — high success rate.

    Example: $1,000,000 portfolio. Year 1: take $40,000. If inflation is 3%, year 2: $41,200.

    Updated thinking

    • 3.3-3.7% may be safer for current low-yield environment, says Morningstar 2024.
    • 5-5.5% may be okay if you start a "guard rails" plan — flex up/down based on market.
    • For longer retirements (40 years), lower the starting rate to 3-3.5%.
    • Social Security delays let you withdraw more from portfolio early because larger SS check arrives later.

    Bucket strategy — popular alternative

    Split retirement money into 3 buckets:

    • Bucket 1 (1-2 years of expenses) — cash + money market. Spend from this.
    • Bucket 2 (3-7 years) — bonds and bond funds. Refill bucket 1.
    • Bucket 3 (8+ years) — stocks. Long-term growth. Refill bucket 2.

    If stocks crash, you don\'t sell — you spend from buckets 1 and 2 while stocks recover.

    Order of withdrawal — taxes matter

    For a couple with traditional IRA + Roth IRA + taxable brokerage, conventional wisdom:

    1. Spend taxable brokerage first (uses up old gains, makes room for withdrawals).
    2. Then Traditional IRA / 401(k) (forced withdrawals start at 73 anyway).
    3. Save Roth IRA for last (no RMDs, tax-free heir money).

    Real strategies are more nuanced — Roth conversions in 60s can save lots of tax later. Run by a fee-only advisor.

    Free tools

    • Empower (free) — has retirement planner with Monte Carlo simulation.
    • Vanguard Retirement Planner — free for account holders.
    • Schwab Retirement Calculator.
    • Fidelity Retirement Score.
    • FIRECalc (firecalc.com) — historical simulation for any spending plan.

    Get a real plan

    For decisions this big, pay a one-time fee-only fiduciary advisor ($1,000-3,000). They build a 30-year plan accounting for Social Security, inflation, taxes, RMDs, healthcare. Worth far more than the fee. Find at NAPFA.org.

    Safe Withdrawal Rate / 4% Rule | TekSure