What is a Safe Amount to Withdraw in Retirement?

How much can you spend in retirement without outliving your money? It’s one of the most fundamental questions confronting anyone who has retired–or is getting ready to.

But it’s a head-scratcher for many, according to a survey from the American College of Financial Services. Seven in 10 individuals between the ages of 60 and 75 with at least $100,000 said they were unfamiliar with the conventional 4% safe withdrawal rule popularized by a gentlemen named William Bengen. Meanwhile, 16% of survey respondents believe the safe withdrawal rule is closer to 6% to 8%.

This lack of knowledge about a critical retirement income concept is a pretty big problem. Setting a sustainable withdrawal rate–or spending rate for your retirement, is one of your major retirement planning tasks. And if you have an advisor and he or she hasn’t mentioned this, you need to get a new advisor…a retirement advisor.

So let me give a little context for this discussion on the safe withdrawal rule…

  • When you retire, you’ll likely rely on a combination of guaranteed income sources such as Social Security and/or a pension, and distributions from your retirement savings accounts such as IRAs, 401ks produce what I call your retirement paycheck
  • The key is to make sure this paycheck lasts as long as you do.
  • And knowing the “safe” amount of money you can withdraw out of these accounts without over drafting them is critical.
  • Different advisors recommend different types of withdrawal strategies in addition to the rate of your withdrawals.
  • The strategy you choose will dictate how much income you make available for yourself, which in turn affects your quality of life in retirement. If you pick the right withdrawal strategy, it will protect against your accounts running dry while you’re still relying on your savings.


At a bare minimum, anyone embarking on retirement should understand the basics of the withdrawal or spending rates: how to calculate them, how to make sure their spending passes the test of sustainability given their time horizon (i.e. how long you plan to be in retirement), market environment and asset allocation, and why it can be valuable to adjust spending rates over time. And because the market environment you’ll retire into is a crap shoot, it will be critical to run your withdrawal rate in negative, average and positive market environments and build your plan around the worst case environment.

That last point is especially important today: While stocks and bonds have performed well over time, low starting bond yields and higher equity valuations suggest that new retirees, today especially, should be conservative about their withdrawal rate to account for lower expected future returns.

It’s important to Be ready to course-correct based on market conditions.
Retirees greatly reduce their portfolios’ sustainability potential when they encounter a lousy market early on in their retirements and don’t take steps to reduce their spending. That’s because if they overspend during those lean early years, they leave less of their portfolios in place to recover when the market does.

This is referred to as sequence or return risk. It can be mitigated, at least in part, by having enough liquid assets to spend from early on in retirement so that the more volatile assets that have slumped (usually stocks) can recover in the future.

Because sequencing risk poses such a threat, much of the recent research on sustainable withdrawal rates supports the idea of tying in withdrawal rates with portfolio performance. The retiree takes less out in down-market years and can potentially take more out in years when the market performs well, as it has recently. For retirees who would like to ensure a fixed real level of spending money over their in-retirement time horizons, starting initial withdrawals lower than 4% is one of the ways to ensure that their portfolios can last.  But there is another option. More on that in a bit.

Let’s talk about the 4% rule…

As I said, William Bengen was a financial advisor who in 1994 came up with this 4% safe withdrawal rule.

What the 4% rule essentially says is that on a typical 30-year horizon, if you as a retiree withdraw 4% per year from your portfolio, you can essentially safely retire without having to worry about outliving your money. And that works greater than 95% of the time historically.

  • Findings based on historical data dating back to 1926
  • Portfolio was invested 50% in S&P 500 stocks and 50% in intermediate term government bonds
  • Due to today’s low interest rate environment, many recent studies have refuted Bengen’s 4% rule
  • In other words, it’s not holding up in today’s market

Low Bond Yields and Safe Portfolio Withdrawal Rates, Morningstar


  • Morningstar’s Research refutes Bengen’s 4% rule
  • Adjusted the “safe withdrawal” rate down to 2.4% when investing in a 60% stock/40% bond portfolio with a 30 year retirement time horizon.4

Hypothetical Example: $500,000 portfolio Value

  • 0% withdrawal = $20,000 per year income
  • 4% withdrawal = $12,000 per year income

               This equates to a 40% decrease in income!

Morningstar’s Executive Summary states:

“Yields on government bonds are well below historical averages. These low yields will have a   significant impact for retirees who tend to invest heavily in bonds.”

“We find a significant reduction in ‘safe’ initial withdrawal rates, with a 4% initial real withdrawal rate having approximately a 50% probability of success

over a 30 year period.”

Another more recent study from Morningstar has suggested the safe withdrawal rate for a traditional 60/40 portfolio is 3.3%. So for example, someone with a $1 million portfolio, their $40,000 rate has slid down to $33,000. With pensions a perk of the past and Social Security benefits at risk of being cut, there’s not much of a safety net for people who run out of their own savings because they took too much out each  year.

While people retiring in the past 15 years or so had a tailwind because of this long running bull market, today’s retirees could face headwinds. According to Morningstar, current conditions demand greater forethought and planning than in the past, when lower valuations and loftier yields paved the way to higher future returns.” Morningstar Investment Management’s 30-year inflation-adjusted return forecast for U.S. large-cap stocks is 2.74%. The forecast for investment-grade bonds is -0.11%.

So what can retirees do?

Delay Retirement

“The simplest way to achieve a higher withdrawal rate is to work longer and retire later,” the authors of the study state. This reduces the time horizon of retirement and allows the retiree to increase the size of their portfolio and have a longer compounding period.

Calibrate/Reduce Expenses

Several factors influence how much a retiree needs to withdraw. One is level of wealth: While 75%-80% is “considered a reasonable rule of thumb for income replacement,” wealthier retirees may need to replace a smaller share of income, according to the paper.

Get a job in retirement

Additional income from working is an option, but is it the best one? While many people might enjoy continuing to work, if you don’t (or can’t for physical or mental reasons), this isn’t a great option.

Delay Social Security

To get a higher safe withdrawal rate, another option is to delay claiming Social Security for a couple years.

There is a 4th option that I encourage everyone to at least take a look at. It’s called a Hybrid Retirement Income Portfolio (or HIP for short). Created by retirement researcher, educator and advisor, Brian Saranovitz of Your Retirement Advisor, the HIP strategy incorporates both traditional investments such as globally diversified stocks for growth and inflation protection, but  replaces bonds (in most cases) with Structured Investment Products (or SIPs).

SIPs are bond alternative to retiree’s portfolio, but offer more growth than bonds with downside protection against volatility…a crucial step for a retiree’s portfolio.


The HIP Strategy has been designed to reduce portfolio volatility while maintaining reasonable growth potential. This combination of growth with less volatility than a traditional stock and bond portfolio, can add value by increasing a retiree’s Safe Withdrawal Rate by up to 1-2% per year and add as much as 5-10 years to a retirement portfolio when taking income.


I don’t know about you, but I’d prefer to take a look at the HIP strategy BEFORE delaying retirement or cutting my expenses. And I would definitely prefer a 4-6% safe withdrawal rate vs. 2.4%!!

There are a number of common retirement withdrawal strategies to consider, including:

As I mentioned at the beginning of this episode, you must not only your project your expenses and income sources in retirement, but determine how much you can withdraw from your retirement accounts to meet your needs without running out of money. Once you have determined your current safe withdrawal rate, if it’s too low, then you need to consider your options. But before you delay retirement, cut your expenses, consider taking on a part time job, check out how a Hybrid Income Portfolio, which essentially replaces the job of bonds in your portfolio, but offers much higher (and necessary returns), can help make sure you don’t run out of money. Instead of show me the money, the right retirement motto is don’t run out of money.

I hope you feel a bit more informed about Safe Withdrawal Rates. My goal at Her Retirement is to help as many women as possible know more and have more.  When you’re ready to Get Her Done, reach out to me at or schedule a chat with me at:  Thanks for listening to this episode number 31. I’ll be back next week with episode 32.

Check out the podcast episode here! 

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