Safe Withdrawal Rates

By Chris Duderstadt

December 8, 2023

Safe Withdrawal Rates: Is 4% Safe Again?

Key Points – Safe Withdrawal Rates: Is 4% Safe Again?

  • Breaking Down Morningstar’s Annual Study on Safe Withdrawal Rates
  • Factors Used to Determine Safe Withdrawal Rates
  • Who Came Up with the 4% Rule?
  • What Is and Isn’t in Your Control as You’re Determining Your Safe Withdrawal Rate
  • 5 Minutes to Read | 24 Minutes to Watch

Is 4% Really a Safe Withdrawal Rate?

Rules of thumb can oftentimes be helpful when trying to complete a task. However, there are some tasks—such as retirement planning—where rules of thumb won’t yield the best possible results. That’s because retirement planning needs to be unique to each person. An example of one of those retirement planning rules of thumb is the 4% rule for a safe withdrawal rate.

The term safe withdrawal rate refers to how much retirees can take out of their retirement accounts on an annual basis without potentially outliving their money. Dean Barber and Bud Kasper, CFP®, AIF® are going to help us review a 2023 Morningstar study about safe withdrawal rates and provide more background on the 4% rule.

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How Safe Withdrawal Rates Are Determined

It’s no secret that many people who have retired in the past couple of years have battled some less-than-ideal markets. 2022 was a unique year where stocks and bonds both suffered big losses. While there have been improvements in 2023, we know that a lot of people are still trying to make up for all of 2022’s losses.

It hasn’t helped that heightened inflation—while it is slowing—has continued to put people in a position to take larger withdrawals due to their portfolio’s value declining. Inflation, market performance, asset allocation, the expected duration of your retirement, and how much you spend all factor into determining safe withdrawal rates.

Risk factors such as inflation and poor market performance can create a great deal of financial stress, especially when you need your money to start working for you. Thankfully, there are some encouraging signs for people who are in retirement or about to retire.

Morningstar’s 2023 Study on Safe Withdrawal Rates

Morningstar has been doing this annual study on safe withdrawal rates since 2021. Back in 2021, Morningstar concluded that 3.3% was the new safe withdrawal rate, not 4%. That means that retirees could safely withdraw as much as 3.3% as an initial spending rate and still have a 90% probability of success to have more than sufficient funds for a 30-year retirement. That bumped up to 3.8% in Morningstar’s 2022 study, and back to 4% as a safe withdrawal rate for 2023.

“The 4% number is for a 30-year retirement.Somebody retiring at 60 would need to live the 90. Somebody retiring at 65 would need to leave to 95 to follow that 4% rule. But there’s way more to it than just the 4% rule.” – Dean Barber

How Did We Get to This Point?

So, what’s Morningstar’s reasoning for 4% once again being a safe withdrawal rate? Bond and cash yields have increased, which has led to projected portfolio returns to increase. Therefore, the rate at which retirees can safely withdrawal from their portfolio over an estimated 30-year retirement has also gone up since 2022. Inflation cooling has factored into this as well. In 2022, Morningstar used a 2.84% long-term inflation factor compared to 2.42% in 2023.

There is an important clarification to make about Morningstar’s study, though. They’re not saying that a 4% withdrawal rate will be safe for everyone. They’re saying it can be used as a starting point, and then be adjusted based on the five factors we mentioned earlier: inflation, market performance, asset allocation, the expected duration of your retirement, and how much you spend.

“We work off that 4% rule as a baseline, but then we have this stress tested through the past experiences and events in history because we can’t predict the future. Therefore, that’s how we rely on the data being correct.” – Bud Kasper, CFP®, AIF®

How the 4% Rule Originated

All five of those factors are going to change over the course of your retirement. And William Bengen, who came up with the idea of the 4% rule in 1994, understood that. Bengen looked over every 30-year rolling period from 1926 to 1994 in a portfolio that was 50% bonds and 50% stocks and found 4% to be a safe withdrawal rate.

1926 to 1994 was obviously quite a wide timeframe. Think about the economic cycles and events that happened—the Great Depression, World War II, Vietnam War, the extremely high inflation of the early 1980s, etc. While a 4% withdrawal rate might have kept a lot of people safe in retirement for most of that stretch, the idea was just to consider the 4% rule as a starting point.

“What a lot of people don’t understand is that Bengen’s purpose of the 4% rule was at the end of one year, it needs to be recalculated for inflation. So, it could go up or it could go down.” – Bud Kasper, CFP®, AIF®

Things That Are Out of Your Control, But You Can Plan for

The bottom line is that your safe withdrawal rate needs to be dynamic. While factors such as inflation and the markets are out of your control, you can still plan for them by stress testing your plan through a multitude of economic conditions.

“By having a dynamic withdrawal strategy, you’re taking those excess returns in the year that they are given and park it. Set it aside for the next year and for the next year.” – Dean Barber

Let’s say you have a year where you have a 12% total return. Now you not only have the first year’s withdrawal, but now you also have two additional years of withdrawal. That allows you to potentially increase equity exposure for a portion of your portfolio because you got a longer period of time before you need to touch that piece.

Using a 50%/50% asset allocation throughout the duration of your retirement also isn’t advisable. Again, Bengen’s 4% rule and Morningstar’s study simply use that asset allocation as a starting point. Whatever asset allocation you used at the beginning of the year isn’t likely the asset allocation you should have now. That’s why Dean and Bud discussed the possibility of doing a mid-year rebalance back in June on America’s Wealth Management Show. Maybe it’s time for you to rebalance again at year’s end.

Things That Are within Your Control, That You Should Also Plan for

How much you’ve saved, where you’ve saved to, and how much you want to spend in retirement are things that are very much within your control. What retirement accounts are you going to spend from and when?

That’s going to look different for everyone. Your earnings history and how you’ve saved for retirement isn’t going to be the same as your best friend or coworker. Hopefully, you’ve done a great job of saving for retirement. However, some people can get so hung up on saving for retirement because they’re worried about inflation, market downturns, etc. that they end up saving too much for retirement. And therefore, they end up needlessly cutting back on their spending.

All the factors that go into determining safe withdrawal rates are referenced in our Retirement Plan Checklist. It’s comprised of 30 yes-or-no questions that gauge your ability to successfully get to and through retirement as well as an age-based timeline of important retirement considerations. Download your copy below!

Safe Withdrawal Rates

Retirement Plan Checklist

Creating a Spending Plan for Retirement

Everyone’s first question during the retirement planning process is, “Do I have enough?” The only way to know whether you have enough to get to and through retirement and what your safe withdrawal rate should be is by creating a forward-looking financial plan. Part of your financial plan should include a spending plan for retirement. What are your needs, wants, and wishes going to be in retirement, and what are they going to cost?

It can be hard for people to get over the mental block of not having a paycheck to cover those expenses. It will be even harder for people who don’t have the clarity of a financial plan that helps them determine how much they need to have over the duration of their retirement and what their safe withdrawal rate should be. We can’t stress enough that as the circumstances in your life change in retirement, your withdrawal rate likely will as well. Your safe withdrawal rate needs to be dynamic.

“These rule of thumb type of scenarios don’t really give us the answer. You need to create your spending strategy not based on a percentage of the total value of your investments, but by first creating a long-term plan. And in order to create that long-term plan, you need to step into the future.” – Dean Barber

Have Any Questions?

If you have any questions about withdrawal rates and the factors that impact them, schedule a conversation with us below.

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We say it all the time, but it all starts with a personalized financial plan. Our team of professionals works together to build individualized plans to help people gain more confidence that they’re doing the right things with their money, freedom from financial stress, and time to spend doing the things they love. Putting our clients’ needs has and always will come first.

Safe Withdrawal Rates | Watch Guide

00:00 – Introduction
– Some Background on the 4% Withdrawal Rules
– The Latest Morningstar Study on Safe Withdrawal Rates
– Alpha, Beta, and Now…Gamma
– Dynamic Withdrawal Strategies
– Thinking About Your Future Retirement Income
– The Retirement Smile
– Retirement Spending
– What We Learned Today


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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.