One of the fundamental questions in retirement planning is: what’s a safe withdrawal rate?

How much can you withdraw from your retirement savings without running the risk of outliving your money?

It’s a question that draws varied answers and opinions from financial experts.

Understanding Safe Withdrawal Rates in Retirement Planning

For years, Morningstar has published a guideline for a safe withdrawal rate. At one point it was 6%, then slowly dropped and was less than 3% for a while, but has hovered around 4%.

This means withdrawing 4% of your retirement portfolio annually to sustain your income needs.

Sequence of Returns Affects Withdrawal Rates

There have been periods when market downturns have pushed safe withdrawal rates below 3%, highlighting the volatility of relying on fixed percentages. This is a direct result of a sequence of return risk, simply put that is when market losses occur. Losses during the retirement risk zone (highlighted on page 4 of this whitepaper) can change the safe withdrawal percent.

Conversely, there are more optimistic views. I recently spoke with someone advocating for a 10% withdrawal rate based on historical stock market returns. This perspective assumes consistently high returns, which does not align with the unpredictable nature of markets over shorter retirement periods.

So, what’s a realistic safe withdrawal rate?
Much of it hinges on how your retirement accounts are managed.

When managed effectively, a well-structured retirement plan can aim for a sustainable withdrawal rate of around 6%.

This involves careful portfolio management and risk mitigation strategies tailored to retirement needs.

Our Retirement Shift vlog features an interview with our portfolio manager on how we navigate these risks and aim for a stable 6% retirement income.

Of course, if you would rather just talk to a real person, just give us a call or reserve a time on our calendar.

Here’s to securing a prosperous retirement journey!