Safe withdrawal rates: how much can a portfolio pay you?

Where the 4 % rule comes from

In 1994 William Bengen tested US history: how much could a retiree withdraw in the first year, then raise with inflation, without running out of money within 30 years? The worst starting years, around 1966–68, allowed about 4.15 %, rounded to the famous 4 % rule. Adding more asset classes, Bengen later raised his estimate to about 4.7 %.

Morningstar's forward-looking research for people retiring in 2026 put the 30-year fixed real rate at 3.9 % with a 90 % chance of success, and up to about 5.7 % for flexible methods.

Why longer horizons need less

Early retirees face 40–60 years of withdrawals. Early Retirement Now's analysis of US data found that over 60 years a 4 % rate from an all-equity portfolio succeeded in only 72 % of historical cases, against 89 % over 30 years, and that about 3.25 % was needed for roughly 97 % success. When markets start expensive, with a high cyclically adjusted P/E, failure rates rise further.

A study of 38 developed countries by Anarkulova, Cederburg, O'Doherty and Sias put the rate with a 5 % chance of ruin at about 2.26 % for a domestic 60/40 portfolio, and roughly 2.7–3.0 % with international diversification. The US record was one of the luckiest.

Flexibility buys a higher rate

Guyton and Klinger's guardrails start higher and then adjust: spending is cut by 10 % when the withdrawal rate climbs 20 % above its starting level, and raised when markets do well. In US data this allowed initial rates of about 5.2–5.6 % with high equity shares. The price is an income that moves.

Sequence-of-returns risk

Two retirees with the same average return can end up very differently if one meets a crash in the first years. As Michael Kitces shows, what matters most is the real return of the first decade of withdrawals. Common defences are one to three years of spending held in cash or short bonds around the switch date, and a higher bond share for a few years before and after it.

A worked illustration

With €600,000, a 3.25 % rate gives about €19,500 a year before tax; 3.9 % gives about €23,400; 2.75 % about €16,500. This is arithmetic, not a forecast. Your own rate depends on the horizon, other income such as pensions, how flexible your spending is, fees and taxes.

• Be honest about the horizon: early retirement can mean 40 years or more.
• Start lower if markets are expensive or your spending cannot be cut.
• Write down your guardrails in advance.
• Review once a year, not after every market move.