FREE NEWSLETTER
Go to main Forum page »
The advice I keep seeing says that you can safely withdraw 4% a year (adjusted for inflation) from a 60-40 portfolio over 30 years. This is all well and good, if your portfolio is 60-40 and you start withdrawing at age 70 – or 65 if you are more pessimistic about your longevity. I have always planned based on living to 100, without really hoping to make it that long, so this advice would have worked if I had started drawing on my portfolio at 70. However, I am now 78, and only started withdrawals two years ago. So far I have withdrawn less than 1% a year and the portfolio has increased by more than that. However, my withdrawals will increase as my CCRC fees increase, plus I am planning to travel this year.
I was going to write a post asking whether I could increase the percentage, because the portfolio only needed to last 22 years, or should reduce it because my withdrawals would increase more in line with the increase in health care costs than general inflation and because the portfolio is 50-50.
Now Morningstar has weighed in with a handy chart covering multiple portfolio allocations and multiple years. It tells me that a 50-50 portfolio should sustain a 5.3% withdrawal rate over 20 years – a significant increase. However, I don’t feel inclined to go that high, given the likely trend in health care costs and my CCRC fees. But maybe I should feel more comfortable with 4%? Thoughts?
BTW, although I asked for opinions about my own situation, I was also making a more general point. The 4% SWR only applies to someone in a very specific situation. If you are 60 years old, plan to live to 100 and have an 80-20 portfolio, you need a different percentage. Etc.
I’ve tried to post twice already links to articles on the kitces website, but apparently they aren’t getting approved. So I wont link to them. If you go to his website and search “4%” you will find a number of posts which address SWR for different situations. Some are long but they are quite informative.
Try posting a single link and then the second link on a separate comment.
When I’m logged in – I can see them with a comment in orange that says “! Awaiting for approval”. I’m assuming someone has to look at the links and approve them.
Try emailing bogdan@humbledollar.com and asking for the approval. Otherwise, as Mark suggests, a post with a single link will usually make it past the filter.
This is another example of the need for volunteer moderators on this site. When I was an active moderator on another site I checked the queue of pending posts at least three times a day: Bogdan is clearly too busy to do that.
Yeah, links need to be checked by the moderator. I’ve found that a single link usually gets through without being held up, but anything more than that goes to moderation. That’s why I suggest sticking to one link per comment.
4th link:
The Big Picture
This link is reference in the 3rd link.
Thanks, Adam. Looks like 4% still.
3rd link:
Software Solutions To Calculate Safe Withdrawal Rates
2nd link:
Flexible Spending Rules To Avoid FIREing At 4%
So lets give it a roll. 1st link
Can Morningstar’s Withdrawal Rate Report Refute The 4% Rule?
Here are a couple of other rather long articles that address your concern. The Kitces website often provides some pretty good analysis of the issue you are concerned about.
Can Morningstar’s Withdrawal Rate Report Refute The 4% Rule?
Flexible Spending Rules To Avoid FIREing At 4%
I’ve found Morningstar’s guidance on this to be helpful. Most important, this is a starting point for someone with a 30 year horizon. “The base case estimates for starting safe withdrawal rates for a new retiree …….aren’t meant to imply that people who are already retired should shift their spending up or down from year to year; rather, they represent our best estimate of the starting safe withdrawal rate for a person currently embarking on retirement.”
The current assessment is slightly higher inflation but moderating to the 2% Fed target, and good future investment returns.
I’ve also found Monte Carlo simulators to be helpful. I use FireCalc which can provide a quickie analysis, is customizable and is free. It is possible to analyze a 50-50 portfolio or whatever. I do plug in percentage holdings more representative of my actual.
Because I’ve plugged in all of my financial and investment information, the Quicken “Lifetime Planner” is probably the most accurate representation for me.
I look at all of these and consider the impact of a lost decade, were it to commence this year. I then guess what’s a currently appropriate withdrawal. With 2025 data available, I did this over the weekend.
I’ve been using the IRS RMD tables to determine my annual withdrawals. We have Roth accounts etc. so our actual withdrawal is lower than the Morningstar recommended starting rate.
The planning tools available to us indicate that we could pull about 50% more than we have been, so we are gifting more.
I guess another question is what percent of your desired lifestyle spending does your pension and Social Security cover and what added income you need/want. Doesn’t that then determine what you need to withdrawal?
Don’t RMDs if applicable dictate 4% plus withdrawals?
RMDs are an IRS construct. Money withdrawn is not necessarily spent. I do my RMDs and bank the withdrawal. If necessary I draw from savings to meet cash flow requirements. At the end of the year, most of the RMD is unspent. This situation will vary based upon circumstance.
RMDs have nothing to do with spending. Do you spend yours? They simply require me to move x amount of dollars from tax sheltered to taxable. I take QCDs, have enough withheld in tax to make sure I won’t incur a penalty, and invest the rest in accordance with my asset allocation. Spending is an entirely separate issue. As I wrote, the last two years I have spent less than 1%, well below my RMDs.
Of course you are right, but they still equal around 4% or so and that’s why i am confused why be concerned about withdrawal percentages. You must take the RMD percentage and you don’t spend it all anyway and you cant take less than the RMD percentage anyway.
I must be missing something.
Let’s see:
The withdrawal percentage is not 4%, it increases each year according to your age.
My IRA is not the only component of my portfolio. In fact, the taxable portion keeps growing as money moves from untaxed to taxed.
“Taking” an RMD has nothing to do with my overall withdrawal percentage. I withdraw the RMD percentage from my IRA, I calculate the spending percentage from my total portfolio and I withdraw it from the taxable portion.
This post brings up some important issues. First, the 4% withdrawals do not guarantee anything. You could run out of money in fewer than 10 years if the markets slump as they did in the first decade of this century. Second, most of us do not know how long we will live, so flexibility in taking withdrawals is critical. Third, getting object advice from a fiduciary is a bargain.
Well, I should be OK for ten years: I’m only 50% in stocks. I have healthy balances in TIPS funds in my IRA, a chunk in a muni fund in taxable, and a five year CD ladder.
Why not consider an immediate annuity just sufficient to cover CCRC fees and other basic expenses perhaps including an average amount for travel. Then you don’t have to worry about annual withdrawals on the balance of funds?
I already have an annuity, aka pension. With no COLA. The annuity would need to increase annually to cover the increase in my CCRC fees. If you know of an annuity that will do that, please share.
Looks correct to me, but there is no guarantee that will happen in any given year, or even decade.
I dont pay a whole of attention to the 4% guideline (I hate the word rule..) but Bill Bengen the author of it, recently revised it to 4.7% over 30 years which probably is aligned with the Morningstar study. Your concerns are one of the several reasons we engage the services of a retirement financial planner. The value cannot be quantified beyond the obvious benefits of delegation, peace of mind, getting aligned, and continuity in cognitive decline, but Id venture to guess we have both saved and made more money after fees than if we did not have a planner. Not only we have the license to spend, which is wonderful and our plan definitely addresses inflation risk and increased costs in its projection out to 95. Regardless, you seem pretty conservative and my guess is you will be fine with that allocation and timeline and that your portfolio performance likely supports that.
I will probably get someone to run the numbers for me, but I hate the idea of paying an AUM fee when I am comfortable in low cost index funds.
Look into FireCalc.com
Jon Guyton of Wealth Advisors, Eagan MN coauthored a paper discussing a floating withdrawal rule that generally allowed greater than 4%.
Christine Benz new book on retirement “how to retire” has a chapter coving the topic, I found the book very interesting.
Thanks for the book recommendation. She is always worth reading.
Whatever decision you make, it is not cast in stone. I seem to be picking up on two limits here – 4% and something closer to 5%. Would you be comfortable trying 4.5% for a year or so (and use the “extra” money as you see fit)? There is no way to know what is or isn’t going to happen to influence your net worth in the future so this experiment, if you will, isn’t really a controlled one in the bigger scheme of things. But it never is. You seem like such a practical person and it appears to have served you well over many decades.
Start small. You are planing an adventure to England. What is one thing you’ve fancied over the years but held yourself back from trying or buying or donating to that you could still do that might make your journey a bit more enjoyable? Perhaps even stay longer than your current plan? Only you can answer this one but whatever you decide, I have to imagine you’ll find a way to make it meaningful to you.
Cheers!
The issue is not so much spending money in the present – obviously I have room to go higher – but the impact of health care inflation in the future. Of course, that’s unknowable, but likely to be above the “standard” inflation rate (so not reflected in SS COLAs).
“Health Care Inflation” is a real consideration. I’m speaking from my recent experience since 2022. My costs increased by a 5-figure annual mount in 2023 and thereafter. Other costs included automobile to and from which was 4,000+ miles in 2023. And so on.
Are you really exposed to health care inflation beyond the impact of Part B and perhaps Medigap premiums? Those are relatively easy to predict. You can see the Medicare future assumptions in its trustee report.
Your CCRC protects you from LTC expenses, right?
Wrong. Not sure why you think that. Fees go up every year. In Type A CCRCs you pay the same in all levels of care, but fees still go up to cover inflation. In a Type B (mine is a modified Type B), you pay differing amounts for differing levels of care, but below market rates. In those that are simply month-to-month with no promise to keep you, rates go up with inflation, period.
I was referring to healthcare costs. You were concerned about healthcare inflation. Aren’t you protected from healthcare costs by Medicare and supplemental coverage?
With your CCRC fees, you don’t use Medicare to pay healthcare costs?
Medicare does not cover Assisted Living. At all. There are limits on coverage in Skilled Nursing. Since part of my monthly fee in Independent Living is prepayment of future medical expenses (and tax deductible as such), it will go up at more than the standard inflation rate as well.
If you are under the impression that Medicare will pay for long term care you need to reconsider. And premiums are certainly going up as well.
The interesting thing about this kind of post, is that it demonstrates one of the fundamental qualities of life; the lack of certainty. Whether it is how long we will live, how long our money will last, or what the weather will be next December 25th, nothing is certain (except death and taxes). However, we must constantly make decisions to do or not to do things which will affect how our future lives play out. Decision making is stressful, so we seek reassurance from others perhaps seeking to share or soften the weight of the responsibility we feel.
Even as we are seeking reassurance, we know down deep that we cannot achieve certainty, and thus attempting to do so is futile. So, we generally choose safer options and die leaving money on the table. This is reasonable behavior, because we all have some potential for needing to deal in the future with some potentially really bad thing. For example, both my mother and the mother of my spouse had dementia, and thus we both had this as a potential thing we might have in our future.
In the US, there are around 900,000 new cases of dementia diagnosed each year. The additional cost of Memory Care, in a high cost of living area, would be a significant hit to the finances of the vast majority of households. For many, it is simply unaffordable. So, when my spouse received this diagnosis in 2022, I knew that I would have to pay for Memory Care at some point in the future. That point arrived in November last year. For 2026, this cost will be around $100k.
One of the questions I asked at each of the Memory Care facilities I considered was the average length of stay for a person with dementia. And, while there were some with very long residence, the average was 2-3 years.
While the cost of Memory Care can be a huge problem, the disease itself exacts a terrible cost from those who have it and their families. For my spouse, without the ability make new memories, there is only the Now; there is no past and no future.
So sorry to read about your wife. Also surprised that the average stay wasn’t longer – but perhaps there had been years of home care before the move.
I am definitely not in the Die With Zero crowd, but legacy is not a high priority either.
I see this as a psychology issue, not money or math. I’m going to predict that you will not pull 4 or 5% because that’s just not who you are or how you operate.
Could you do it? Of course. But, if you’re the kind of person who made it to 78 and is only withdrawing 1% I don’t see those kinds of habits changing at 78.
The only reasons I would go that high are significant increases in my CCRC fees, and more trips.
Go for it!!
Kathy,
Why not utilize a fee only CFP to run the numbers that you would be unlikely share on a public website?
I think the money would be well spent and may reduce some of your anxiety about your financial situation.
In the past I have had an advisor run the numbers every few years. It’s five years since I did that, so I have been thinking it’s about time. I hate to spend the money when I’m only drawing 1%, but on the other hand my fees went up 4.25% this year.
I think that would be money well spent!
I know what you mean, but if it helps you sleep at night it might (as David suggests) be well worth it. I certainly don’t know but I suspect you’re concerns exceed the real risk. Gene
The last time I did it inflation at 5% required a Plan B. That was a move from a two-bedroom apartment to a one- bedroom. Since my portfolio has grown since then, I may be in better shape, on the other hand inflation has not been kind.
Kathy, correct me if I’m wrong, aren’t most of your expenses at the CCRC covered if you run short on funds? If yes, you surely should not feel fearful about giving yourself a raise.
However, if you gave yourself a big raise, what the heck would you spend it on? You strike me as a content and fulfilled person, so I agree with the Irishman below. Having said all that, you sure shouldn’t deprive yourself of a splurge when the mood strikes.
Dan, yes, the CCRC won’t throw me out if I run out of money, but I really don’t want to wind up there. You’re also right that there’s nothing I particularly want to buy, although if my upcoming trip goes well I might be doing some more traveling. At 78 I’ll be traveling in a little more comfort than in the past, but I still have no interest in expensive hotels.
Clearly you’ve been very responsible with your finances. I highly doubt that will change. So I’m pretty comfortable in suggesting that if there’s things you’d like to do with some additional withdrawals, then do so. If there’s nothing you want, then I agree with Mark’s comment and wouldn’t withdraw it just because a chart says you can. A compromise might be to (periodically) buy an annuity so your income keeps ahead of your expenses. That might make it easier to spend a bit more of what’s left in your portfolio. Just my 2 cents. Gene
Well, I’m only 50% in stocks, and I have a five year CD ladder, so pretty conservative, The lack of a COLA on my pension, and potential increases in CCRC fees are the wild cards. Aside from possible travel (have to see how this spring’s trip goes) and a new car (which will be covered by the new car fund), I have no plans for significant expenditures.
Did you ever get that smart TV so you could have closed captions? I vote for that. You can usually get good deals in January because people are getting ready for the Super Bowl!
Oh yes, I bought a new one when I moved to the CCRC. What I really need is the adapter cable to connect the gizmo to connect (via Bluetooth) my hearing aids to it. I have been using YouTube TV and listening to the sound off my iPad but it doesn’t sync perfectly. Interestingly, I get different ads on the iPad and the TV.
Difficult to assess without actual numbers- size of portfolio, CCRC fees (current and projected), S.S. amount, etc. It seems you are being very conservative. You started your withdrawals at 76 instead of 70. That, in my mind, gave your portfolio 6 extra years to grow. In addition, you only withdrew 1% for 2 years. In reality, you have barely touched your portfolio at age 78. When you add in your S.S. & pension (non COLA’d if I remember from past posts) it seems 4% will work. I always thought 4% was a very conservative number. I know it is tough getting around the psychological barrier of tapping into your portfolio because I am in the same boat! Best of luck.
I am indeed being conservative, but I was encouraged by the 5.3%, even though I’m not planning on spending that much. Well, absent a significant drop in value.
I assume you noticed that the Morningstar withdrawal rate percentages are estimates that have a 90% probability of your not running out of money. My personal preference would be to use a rate that is close to 100%.
I agree. Another reason not to go for 5.3%.
Perhaps my logic is too simple, but if a 1% withdrawal rate covers a comfortable life right now, why increase it just because the math says you can?
Would keeping things exactly as they are not work? You can then increase your withdrawals only as needed to keep pace with your “personal” inflation rate and for travel expenses like your trip to England. Think of your current low withdrawal rate as a way of building a “war chest” against future CCRC hikes and medical costs.
I’m not planning to increase it just for the sake of increasing it! I’m interested in how much I could withdraw if necessary – or desirable. Maybe I should take more taxis…
Excellent analysis! Thanks for the well thought out and reasoned post!!
Thanks Winston. Is that a vote for 4%?