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New research presented by Kiplinger shows significant variations in typical withdrawal rates. As you may suspect, some of that is based on age, marital status, the existence of a steady income stream and when the RMD kicks in.
Among the interesting observations: “The “Lifetime income” effect: Retirees are willing to spend roughly 80% of their “lifetime income,” which includes Social Security, pensions, and annuities. But they are only willing to spend about half of what they could safely afford to from their investment assets, which include: managed portfolios, IRAs and brokerage accounts. Retirees spend only about 40% to 50% of what would be considered a “safe” withdrawal from these pools of resources.
In any case, the typical single withdrawal rate is reported as age 65 – 1.9%, age 75 – 4.4% and age 80 – 4.6%.
For married folks age 65 – 2.2%, age 75 – 3.2% and age 80- 3.8%
Not sure what this means other than there is no such thing as a single desirable withdrawal rate and there is significant value in a steady income stream in retirement-neither of which are a revelation.
I’ve witnessed the 4% rule in practice. After inheriting a non-spouse IRA in my forties, my required RMDs have averaged 3.75% over the last two decades. Even with the much higher (>5%) required RMDs of recent years, the IRA has grown more than 50% in value since I inherited. Of course, growth depends on investment type, market conditions, etc. Had I realized this and my future tax liability sooner, I would have withdrawn more agressively in the early years — but taxes are a good problem to have!
You hit the nail on the head, there is no one number that fits ALL. But the 4% number is a good all around number to think about. Retirement is all good, if you saved properly for the 40 years before it, which apparently most people do not or can not do. Then they will struggle. At 80 years old, I take out as much as I can to not incur higher taxes.
Great timing on this article. I literally watched a YouTube video about an hour ago discussing eight common retirement withdrawal strategies, with the 4% rule being just one of them. It’s amazing how many different approaches there are once you move beyond the traditional rule.
They discussed methods like the Guyton-Klinger guardrails approach, which adjusts withdrawals based on portfolio performance. One method I didn’t see mentioned, though, was the modern risk-based guardrails strategy, which tries to adjust spending based on both portfolio risk and remaining horizon.
I’m curious if anyone here has actually used one of these more dynamic withdrawal strategies in retirement. The theory makes sense—adjust spending as conditions change—but I’d love to hear how it works in practice.
A few years ago I concluded I was under withdrawing. I begin with the RMD calculations but shifted to a modified guardrails approach. I evaluated just about every approach Christine Benz writes about at Morningstar. I ran a few scenarios and decided the MGA was best for me.
I have both traditional and Roth IRAs. My largest single annual withdrawal was 10% of the total value of these accounts. However, these accounts recovered and currently indicate a peak value. That’s been generally true on December 31 of each year. Because of circumstances we haven’t spent all of our withdrawal in recent years. That’s likely to be so in 2026. We are fortunate and don’t have to exercise caution with our spending. We’ve increased our charitable giving and G is currently on the east coast caring for an elderly relative. We have no concerns about the cost of her trips, which number 3-4 each year.
I’ll probably take a larger withdrawal this year. It is really more about tax management at this point. I’m allowing our taxed accounts to increase in value although I want to avoid going up a bracket with withdrawals. I have no intention of taking additional withdrawals from the Roth IRA in the foreseeable future.
I plan to take as little as possible. I’m hoping it’s less than 4%. That way the calculations using 4% give me some buffer.
I find it interesting how different people approach this. Your goal is to withdraw as little as possible, while mine is almost the opposite.
My goal in retirement would be to maximize what I can safely spend, but ideally with much of that spending being discretionary rather than fixed so it can flex with market conditions.
One of my motivations for that approach is that I’d like to see more of my money being used while I’m alive, rather than leaving a much larger portfolio behind simply because I underspent. That discretionary spending could include giving more to charities, helping my kids financially while I’m alive, and simply living life more fully—traveling, seeing more of the world, helping friends in need, and experiencing the joy that often comes from giving directly to others.
Of course there’s a balance, but personally I’d rather avoid ending up with two or more times the amount I started retirement with simply because I was too conservative or afraid to withdraw money—or afraid of running out.
I’m with you, Fred. As long as I can keep the portion of my fixed expenses not covered by guaranteed income below 1%, I don’t have a problem spending another 2 or 3% on discretionary purchases. It’s just that so far, even our discretionary stuff is within the 1%.
Brian, maybe I’m reading too much into your phrasing, but “hoping to take less than 4%” gives me pause. If you’re close to retirement, shouldn’t you have a firm grip on your likely burn rate and a clear sense of how that maps to your withdrawal percentage? I wouldn’t have felt comfortable pulling the trigger on retirement with just a hope around that number.
I suspect RMD requirements influence this. The data pesented also suggests that retirees can afford a social security “haircut”, e.g they are currently. spending 50% or less of their annual withdrawal. The data underscores some published at Morningstar which indicates that many retirees could withdraw, and spend, more than they actually do. I don’t know how typical we are, but we barely tap my annual RMD. G is not yet required to take this from her accounts. My projections indicate we could spend about double each year. Because of my illness it is very unlikely I’ll be alive in 5 years, so running out of money isn’t an issue. That’s better than the alternative. . I’ll probably be on dialysis “soon”. I’ve told G to party and travel extensively after my demise. Currently my medical leash requires i be near a medical facility. However, we plan on leaving AZ for the summer and head to the lake in Michigan.
Apologize for duplicate/deleted posts. I have been struggling with posts “waiting for approval” even though I log in afresh.
A few weeks ago, there was an article on The White Coat Investor website, which is targeted at medical professionals, entitled “Will your retirement go as planned?”
It contains a chart that is quite revealing (Somebody Is Probably Going to Die ).
When viewing the chart which has frequency percentage on the y axis and age on the x axis, Green (which shows different withdrawal rates) represents ‘rich’ (2/3rd of the chart didn’t run out of money), red is broke (very small slither on the chart, maybe 4%), and black is dead (30% of chart approximately). The point being you are far, far more likely to die young than you are to run out of money because you lived too long.
The author, 49 years old and married at the time of writing, summarizes the chart by reflecting on himself and his wife “There’s a 30% chance one of us will be dead before I turn 70 in two decades. Two-thirds of the time, one of us will be dead before I turn 80. Sure, there’s a small (9%) chance one of us will still be alive 50 years from now, but it almost surely (1%) won’t be me.
He goes on to discuss “What Retirement Really Looks Like”, a little pessimistic but the summary is:
What to do?
Having lost my father at 76 years of age and mother at 85 years of age, I felt, all things being equal, I could land somewhere between these bookmarks. Hence my decision to semi-retire at age 60 and try to live life to the fullest as my health span allows. Estimating that at some point in the future, based on family history, there could be health challenges lying in wait.
Grant – just so you know for future reference, if you include more than one link in a comment it’ll usually get sent to moderation.
I actually read that article a while back. Funnily enough – and I’m aware of how this sounds given the subject matter – I found it strangely reassuring, even validating of my decision to retire at 58. Make of that what you will about my thought process!
Thanks, I didn’t know that about the links. My takeaway also was that the article supports early retirement. However, it is also a little clinical and I was a little concerned it may not strike a chord with a number of HD readers
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Here is a link to a Morningstar research paper regarding different withdrawal plans:
https://www.morningstar.com/business/insights/research/the-state-of-retirement-income
You have to agree to receive marketing materials to get the report.
4% is the answer to a very specific question under a certain set of assumptions.
Assumptions:
Asset allocation: 50/50 rebalanced every year.
Time horizon 30 years
Withdrawal rate: X% of initial balance increased with inflation every year.
Question: Based on backward looking data, what is the maximum withdrawal rate, X, that guarantees that the portfolio will not be depleted at the end of 30 years.
Answer: About 4%
This is a very conservative number, because there are only 2 or 3 30 year periods in which one’s portfolio would be exhausted at a 4% initial withdrawal rate. As such, there are more sophisticated withdrawal and asset allocation management strategies which allow for increased portfolio spending, while managing the risk of your portfolio being depleted over your lifetime.
That said – the 4% guideline is a good place to start in your retirement planning. In the accumulation phase it’s a good way to measure your retirement savings needs (25x your expected retirement spending needs after accounting for social security and any pension).
As you approach retirement and your planning gets (hopefully) more detailed, the 4% guideline can give you some clarity. If your required portfolio withdrawal rates are significantly less than 4% – then you can pursue a fairly simple asset allocation and withdrawal strategy and feel confident. If it is greater than 4% you should give some thought to one of the more sophisticated withdrawal strategies.
I still can’t understand the apparent widespread objection/reluctance to first establishing a steady income stream in addition to SS as necessary to “guarantee” covering basic expenses.
For example, If you buy a lifetime immediate annuity at age 65 with $250,000, the typical monthly income today is roughly:
My income is a pension, but even so I built a backup/supplemental “steady” income from interest and dividends.
I realize many people say they can manage on their own, do better than an annuity, invest and accomplish the same, but I bet more people can’t.
RQ,
I think it comes down to people don’t want to hand over a large sum of money to an insurance company even though it makes sense for some folks.
I think you are right. I would advocate doing the annuity through a 401k when available. In a way like contributing toward a pension. Or, using multiple small annuity purchases instead of one large one.
When I used to suggest these to tax clients looking for more income, it became apparent that most painted all annuities with the same brush. They just didn’t realize that some annuities were fixed, and others variable. I have even witnessed some HD readers make the same mistake.
Exactly.
Many years ago I was talked into buying a variable annuity for Connie and me. The monthly payment was modest, I can’t remember the exact amount, but I know I couldn’t afford much. I had no idea what I was doing.
In any case, I stopped making payments as soon as the required period was over. I have ignored them since.
I just looked at the values: $157,868 and $144,216. They are now invested in a Fidelity balanced fund, the result of transferring to Fidelity.
Good, bad, winner or loser? I have no idea. What I do know is we have $300,000 resulting from some payments that ended over 30 years ago.
Is there a widespread reluctance to creating the guaranteed income floor? It seems very common for those who can do it, though I admit I can and haven’t.
I base that on the general anti-annuity comments on HD in favor of investment management in various forms.
My RMD, combined with Social Security and a small pension, is more than I need to live on, and the monthly SEP distributions to me seem better than any annuity I can imagine. I am unlikely to ever withdraw more than my RMD (or less). And despite the surplus I have each month, I don’t have much interest in increasing my consumption spending at all (though I’ve noticed I am gifting a bit more.) The RMD process did, however, help me to sort out what I should be doing with my investment choices and to simplify.
I believe what it means is there are many retirees that have never given this a thought or have found it too tedious.
Also, if we compute the RMD as a percentage for ages 75 and 80, (4.1% and 5.0%, respectively.) the reported typical single withdrawal rate is less than the RMD. I’m not sure what that means, either.
The cited article from Kiplinger’s references recent work done by David Blanchett and Michael Finke on “License to Spend”, something they have published on previously (and I have mentioned here in previous comments). I’m a fan of these guys but just vary a bit from their proposal of annuities as the single discretionary solution to other sources of guaranteed income like pensions and Social Security. We use a rolling 10-year TIPs ladder which, unlike annuities, accounts for inflation. Full disclosure: We also have QLACs, deferred annuities, in our retirement accounts, for income later on and a degree of longevity insurance.
Dick, I think your last paragraph is spot on – “Not sure what this means other than there is no such thing as a single desirable withdrawal rate and there is significant value in a steady income stream in retirement-neither of which are a revelation.”
I think one thing that is often grossly misinterpreted is what the 4% (or now 4.7%) figure really means. It is simply a mathematical result of analysis of historical returns over an extended period. And it happens to be the result arising from retiring at the worst possible time. So it has some merit as a rule of thumb for retirement planning, but certainly should not be the gold standard for retirement planning or withdrawal calculation.
I also think that the psychological benefit of a pension or annuity is very interesting. The concept of “risk free” money that helps retirees spend more is certainly not mathematical, but very emotional.
It anecdotally looks like many people (especially those who access sites like Humble Dollar and Bogleheads) may be underspending defensively due to an unknown future. I do this myself.
Especially those who have been fortunate enough to fall under these positive situations:
Although using a Safe Withdrawal Rate (SWR) is a highly touted “rule of thumb” it has its issues.
The most common SWR is the 4% Rule. It suggests you take 4% of your initial portfolio balance in Year 1, then adjust that fixed dollar amount for inflation every year thereafter, regardless of what the stock market does.
The Flaw: It is “blind” to current conditions. If the market crashes (a “sequence of returns” risk), you keep withdrawing the same inflation-adjusted amount, which can rapidly deplete a shrinking portfolio.
The Result: To avoid going broke in a worst-case scenario, the 4% rule is intentionally too conservative for most people. This often leads to “over-saving” or dying with a massive surplus you could have enjoyed while younger.
Because of the above, in addition to other financial tools I use (including Boldin which I really like), I have recently been exploring the use of a tool called “TPAW Planner” (Total Portfolio Allocation and Withdrawal) .
It is highly customizable to unique individual financial situations, risk tolerance, and legacy goals, and dynamically adjusts based on market conditions.
If you haven’t taken a look at this, I’d recommend taking it for a spin as it may help you better evaluate how much you can spend without fear of the unknown (something I have a lot of).
Thanks for the link Doug C. This seems like an easier version of the Maxifi planner.
I think you are right about underspending. However, I don’t think the flaw for the 4% rule is valid. Doesn’t that strategy already take such market variables into account?
I’m no financial expert but here is my take…
SWR is based on historical backtesting and sometimes incorporates Monte Carlo analysis. Monte Carlo simulation runs thousands of “what-if” scenarios by randomly shuffling historical market returns (volatility and average growth) to see how your portfolio holds up. Based on criteria you set you then choose a SWR rate to use from start to end.
A fixed SWR doesn’t instruct you on what, if any, adjustments should be dynamically made over time based on changes in the market. It only bases periodic changes on the inflation seen in that period.
An SWR based on looking back over historical returns does not predict what will happen year in and year out into the future.
TPAW (Total Portfolio Allocation and Withdrawal) uses an Amortization-based Withdrawal (ABW) method. It calculates your safe spending every year based on the criteria you set looking at real changes in the market and inflation in that specific time period.
Bogleheads has a large conversation on TPAW as well as what can be found at the TPAW tool’s website in the help documents. The link to the Bogleheads conversation is at:
https://www.bogleheads.org/forum/viewtopic.php?t=331368
These references would do a much better job than me of expressing the pros and cons of SWR vs TPAW.
Also, I failed to mention that even though the referenced tool advocates and defaults to the “TPAW” strategy, it also provides the ability to show results based on choosing an “SWR” strategy and something it calls an “SPAW” strategy.
So either way, even if you choose to use “SWR” it is a very useful and powerful tool 🙂
We have never used nor plan to use any % spend rate in retirement.
Not that I am against it (although when people start debating to the decimal point it seems a bit pointlessly specific); I just never felt the need.
I employed a version of the “Bucket” strategy over 20 years ago which evolved over many years before retirement as the framework for our finances and establishing an inflation adjusted “salary” going forward into retirement. The “salary” is provided by the investment portfolio buckets alone-no annuities or pensions and if we ever see any Social Security $ it will be considered a bonus not an assumption.
Another benefit of the Bucket approach was it gave me a very visible glideslope into retirement. I could see very clearly when the “buckets runeth over” and I was able to retire if I wished. That was a very empowering feeling while I still worked a few more years by choice.
Now in retirement, as long as our buckets line up in both present day $ and projected 3% inflation adjusted $; the “bucketized” portfolio spreadsheet is put back to sleep for another year.
The end result is basically the same as those who subscribe to the % method presumably have an annual “salary” figure too. Its just another angle of approach to the age old topic.
Could you give a simple example of your bucket strategy? Are you talking about a pool of money for specific time periods including different investments?
Dick, Correct on the “pools of money for specific periods”-which are invested and managed/allocated differently based on which time frame “bucket” the assets are in.
In our case (there are almost infinite versions out there):
Bucket #1: Duration: 4 years + present year
Goal: stable- if it keeps pace with 3% inflation its a bonus
Bucket #2: Duration: 7 years
Goal: keep pace with 3% inflation or beat it (excess when applicable goes to Bucket #1 refill).
Bucket #3: Duration: indefinite/all core funding assumed to be at least 12 years from beginning to be spent at any point in time.
Goal: Beat 3% inflation over time. When over funded, bucket “overflow” is used to refill buckets 1/2. (In bad or flat years when not over funded, leave all assets invested in Bucket #3 and let the Bucket 1/2 12 year duration compress).
>As noted previously, I balance within and between the “buckets” typically once per year.
>I can see shrinking the conservatively long 12 year Bucket 1/2 window as we age.
>The Bucket Strategy does not solve the under-spending dilemma. It does however give good visibility to and an annual reminder of the “problem”.
Are the buckets all within qualified IRA etc. Are they actually in separate accounts? How do you deal with RMDs? Are you affected by taxes upon rebalancing?
*Are the buckets all within qualified IRA etc?: No, it’s a blend of Trad. IRA, ROTH and taxable.
*Are they actually in separate accounts?: Bucket #3 is separated from Buckets #1 & #2 for simplicity.
*How do you deal with RMDs?: We have not reached that esteemed age yet. When we do, the RMDs will be reinvested in the taxable portion of Bucket #3.
*Are you affected by taxes upon re-balancing?: Only some minor capital gains when taking some Bucket #2 “overflow” due to equity index fund growth and using the proceeds to refill Bucket #1.
Thank you for taking the time to reply. It’s a bit overwhelming for me.
Sounds like a great plan, DW. Like you, I kind of snicker at the decimal point debates.
There’s a well-studied phenomenon around annuity income called “permission to spend.” Annuitants are much more likely to be at ease actually spending their income than someone drawing from a portfolio of volatile assets — even when the amounts are identical.
The psychology makes sense when you think about it: every withdrawal from a fluctuating portfolio feels like a permanent loss. Annuity income just arrives, so you treat it like a paycheck. Wade Pfau, the retirement research guy, has a lot to say about this. His view is that the behavioural value of guaranteed income is a genuinely underappreciated part of the annuity case, separate from any purely mathematical argument
.
Very interesting. So the annuitant can enjoy their spending knowing more is on the way while those living on withdrawals experience some anxiety spending their retirement funds not knowing what the future may hold for their assets. I hear echoes of Jonathan Clements’ advice here regarding using annuities to fund your regular, fixed expenses as a means of reducing this form of anxiety.
That’s pretty much the gist of it, and it’s something I have personal experience with. Before retiring, I purchased a ten-year term annuity to cover all my essential spending — and I really can’t emphasise enough the peace of mind this has given me compared to drawing down from my portfolio for those expenses. It’s simply like getting a paycheck every month. No hassle, no worry.
I’m now reasonably certain I’ll purchase a lifetime annuity when this one matures in ten years, because of the confidence a guaranteed income gives you to actually spend.
At 73 and 70, we could probably burn through 5 or 6%. However, we are only using about 1%. Why this is, I am not sure. Long term care is on my mind, as is Chrissy’s well being should I croak first. We also seem to have everything we want. Our kids already have more money than we do, so they don’t need any of ours. And I still enjoy watching our net worth grow.
Dear Dickie, are we messed up?
Not messed up in my book. I can’t really relate to the concept of spending down and living off accumulated assets. When I think of it I get shivers up my spine.
I get upset (illogically) when the market shrinks our investments even temporarily. If I didn’t have to, I would not take a RMD.
Heck, we still save each month. Thankfully, our pension and SS provide more than we need.
By all the “rules” of retirement living, I am truly messed up. I’ve tried to change my mindset and not worry about investments and spending, but no luck.
Dick,
You worked your a$$ off to get to 67 and to where you and your family sit today. You are proud of your accomplishments and should be. Your accumulated wealth and security means a lot to you and will always be a measuring stick for you. No need to change or feel you need to change.
I say this with utmost respect.
Cheers 🍻
Thanks. I acknowledge my lack of serious misfortune as a major factor.
if I had not worked to 67 and rather even three years less, I would have missed by largest earning years, especially non-cash compensation.
I think my outlook on income and security is driven by the life my father and mother had. I was determined not to be in the position they were during retirement.
it wasn’t their fault, but rather their living through the depression and WWII with minimal education and other adverse life events, including being forced to retire.
You don’t want to be on your death bed wishing you did “this or that.” I’m for spending more. As Augustus McCrae said, ‘It’s not dyin’ I’m talkin’ about, it’s livin’.”
Yeah, I know your right, August. I’m workin’ on it.
I would wager that many folks keep funds for a “rainy day”- primarily long term care events. If it is for their inheritance they could disburse more funds to their kids earlier.
Thought experiment:
excluding those who entered retirement with little to no assets, does anyone know, or heard about indirectly, someone who spent down all of their assets in retirement, such that they were forced to change their lifestyle dramatically, or literally spent or lost it all, and became destitute? “IF” the answer is a collective no, then that would support the idea that retirees fear of running out of money is overblown and that they are spending too little.
No, but I disagree with the conclusion. Had markets been different, or should they be different, the answer might be yes with sadly numerous examples, indicating those who “underspent” were right to do so.
There are a lot of variables there. I don’t know of any personally. However, I suspect those entering retirement with significant assets already know how to manage money.
Nevertheless, overblown or not, for most people the unknown over 30 years and the fear of not being able to cope must be real.
There are always WHAT IFS to think about.