top of page
  • Writer's pictureMark Fonville, CFP®

What is a Safe Withdrawal Rate in Retirement?

Updated: Apr 28

What is a safe withdrawal rate in retirement?

Are you ready to retire and start enjoying the fruits of your labor? One crucial aspect to consider is your withdrawal rate.

But what exactly is a safe withdrawal rate in retirement?

A safe withdrawal rate refers to the percentage of your savings that you can withdraw each year without depleting your nest egg too quickly. This is a critical factor to ensure that your money lasts throughout your retirement.

Finding the right withdrawal rate is not a one-size-fits-all approach. It depends on various factors such as your age, expected lifespan, investment returns, and lifestyle expenses.

Striking a balance between sustaining your lifestyle and preserving your savings can be challenging, but it is possible with careful planning and a solid understanding of safe withdrawal rates.

In this article, we will delve into the concept of a safe withdrawal rate in retirement.

We will explore different strategies and considerations to help you determine the optimal withdrawal rate for your unique circumstances.

So if you're ready to secure your financial future and make the most of your retirement, let's dive in!

What is a Withdrawal Rate?

What is a withdrawal rate?

A withdrawal rate is like the heartbeat of your retirement plan. It helps determine the rhythm of your financial life after the 9-to-5 hustle.

The withdrawal rate is the percentage of your retirement savings that you can withdraw each year without risking the dreaded scenario of outliving your money.

That’s why establishing a safe withdrawal rate comes with a delicate balance. The goal is to enjoy your retirement years while ensuring a sustainable income.

Several factors come into play to find an optimal withdrawal rate. To start, it’s good to estimate your expected lifespan. If you withdraw too much too soon, it could lead to financial challenges later in life.

Inflation also erodes the purchasing power of your money over time. But with the right investments, you can protect against and even outpace inflation. A well-diversified approach can mitigate the impact of market fluctuations.

Furthermore, adjusting your withdrawal rate based on your lifestyle is crucial. Tailoring your financial plan to your needs and goals can ensure that your retirement is both comfortable and secure.

A strategic approach to finding your withdrawal rate navigates retirement planning challenges. This can help safeguard your financial well-being in the long run.

Your withdrawal rate isn't a number etched in stone, it may evolve over time.

This dynamic nature underscores the value of having a financial advisor by your side. As changes come up, such as market moves and new expenses, an advisor can help reassess and recalibrate your withdrawal rate. This can keep you aligned with your evolving needs and goals. 

Finding and ranking your financial goals, whether in a free retirement plan assessment or through other planning, is a crucial step. This can help you determine your safe withdrawal rate.

Is the 4% Rule Still Good for Retirement?

Many advisors regard the 4% rule as a helpful starting point in retirement planning. This rule suggests that withdrawing 4% of your retirement portfolio each year provides a good balance between enjoying your retirement and preserving your savings. While this guideline offers a structured approach, keep in mind that it's not a one-size-fits-all solution.

Personal situations vary, and relying solely on the 4% rule may not address the challenges of your financial situation. Factors such as expected lifespan, market conditions, and personal spending habits can impact the suitability of this rule.

For those facing unexpected financial challenges, a rigid adherence to the 4% rule might prove too risky. Many factors can lead to more flexibility with withdrawal rates.

While the 4% rule serves as a good rule of thumb, adjust it based on your goals and needs.

A financial advisor can help with personalized assessments, considering factors beyond the scope of this rule. This tailored approach can ensure that your retirement plan is not only robust but also adapts to your needs and goals.

Safe Withdrawal Rates by Age - 3 Case Studies

While wildly popular, the 4% rule is not a one-size-fits-all solution. Various factors such as retirement age, life expectancy, market volatility, economic conditions, and personal spending needs can influence the ideal withdrawal rate. 

Additionally, as life expectancies increase, planning for a longer retirement is prudent.

Using Monte Carlo analysis, we created three hypothetical retirement income plans to determine a sustainable withdrawal rate depending upon age. Our case studies include the following assumptions:

  • A starting value of $1 million in an IRA.

  • Life expectancy is age 95.

  • Withdrawals are optimized to achieve an 75% probability or better of not running out of money.

  • Tax rate of 20% on withdrawals.

Let's break down the results of our case studies:

Early Retirement (ages 55): Starting withdrawals earlier necessitates a more conservative approach. With potentially 40 years of retirement ahead, a safe pre-tax initial withdrawal rate might range from 2.5% to 3.0%, depending on your risk tolerance and investment strategy.

Mid-Retirement (age 65): If market conditions have been favorable and your portfolio has grown, you might be able to adjust your withdrawal rate slightly higher to a pre-tax initial withdrawal rate from 3.4% to 3.8%.

However, it's crucial to conduct a mid-retirement financial review to assess longevity risk and ensure future expenses, especially healthcare, can be met.

Late Retirement (age 70): If you're fortunate to have a robust portfolio in your late 70s and beyond, you might feel comfortable increasing your withdrawal rate. Our case study suggest that a pre-tax withdrawal rate of 5% or higher might be possible.

It's important to note that your personal situation may have a different outcome. For example, perhaps you have more money saved in taxable accounts. Or, maybe you are targeting a different portfolio mix of stocks and bonds.

Due to the implications of personal differences, we encourage you to request our free retirement assessment below. The assessment does a thorough job to of helping you understand your withdrawal rate in retirement, tax strategies, and how to optimize your plan.

Research Insights and Real-Life Application

Research by Wade Pfau and Michael Kitces suggests that adjusting withdrawal rates based on market performance and remaining life expectancy can enhance portfolio longevity. They advocate for a dynamic approach where withdrawal rates are increased if portfolios grow substantially, but decreased during bear markets or when inflation rises unexpectedly.

Incorporating Personal Factors

Beyond academic research, personal factors play a significant role in determining the right withdrawal rate:

  • Health: Longer life expectancies and health care needs can require more conservative withdrawals.

  • Legacy Goals: Desire to leave wealth for heirs or charities might also dictate a more cautious approach.

  • Other Income Sources: The presence of Social Security, pensions, or rental income can reduce the amount you need to withdraw from savings.

5 Common Withdrawal Strategies

Common withdrawal strategies in retirement

It’s difficult to plan for retirement without giving thought to withdrawal strategies. It goes hand-in-hand with retirement. Withdrawals play a big role in determining how retirees sustain their lifestyle while safeguarding their nest eggs.

Whether it's the 4% rule or another approach, each strategy can offer ways to balance your income and preserve your savings.

Many ideas exist regarding withdrawal rates, and these are often shaped by perspectives on risk, longevity, and financial goals. Here are a few leading ideologies:

Traditional 4% Rule:

  • Description: The 4% rule suggests that retirees can safely withdraw 4% of their retirement portfolio balance each year without depleting their savings over a 30-year period.

  • Rationale: This rule is based on historical market performance and assumes a balanced portfolio of stocks and bonds. It aims to provide a steady income stream while accounting for inflation.

Dynamic Withdrawal Strategies:

  • Description: These withdrawal strategies adjust the withdrawal rate based on market conditions, portfolio performance, and life expectancy.

  • Rationale: Advocates argue that rigidly sticking to a fixed percentage may not account for life and market changes. Adjustments can ensure steady income throughout retirement.

Safety-First Retirement Planning:

  • Description: This approach helps meet expenses in retirement by using guaranteed income sources, such as annuities, before considering discretionary spending.

  • Rationale: The safety-first approach aims to provide a reliable income stream for basic needs. This can reduce the risk of running out of money for expenses.

Variable Percentage Withdrawal (VPW):

  • Description: VPW determines an annual withdrawal rate based on a percentage of the remaining portfolio balance each year.

  • Rationale: This strategy adapts to your portfolio's performance, allowing for larger withdrawals in good market conditions and smaller withdrawals during downturns.

Guaranteed Minimum Withdrawal Benefit (GMWB):

  • Description: GMWB often comes with variable annuities, providing a guaranteed income regardless of market performance.

  • Rationale: Investors seek the security of a guaranteed income, even if the underlying investments underperform. This strategy aims to protect against the risk of outliving savings.

Beyond Withdrawal Rates

Want an alternative to making withdrawals

If you would like your savings to generate income without relying solely on regular withdrawals, you’re in luck. There are strategies that involve assets that produce reliable streams of income. Here are several strategies and assets:


  • Bonds are debt securities that pay periodic interest to bondholders. Investment-grade bonds can provide a stable income stream. Including a mix of government and corporate bonds in your portfolio can offer regular interest payments. This can contribute to reliable income during retirement.

Dividend Stocks:

  • Dividend stocks are shares in companies that distribute a portion of their earnings to shareholders. Investing in dividend-paying stocks can provide steady income, and some companies have a history of increasing their dividend payouts each year.

Real Estate Investment Trusts (REITs):

  • REITs are companies that own, operate, or finance income-generating real estate. Investing in REITs can provide exposure to real estate income without the need for direct property ownership. REITs are required to distribute a portion of their income to shareholders.

Preferred Stocks:

  • Preferred stocks have characteristics of both stocks and bonds, offering a fixed dividend payment. Preferred stocks can provide you with a little safer income compared to regular dividends.

Systematic Withdrawal Plans (SWPs):

  • SWPs involve selling a predetermined number of units or shares of an investment to generate income. This approach allows retirees to create a systematic withdrawal strategy while maintaining exposure to market gains.

Cash Flowing Investments:

  • Income-generating assets such as rental properties, peer-to-peer lending, and royalties can provide regular cash flows. Diversifying into these investments can add to your retirement income.

By using a mix of income assets, you can create a resilient retirement portfolio. You can generate consistent income without relying solely on regular withdrawals.

Final Thoughts: What is a Safe Withdrawal Rate?

There’s a connection between withdrawal rate strategies and structuring assets for consistent income. From the 4% rule to dynamic withdrawals, paired with instruments like bonds and dividend stocks, retirees have many choices to make.

The key lies in understanding each strategy and tailoring them to your needs, risk tolerance, and goals. A well-rounded retirement plan often involves a diversified approach, combining elements of income generation and capital preservation. By picking the right withdrawal strategy and structuring your assets, you can create a resilient retirement portfolio.

Financial advisors can help personalize your approach. They can help ensure that your retirement plan is not only robust but also adapts to changes in life. 

If you want personalized retirement withdrawal plans, we recommend talking to a qualified financial advisor at Covenant Wealth Advisors. We can help you plan your withdrawal rates in retirement and provide the peace of mind you seek.

We hope that you’ve found this article valuable when it comes to learning about What is a Safe Withdrawal Rate in Retirement.


Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. AI helped contribute to this article. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.


Don't Miss Out

Join 8,067+ individuals who receive our retirement insights by email and get a free copy of "Key Issues To Consider Before You Retire."

bottom of page