Safe Withdrawal Rate

The safe withdrawal rate is the maximum percentage you can draw from your investment portfolio each year in retirement while maintaining a high probability of not depleting your savings. The landmark Trinity Study established four percent as the standard rate for a 30-year retirement horizon.

The four-percent rule works by assuming a balanced portfolio of stocks and bonds that grows over time despite market fluctuations. In your first year of retirement, you withdraw four percent of your total portfolio, then adjust that dollar amount for inflation each subsequent year regardless of market performance.

Critics argue that four percent may be too aggressive given current low bond yields and longer life expectancies, suggesting three to three-and-a-half percent instead. Others point out that retirees naturally spend less as they age, and that flexible withdrawal strategies can safely allow higher initial rates.