Between my own independent research and the discussions of other investors I enjoy reading, it seems the topic of safe withdrawal rates has been bubbling to the top lately. One particular question recently captured my attention.

What portfolio has the best safe withdrawal rate in the worst case scenario around the world?

You see, the vast majority of withdrawal rate research focuses on the United States. However, most people consider the US to be an extremely positive outlier, which raises legitimate questions about the appropriateness of determining one’s retirement plan by myopically focusing on only the best case country. Start exploring this question in earnest, and it draws into question not only our biases about what “normal” returns look like but also our assumptions about proper portfolio construction.

While it may sound like a simple question, answering it with real numbers is no small task. The reason that most retirement studies focus on a small handful of countries and portfolio options is that understanding the big retirement picture takes a lot of data. And not just raw source data, but also a mountain of creative calculations to do the topic justice.

Well, it so happens that creative calculations are a strength of mine and I have a few tricks up my sleeve. So let’s roll up those sleeves and talk about truly global withdrawal rates that look well beyond US borders.

In order to properly understand withdrawal rates, details matter. So this is going to be a long discussion that covers a lot of ground. If you just have a few minutes, you can skip ahead to what interests you and come back later for the full story. But if you stick with me through the whole thing, I’m confident you’ll learn something new.

Table of Contents

• Methodology
• Exploring the Portfolio Cloud
• Lessons From the Top Portfolios
• High-Level Investing Takeaways
• Search the Data for Yourself

Methodology

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A study is only as good as its underlying methodology. So to begin, let’s talk about my thought process and how the calculations work. For discerning readers who want to know the nitty-gritty details about every assumption, I’ve documented it all on the Global Withdrawal Rates page. But to keep things moving, here’s the high-level summary.

Global Withdrawal Rates

If you survey the field of withdrawal rate studies, most tend to look at a small number of portfolios consisting of stocks, bonds, and occasionally bills in one country at a time. For example, here’s a quick summary of the total coverage of the original Bengen study that the famous 4 percent rule is based on.

Bengen Study Coverage

30-year retirement scenarios starting in 1926

Assets	Countries
Stocks	United States
Bonds
Total Portfolios: 5	Total Scenarios: 51

For this project, I want to go much bigger on both the portfolio and scenario sides with a special focus on retirement portfolio performance independent of home country bias.

Portfolio Charts Study Coverage

30-year retirement scenarios starting in 1970

Assets	Countries
Domestic Stocks	Australia
Foreign Stocks	Canada
Domestic Bonds	France
Foreign Bonds	Germany
Domestic Bills	Italy
Commodities	Japan
Gold	Netherlands
	Spain
	United Kingdom
	United States
Total Portfolios: 8008	Total Scenarios: 400

Similar to my Portfolio Finder method of exploring asset allocation possibilities, I calculated every possible combination of those 7 assets (repeats allowed) using 10% intervals. That’s 8008 portfolios ranging from simple options like 100% domestic stocks to more complex mixes like 60% domestic stocks, 20% foreign bonds, 10% bills, and 10% gold.

On the scenario side, the countries represent the 10 largest developed markets as defined by most index funds. These established economic contemporaries cover 4 continents, 6 currencies, and some particularly unique events in places like Japan and Spain. By looking at 40 retirement start years since 1970 in 10 different countries, the analysis studies 400 unique retirement scenarios.

Put it all together, and my new withdrawal rate database contains not only 8x the number of scenarios of the typical long-term retirement study but also 10x the country diversity and many thousands more portfolio options. That’s a lot of new data to work with.

For each of the 8008 possible portfolio options, the analysis looks at all 400 historically accurate scenarios around the world and calculates the withdrawal rate that depleted the portfolio in 30 years. Note that it includes my withdrawal rate projection method that allows more recent start dates to also be studied even when they’re not quite to the 30-year mark. That’s 3.2 million combinations of portfolios and scenarios, and yes, I could use a break from spreadsheets.

The minimum number across start dates for a portfolio in a single country is what Bengen referred to as the SAFEMAX withdrawal rate, or simply the safe withdrawal rate or SWR for short. The minimum number across both start dates and countries for each portfolio is what I call its global withdrawal rate. It’s the worst case scenario not just in the United States but in the larger global record.

Trust, but Verify

If you’re wondering how the timeframe studied affects SWRs or how my numbers compare to the work of other retirement researchers, you can explore the details below. The short story is that I can accurately replicate their calculations given the same assumptions, and the numbers here should apply reasonably well to scenarios not wrecked by war. The long story may teach you something about their work as well.

Ulcer Index

Since happy investing is about the experience just as much as the endpoint, I also calculated the Ulcer Index for each portfolio in every country. The ulcer index is an insightful metric invented by Peter Martin that quantifies the length, depth, and frequency of all drawdowns. The bigger the number, the more painful the portfolio. It’s my favorite measure of relative portfolio pain that captures the emotional investing experience far better than cold standard deviation numbers.

Combined Output

To tie it all together into something we can sink our teeth into, I charted the minimum safe withdrawal rate vs the maximum ulcer index for every portfolio across all countries. And to help peer beneath any simple summary conclusions to the deeper world of options, I also created a tool that lets us isolate the assets and countries under consideration and identify specific asset allocations in the portfolio cloud. That way we can see beyond the potentially rosy numbers in just one country or scary numbers in just one portfolio and get a good feel for the breadth of possibilities.

Now we’re cooking.

The Impact of a Global Perspective

To illustrate the importance of thinking about safe withdrawal rates from perspectives outside of normal US bias, one comparison I’d like to share is how the global withdrawal rates compare to my own withdrawal rate numbers for the US only.

If we fire up the Withdrawal Rates chart and input a portfolio of 100% domestic large cap blend stocks, the 30-year SWR comes in at 3.8%.

Looking at the same portfolio from a global perspective across 9 additional countries, the global withdrawal rate for a portfolio with 100% domestic stocks was only 1.5%.

Ouch.

In addition to 100% domestic stocks supporting a drastically lower withdrawal rate once you look outside of the US, the portfolio was actually one of the very worst options on record with literally thousands of better asset allocations to choose from!

Most importantly, note that the global withdrawal rate is also far lower than what you’ll find in even the very longest study based on US data alone. So the standard bias towards high percentages of stocks is arguably just an artifact of a great home stock market with the easiest access to data.

We can do better. So let’s expand our thinking.

Exploring the Portfolio Cloud

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Now that we’ve covered how the calculations work, it’s time for the fun part. Let’s try on our new data wings and start exploring the full cloud of portfolios.

Talking about all 8008 portfolio options is obviously more than anyone can handle in one sitting. But the cool thing about the chart filters is that we can use them to study trends in the data. By playing with the asset options, we can see how diversification affects withdrawal rates. And by tinkering with the countries under consideration, we can see the sensitivity of the numbers to home country bias.

So let’s tackle those variables one at a time.

Why Assets Matter

Starting with our previous baseline of 100% domestic stocks, here’s a simple animation that demonstrates how the ideal portfolio options shift as we add more asset options to the equation.

The Impact of Asset Allocation on SWRs

Domestic bonds start to shift the ulcer index to the left and lift the SWRs a little. The introduction of foreign stocks represents the first significant jump in performance, while foreign bonds and domestic bills capture the same higher withdrawal rates while making the portfolios more pleasant to hold. Small doses of global commodities notably improve withdrawal rates. And all of the top portfolios in both risk and return contain some amount of gold.

Before you freak out and either stock up on gold or dismiss the analysis out of hand, here’s one more chart for context. See that lonely portfolio at the far bottom right that stands alone as the worst option on record?

The Worst Retirement Portfolio in History

Talk about contrast! Investing in gold by itself is unquestionably the absolute worst thing you can do as a retiree.

So for those who like to study assets in isolation to select what to add to their portfolios, it makes total sense that gold seems like a terrible choice. But just like iron in your diet, the dosage matters. In the right percentage of a balanced portfolio, gold clearly has the ability to mitigate the worst retirement scenarios on record even if it also has the ability to ruin you if you own too much.

Asset options matter. But it’s really the percentages that count.

Why Countries Matter

One thing to note about the previous chart is that the shape of the cloud is determined by the minimum values for every country. So to explore how each country affects the numbers, here’s what the cloud looks like for every country by itself.

Ideal Retirement Portfolios By Country

Stare at that for a minute, and you’ll start to appreciate the differences in domestic markets. Some countries like the US and UK have been blessed with particularly high peak withdrawal rates, while others like Spain and Japan have had a much tougher go of things.

If you look at the highest SWRs and compare all of these clouds to the combined output, you can also see how the global withdrawal rates are more conservative than any one country overall. And that goes even for the most unlucky countries, as they do not represent the worst case for all portfolios.

So just as it’s not good enough to only look at 1966 for the worst start date for every portfolio in the US, it’s not good enough to just look at Japan alone as a foil to US data for every portfolio. The big picture is way more complicated than that.

Why Diversification Matters

One last chart I’d like to share before we move on is this one that shows 100% allocations to each of the 7 individual assets in the study.

The Power of Portfolio Diversification

All combinations of 7 assets compared to the assets themselves

Allow me to point out a few things.

First, as we talked about already gold is the absolute worst asset for retirees to concentrate in. The second worst asset is commodities, which probably won’t surprise you. But domestic stocks and bonds performing so poorly may raise a few eyebrows, so keep that in mind as you consider your own asset biases.

Next, check out the three best assets on their own. Foreign bonds are quite decent even relative to domestic stocks. Foreign stocks have higher SWRs with a bit more pain. But believe it or not, the single best asset on the list in both safe withdrawal rate and ulcer index is boring old domestic bills. The interest-bearing cash found in treasury money market accounts.

Be honest — how many of you expected an all-bills portfolio to support a full percent higher withdrawal rate than domestic stocks?

Cash is one of the most misunderstood assets out there, with modern investors having no knowledge at all about how the rates change all the time and track inflation remarkably well. If you only look at the average return of bills versus stocks, you may think it’s a no-brainer that stocks must be the better choice in retirement. But withdrawal rates following worst case scenarios clearly don’t work like that.

Finally, look at the mass of portfolio options with a higher withdrawal rate and a lower ulcer index than any one asset in isolation. Those outcomes are only achievable by mixing multiple assets. And counterintuitively, it requires mixing the right combinations of assets in the bottom-right of the cloud to move to the desirable top-left. The resulting withdrawal rates are NOT just the weighted average of those of each asset, but represent the behavior of a portfolio stronger than the simple sum of its parts.

For more discussion of this phenomenon in non-retirement scenarios, be sure to read this article that I bet you’ll find educational.

Three Secret Ingredients of the Most Efficient Portfolios

But for now, remember this.

That’s the power of modern portfolio theory in retirement portfolio development.

Lessons From the Top Portfolios

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Trends can teach us a lot, but I know what you’re looking for. So let’s cut to the chase and talk about a few different top-rated allocations in terms of maximum withdrawal rates, minimum pain, and the best balance of both.

Maximizing Withdrawal Rates

Let’s begin with the portfolio option with the highest global withdrawal rate on record.

The Best Portfolio to Maximize Global Withdrawal Rates

Think about how many people today fret about the applicability of the 4% rule in the United States. When looking at stock valuations and bond interest rates, many worry that 3% is the new max and some lament that even that is too risky. Now imagine achieving 4.44% not just in the US but in every other worst case scenario since 1970 including Japan in the 90’s and Spain in the 70’s. That’s an impressive accomplishment.

To appreciate the consistency required, this is what the Withdrawal Rates chart looks like for this portfolio in every country. Good luck finding a tighter collection of blue lines.

Importantly, the portfolio that accomplished this looks very different from standard advice that only considers a much smaller list of stocks and bonds.

There are a few ways to slice that asset allocation. You can think of it as 30% domestic with 70% foreign or global assets, so I would call it a global portfolio with a moderate home-country bias. It’s also 40% stocks, 20% bonds, and 40% real assets like gold, which is far more balanced in terms of asset classes than most people normally think about. And don’t worry — I’ll cover the gold allocation in a minute.

Squint at the donut chart, and I can see a passing resemblance to the structures of the Ivy Portfolio and Weird Portfolio even if they use different assets within each class and have double the allocation to domestic markets.

For more information on how these types of portfolios work, a good place to start would be to visit the links I just shared and read the source texts from each portfolio author. But if I were to summarize both, they tend to focus more than most on wide economic diversification in very different types of assets. Expand that same thinking to a heavier tilt outside of the home country, and you’re right there.

Minimizing the Ulcer Index

While maximizing withdrawal rates is always a top interest, another highly important thing for any retiree is the overall investing experience. A portfolio is only as good as your ability to stick with it through the tough times. So let’s switch to the far left of the cloud and look at the most zen global portfolio on record.

The Best Portfolio to Minimize Retirement Stress

For reference, a global ulcer index of 5 compares to a value of 43 for the 100% domestic stock portfolio we looked at earlier. So it’s WAY more pleasant to hold than stocks, which should be no surprise. But what you may not expect is that a portfolio with 50% highly volatile foreign stocks and gold also has a lower UI than a portfolio of 100% bills (8.75).

The key to that performance is in the complementary assets.

This particular portfolio plays the two volatility extremes with 50% cash and 50% volatile high-risk assets. It’s also 50% domestic, which may seem high until you consider that domestic bills is one of the best assets you can own to track local inflation and avoid unfavorable exchange rates. Since local purchasing power is a huge deal in withdrawal rates, bills make a lot of sense for smoothing out the downsides. And the two volatile assets are also paired for a reason, as gold tends to respond strongly when stocks are at their weakest.

Add it all together, and this relatively simple mix of just three assets is about as rock solid as you can find. The closest common structural analogue is probably the Permanent Portfolio which is also known for its stability in any situation.

Those who think that the US is always the best case may find it interesting that the worst case scenario for this portfolio was actually in the US starting in 1988. While there were certainly unique circumstances for these assets during that timeframe, it’s fair to point out that perhaps the US was the worst case for this portfolio simply because it was the only country without an allocation to US stocks.

For American investors reading this, split the stocks with 50% domestic and the SWRs do go up while the UI goes down even further. Of course it’s the opposite for other countries, which is why this particular portfolio and scenario rose to the top. But I appreciate that this is a good example of how the worst case information can also help you find room for improvement. Studies like this are a good starting point, but they’re never the final word.

Even in this worst case scenario with an easy fix, here’s how the drawdowns look.

Compare that to your stock portfolio that can drop way more than that in just a few trading sessions, and you can probably see the appeal. And with a global SWR of still a healthy 3.81%, even the most gun-shy retirees could have lived quite well.

Asset allocation is pretty cool, right?

Finding the Risk-Adjusted Optimum

While maximizing individual stats is fun, the best solutions arguably strike a balance of the best return for the associated risk. People who study this sometimes talk about Sharpe ratios or the efficient frontier, but practically speaking it means looking at the far top-left edge of the cloud.

So setting my search input for look for the closest portfolio to a theorical asset allocation with a 5% SWR and perfect ulcer index of zero, here’s the best match.

The Most Efficient Portfolio for Global Retirees

The thing that first jumps out to me is the balance, with 30% stocks, 30% bonds, and 40% real assets. And I also find the significant international mix interesting with only the bonds domestic and everything else free of any home country bias. Finding a comparison portfolio is honestly difficult, as there’s not a clear similarity to anything else I track. I love data like this because it opens new horizons for study.

The Best Portfolios Without Gold

I’ve been around the block long enough that I understand the most controversial part of this article is not going to be the methodology or other minutiae that eggheads like me may occasionally bicker about. Most people will find the high allocations to gold surprising, and a vocal subset will reject the suggestion that anyone should invest in gold at all. Much less the 30% that you see in the top portfolios.

The reason that gold is so impactful is that it tends to respond the most strongly when stocks and bonds both falter. But to play Devil’s advocate, some people cite the end of the gold standard in 1971 and the subsequent gold price spike as evidence that it was just lucky in bailing out the 1970s in a way that won’t happen again. If that’s true, then any withdrawal rate including gold may hide the real worst cases in a lot of places.

However, others point out that gold did its job in the 2000s, too. Also, allowing the gold price to free-float (enabling the resulting money printing that runs economies today) is likely what caused the 1970’s to be so poor with skyrocketing inflation and interest rates to begin with. In that case, it was no coincidence at all that gold performed so well in the worst cases for other assets. And withdrawal rates including gold can be quite informative.

Without getting sidetracked, let’s just agree that gold is controversial and smart people can have different opinions.

If you want more information about gold, its use in a portfolio, and how to interpret the historical record, I encourage you to read this article that will teach you much more than you probably know.

Metal, Money, and the Measurable Value of Gold

In this context, however, the most important thing to understand is that I’m NOT a goldbug. I can articulate both sides of the argument, and I’m also not here to push portfolios that some people just aren’t comfortable with. In fact, my ultimate goal is exactly the opposite — to expand horizons beyond the entrenched positions that too often dominate this topic.

So to show off the flexibility of the research, let’s set that one contentious asset aside and see what we can learn about alternative approaches. Here are the best 3 portfolios without any gold at all.

Best Global Portfolios Without Gold

Highest SWR, lowest UI, and most efficient balance

I think the most compelling thing here is the emergence of an asset that wasn’t present in any of the top portfolios we’ve discussed so far — foreign bonds. Beyond just being a foil to stocks, gold is also a truly global asset that does not depend on any one country. And if you remove it from consideration, foreign bonds suddenly become a lot more important for diversifying away from your domestic economic risk.

Also, I honestly really like the asset allocation in the top global withdrawal rate portfolio with no gold.

We have 50% global stocks with a minor home country tilt. The foreign bonds and domestic bills in equal proportions perfectly balance both the long/short maturities and the foreign/domestic exposure. And the dash of commodities is helpful without going overboard with nontraditional assets.

There’s a lot to like! And even without knowing the SWRs ahead of time, I think it’s a very attractive asset allocation based on standard investing principles.

For reference, a traditional 50/50 split of domestic stocks and bonds had a 30-year SWR since 1970 of 4.0%. Look globally, and it was a measly 1.85%. That’s exactly why some people are paranoid about safe withdrawal rates these days.

But with just a few tweaks, this portfolio of 50% stocks sustained a global withdrawal rate of a very solid 3.6%. That should be very reassuring for retirees worried about how their portfolios might hold up if the US shine really does wear off. And all it takes to build that confidence is to open your mind to a few tweaks in the types of stocks and bonds you hold in your asset allocation.

Nothing crazy. Just smart diversification.

High-Level Investing Takeaways

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Anyone who has read my work knows that it’s not my style to promote one portfolio to rule them all. But looking at the top global withdrawal rate portfolios, I do think there are a few good lessons to consider.

Global Diversification Dominates

One thing that I think withdrawal rate sceptics have right is their suspicion that over-relying on the performance of one country isn’t necessarily the best approach for risk management. The top global withdrawal rate portfolios all have heavy allocations to foreign markets either through stocks, bonds, or global real assets. Small bias to the home stock market can be productive, as well as a healthy dose of domestic bills. But if you want to protect yourself from the home economy tanking, global diversification is the way to go.

Seek Balance

It’s sometimes common for people to get stuck on the idea that investing in the one best asset is the obvious way to build a portfolio. But if you’re thinking about global worst case scenarios then any concentrated bet will eventually come back to bite you. The best global retirement portfolios tend to have less stocks than most US-focused investors generally think is normal, and that’s entirely the point. By diversifying across not only many countries but also across very different types of assets in general, you’ll build a more resilient portfolio overall.

Gold is Powerful

All of the top portfolios contain some amount of gold, and the data suggests that about 30% gold has been the sweet spot for the best SWR performance. That said, it’s also powerful in the sense that it can ruin you if you over-do it. And it has a way of making some people crazy, too, so I won’t be surprised if you or others don’t care for it. It’s ok! There are other great portfolios with no gold at all, so don’t let one asset cause you to write off thousands more good options.

Don’t Idolize Risk

One of the most basic concepts in asset pricing theory is that the higher the risk, the higher the reward. But look at the chart one more time, and pay particular attention to the relatively strong linear correlation of safe withdrawal rates to the ulcer index. Generally speaking, the more painful the portfolio the worse the withdrawal rates.

How Retirement Performance Relates to Portfolio Happiness

It’s important to keep in mind that expected returns represent an average. Withdrawal rates, however, do not look at averages at all. They seek the worst case scenarios that define the risk that the average hides. And once you start seeking out the worst global scenarios, the most volatile assets with the highest averages inevitably meet their match. That’s how 100% bills can trounce 100% stocks in a SWR study of the worst cases — the potential downside for stocks is just that much lower.

So when thinking about asset allocation in retirement, you need to set aside your standard ideas about the financial benefits of holding the most painful portfolio you can handle. Withdrawal rates just don’t work like that.

It’s Just a Starting Point

When looking at the historical performance of any new portfolio, always take the time to look deeper before jumping to conclusions. For example, even if a portfolio with high percentages of cash worked well globally, it could be that modern conditions in your home country make it less practical today. Also, once you identify the worst case scenario for a particular portfolio, take the time to think about why it was the worst case and how it could be improved. A great backtest is no substitute for your own good judgment.

Also, keep in mind that there are also many other levers that aren’t considered in the data that can tweak the cloud even more. So once you narrow in on an idea, be sure to try it in the Withdrawal Rates tool for more asset options or the Retirement Spending tool to explore how different spending strategies affect the numbers. Study the charts for long enough, and there’s bound to be a strategy that speaks to you.

Search the Data for Yourself

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Those high-level observations aside, if there’s one thing I’ve learned writing about asset allocation over the years it’s that everyone is different and there’s no one solution suitable for all people. The desire to understand those other perspectives is why I’m a sponge for outside ideas and am always trying to learn new things while helping others do the same.

So let’s learn together.

Rather than simply looking at a bunch of calculations and offering only my conclusions, I prefer the approach of presenting the data transparently and allowing people to explore the results for themselves. All of the cloud charts in this article were generated with a fancy new tool that I just made public. I call it the Global Withdrawal Rates chart, and it’s one of my proudest creations to date.

The Global Withdrawal Rates chart studies the retirement performance of every combination of 7 assets in 10 different countries to find the best globally-focused retirement portfolios for your needs. Everyone has different preferences, and you can exclude any assets or countries that you like. To aid in your exploration, I also included three different methods for identifying portfolios in the cloud.

So if you don’t care for gold, no problem. And if you find a situation where one country seems to be an outlier that is unduly biasing the results, you can isolate that, too. The tool is designed for maximum flexibility, and there are countless ways to peel the onion.

With many minds studying the portfolio cloud instead of just one, it’s entirely possible that you’ll find some great ideas that I haven’t stumbled across yet. Please share them! Spread the word on social media, jump into Discord, or send me an email with what you found. I would love nothing more than for someone to expand on my own insights and teach me something new. Perhaps I’ll be able to write a follow-up article in the future with all of our crowdsourced findings.

That’s the beauty of good data. To learn, expand, and share.

You’ve Got This

Thank you for sticking with me through such a long explanation. I’ve learned so much from other retirement researchers that I’m just honored to be able to contribute to the conversation. So instead of closing with a claim of discovery I’ll instead tip my hat to the other smart people who came before me and leave with a call to action.

How does the concept of global withdrawal rates influence your opinion of the right retirement portfolio for you?

I’ve given you the backstory, explained my own perspective, and even provided a powerful tool to help you reach your own conclusion. Now it’s just up to you to dive in and answer the question for yourself.

Get busy, be creative, and happy portfolio hunting.

/// Try the Global Withdrawal Rates Chart ///

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