The Withdrawal Rates chart shows the safe, perpetual, and long-term withdrawal rates for any asset allocation over a variety of retirement durations based on real-life sequence of returns. Use it to find a dependable portfolio to fund a happy retirement.
Chart
Instructions /// Troubleshooting /// Use Custom Data
Portfolio Charts
Overview
The Withdrawal Rates calculator uses the same fundamental methodology as the original retirement paper “Determining Withdrawal Rates using Historical Data” by William Bengen but with an expanded data set. Bengen studied the historical data for the S&P 500 and 5-year US treasuries and simulated retirements using varying percentages of each asset and of the initial withdrawal rates. He determined the maximum withdrawal rate for basic stock & bond portfolios that would have still not completely run out of money even over the worst rolling 30-year retirement period. He called this the SAFEMAX withdrawal rate, and his study is the original basis for the famous 4% rule for retirement.
The Trinity study later built upon his research by expanding the bond analysis to long-term high grade corporate bonds and reached similar but slightly different results. They also used a different methodology and defined the Safe Withdrawal Rate as one that did not run out of money a certain percentage of the time. Any time you hear the term “success rate” discussing retirement, it’s likely a reference to the Trinity study or to a calculator based on it.
Wade Pfau later used the same methodology to study international markets and found that the results were very different. This should not be at all surprising as any educated investor knows that not all stocks and bonds are created equal. What many people don’t realize, however, is that even using a different US stock index can greatly affect the results. Also, there are many investments available today (gold, REITs, etc.) that the studies did not consider at all in their calculations. The Bengen and Trinity studies are tremendous resources for retirees, but there’s more to the story than the S&P500.
In the spirit of expanding upon their great work, I made this calculator to determine the safe withdrawal rate for any asset allocation using a wide variety of assets available to modern investors. And I also expanded the calculations to look at a few more metrics of value for people seeking early retirement or wishing to leave an inheritance for heirs.
Calculations
The Withdrawal Rates chart packs a lot of data and includes four types of withdrawal rates:
Individual WR
Each blue line represents the individual portfolio-depleting withdrawal rates for a single retirement start date beginning in every consecutive year since 1970. The vertical axis indicates the withdrawal rate that depleted the portfolio to zero over the retirement length on the horizontal axis. Solid lines are known withdrawal rates from real-world data, and dotted lines project future withdrawal rates from known endpoints based on the how they mathematically decay over time. For more on how that works, read this.
Safe WR
The orange line scans every blue line and tracks the worst-case withdrawal rates, also called the “Safe Withdrawal Rate”, of the entire dataset. This uses Bengen’s more conservative SAFEMAX method rather than the Trinity study’s preference for success probabilities, as I think statistics unnecessarily muddy the conversation.
Perpetual WR
Not satisfied with the real prospect of having only $1 in my account in 30-years (if I live longer than that it sure wouldn’t feel like “success” to me) I also calculated the maximum withdrawal rate that would have sustained the original inflation-adjusted principal even for the unlucky retiree starting at the worst possible time. The green line tracks this perpetual withdrawal rate that preserved the initial inflation-adjusted principal. While the chart does not display every individual perpetual line, note that this is similar to the Safe WR in that it reports the worst case for each retirement timeframe.
Long-Term WR
An interesting feature of both safe and perpetual withdrawal rates is that they both trend towards the same value over time. Think of it as a plane landing on a solid runway. This is what I call the long-term withdrawal rate. Technically speaking, it’s the halfway point between the 60-year SWR and PWR using our best projections to date. But in practical terms, it’s my favorite metric for investors wishing to safely retire early or build the equivalent of a family endowment meant to last forever.
/// Frequently Asked Questions ///
Featured Walkthrough
Assumptions
1) The withdrawal rate is the percentage of the original portfolio value used for one year of retirement expenses. Each year, expenses are adjusted for inflation (not for portfolio size) to maintain constant purchasing power.
2) The calculations assume that annual expenses are set aside at the beginning of the year in a separate interest-free account.
3) Returns include reinvested dividends, and portfolios are rebalanced annually.
4) Returns also include a realistic portfolio expense ratio calculated from the weighted average of the cheapest ETF on record for each asset in the portfolio. All historical data assumes the same modern expense ratio that you have access to today.
5) The calculator looks at retirement scenarios starting in every rolling retirement period since 1970. The SWR finds the withdrawal rate that would have ended with exactly zero dollars at the end of the worst retirement period of a given duration. The PWR finds the withdrawal rate that would have ended with the original inflation-adjusted principal at the end of the worst retirement period of a given duration. And the LTWR finds the limit that both the SWR and PWR approach over time.
6) Returns ignore taxes. Individual tax situations are far too complex for a tool like this to model.
7) SWRs are projected to the 60-year mark utilizing the longest real CAGR that we have data for the portfolio as a whole. In order to prevent whiplash with limited data, 15 years of real-world returns are required before any projections are attempted. The projections are not set in stone, and may change when new data becomes available. /// More Info ///
Disclaimer
The tradeoff for having many more asset classes to model than the original studies is that there are fewer years of available historical data. The Bengen and Trinity studies looked at data back to 1926 while the data here only goes back to 1970. There may be times before 1970 when a portfolio would have failed when a more recent one did not, and the resulting withdrawal rate would be lower. For more information, the FAQ covers several topics related to the start date and its affect on the calculations.
The withdrawal rates shown do not account for taxes, and one should note that asset classes like gold and REITs also have different tax treatment than stocks and bonds. Considering taxes, your personal withdrawal rate may be lower than the one shown.
And as always, keep this in mind:
Past results are no indication of future performance
Use this tool as a comparative guide to the effects of asset allocation on withdrawal rates, not as a guarantee of success. Just because something did great in the past does not mean it will continue to do so on your own personal timeframe. I personally believe withdrawal rate research is a wonderful way to help set financial goals and guidelines, but one should never put their life savings in the hands of a single back-tested number. Flexibility, intelligence, and determination will beat mechanical withdrawal rates every time!
Discussion
Join the conversation
Articles
Insights that reference Withdrawal Rates
