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“At 3 percent, you are probably safe; at 4 percent, you are taking real risks; and at 5 percent, you had better like cat food and vacations very close to home.” -Attributed to various, popularized in financial planning circles.
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What’s a Safe Withdrawal Rate?
It’s the amount of money that you’re supposed to be able to remove from your portfolio each year without the portfolio running out of money during a person‘s lifetime.
The “safe withdrawal rate” (SWR) is a retirement rule of thumb, often cited at 4%, that determines how much to spend annually to avoid running out of money, and is frequently adjusted for inflation. Modern research suggests a 3.9% starting rate for a 30-year horizon, though flexibility, lower initial rates (3%), or higher age can alter this.
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Key Quotes and Expert Perspectives
- On the Traditional 4% Rule:
- “As a financial planner in the early 90s, William Bengen sought to identify a safe retirement withdrawal rate for his clients. The research he published created what is known today as the 4% withdrawal rule.” —CNBC.
- Current Research & Updates (2025-2026):
- “The recently published State of Retirement Income report concluded that the starting safe withdrawal rate for people beginning their retirement in 2026 is 3.9%.” —Morningstar.
- “If you’re someone who has to have a certain amount, 3% is the new 4%,” — David Blanchett, as quoted in CNBC.
- Critiques and Nuance:
- “The 4% guideline is a frequently cited rule of thumb… But it’s a blunt instrument: It’s built for a worst-case scenario in the markets, and most retirement time horizons aren’t a worst-case scenario.” —Morningstar.
- “If you’re a financial advisor and you’re telling your 92-year-old client she can only spend 4% a year, you’re a jerk.” — The White Coat Investor.
- “If you thought Dave’s [Ramsey] claims couldn’t get any crazier, note that he stresses… You will even preserve your capital. …conditional on an elevated CAPE ratio, you have a big, fat 100% failure probability.” — Early Retirement Now.
- On Inflation and Flexibility:
- “[Inflation] is retirees’ greatest enemy.” — William Bengen.
- “Higher withdrawal rates — 4%, 5% or 6%, for example — may be possible if there’s room to cut spending.” — David Blanchett, as quoted in CNBC.
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Dave Ramsey is not a fan of safe withdrawal rate researchers. He recently blasted them for being “supernerds” who “live in their mother’s basement with a calculator.” Ramsey’s proposal: If you’re making 12 [percent] in good mutual funds and the S&P is averaging 11.8, and if inflation for the last 80 years is 4%, if you make 12 and you need to leave 4% in there for average inflation raises, that leaves you eight. So, I’m perfectly comfortable drawing eight. But if you want to be a little bit conservative, seven. But, sure, not five or three.”
Dave Ramsey doesn’t differentiate between geometric returns (what you earn in an investment) and arithmetic returns (the simple average). A 100% stock portfolio may not be bad if you’re a 20-year-old, but in retirement, a 100% stock portfolio increases sequence of return risk. Researchers have related that retirees who listened to Ramsey and followed an 8% withdrawal rule while holding a four-fund stock portfolio in the 2000s would have run out of money in as little as 13 years.
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I think it’s clear that there is only one totally safe withdrawal rate. That truly safe rate = 0%! If you never withdraw money, you’ll never run out of money! Unfortunately, this leaves everyone who relies on a retirement portfolio with a problem when funding retirement living expenses.
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Is There a Safe Withdrawal Rate, and How Should It Be Determined?
I was surprised when I reviewed a recent article by Michael Kitces published on February 25, 2026. In this article, he described an updated and modified safe withdrawal spending approach.
Here’s a link to that article: Reducing Retirement Income Volatility With The Modified RMD Safe Withdrawal Method
Mr. Kitces first described two popular SWR approaches. The first is the fixed approach first outlined by William Bengen, and is commonly called the 4% Rule. Bengen’s approach was to spend a fixed amount (4%) of a retiree’s portfolio each year. This plan is easy to implement, because the same percentage is used each year. The problem with the 4% rule is that it’s based on the portfolio surviving the worst-case market return scenario (the worst sequence of returns), and by default is conservative. In a majority of cases, the portfolio holder ends life with significant (unspent and unenjoyed) assets remaining in the portfolio.
The second type of approach is termed Dynamic Withdrawal Strategies (such as the Guyton-Klinger guard rail method). These approaches are better able to match annual withdrawals to market conditions. However, these approaches are more complex and may require spending cuts under adverse market conditions. Dynamic withdrawal strategies normally provide greater withdrawal amounts, but with more spending volatility. The annual withdrawal amount can vary significantly, which can lead to increased anxiety.
Mr. Kitces is recognized as one of the preeminent experts in retirement planning. I found this particular article very interesting, as it aligns very closely with my personal spending approach, which I described in a March 4, 2025, RETIRING WITH ENOUGH podcast. In this podcast titled SAFETY FIRST VS TOTAL RETURN SPENDING APPROACHES, I spoke about my own blended withdrawal approach. Near minute fifty-four during that podcast, I spoke about using a withdrawal method based on the average of my total portfolio value for the last three years. After I derive my average total portfolio value, I then determine what percentage of that portfolio I want to spend during that year. This determined annual spending rate varies between 3% and 5%.
Mr. Kitces’ modified withdrawal approach uses a very similar strategy. His research also uses a three-year average portfolio value. The three-year average is divided by a divisor contained in the IRS Publication 590b. Here’s the link: https://www.irs.gov/pub/irs-pdf/p590b.pdf
In his article, Mr. Kitces explains the use of three different IRS RMD ( Required Minimum Distribution) tables. He also explains how these different tables affect RMD amounts and estimated portfolio depletion dates. Different tables allow for more conservative or aggressive withdrawals. More or less aggressive withdrawal rates will in turn affect the portfolio depletion date.
I’ve included two of those tables in this blog: Fig. 1 shows the results of using both the ‘standard’ RMD withdrawal method (based on the portfolio value on one selected day) and our rolling three-year average modification. RMD Table I provides the divisors in both methods. In this illustration, Bob, age 62, retires in 1996 with a portfolio of $1,173,045. We used historical investment results for a 60/40 portfolio (annually rebalanced), with 60% in equities (S&P 500) and 40% in U.S. bond aggregate. All figures are in nominal dollars.
Some observations from Fig. 1:
- In market downturns, the ‘standard RMD’ withdrawals tend to be reduced significantly more than with the modified method using the rolling three-year (RTY) average.
- In 2000–2002 (the ‘dot-com crash’) the RMD withdrawal dropped by $13,515 over 3 years; with RTY, the decline was $4,590.
- During the great financial crisis of 2008–2010, the RMD withdrawal declined by $21,524 in one year, compared with $7,778 over 3 years with RTY.
- During the 2015-2016 selloff, RMD withdrawals declined by $5,459, while RTY withdrawals remained unchanged.
- In 2019, the RMD withdrawal dropped by $12,697, with no decline in RTY.
- In 2023, following the COVID-19 decline, the RMD withdrawal declined by $46,455, and RTY by only $4,738. (Note that in an individual’s later years, the reductions are more exaggerated during market declines because the tables call for significantly larger withdrawal percentages at that stage).
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To illustrate the different results yielded by the three tables, Fig. 2 assumes a portfolio of 1,000,000; age 73; (and for Table II – a ‘spouse’ of age 62). The percent of the portfolio withdrawn is also indicated.
Note the substantially higher withdrawal using Table I (for the same age).
For anyone beginning to establish a safe withdrawal approach, this may seem complicated. After evaluating different Safe Withdrawal approaches over the last 10 years, I feel that Mr. Kitces’ approach, which closely mirrors my approach, is one of the easiest to determine and apply.
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My Year-End Portfolio Value
My spreadsheet automatically determines a rolling three-year average. It also calculates 2%, 3%, and 4% spending amounts based on total portfolio value. Once I determine this amount, it takes less than a minute to compare this figure to the IRS-required RMD amounts.
In either case, the first step is to determine the total portfolio value at year end. Even if a rolling three-year average and different withdrawal rate percentages are not automatically calculated, going through this whole process manually should take less than 10 minutes.
I think it’s important to understand that I am not a huge fan of any fixed spending approach. Most fixed spending approaches assume that retirees will spend the same amount from the beginning of Retirement to the end of Plan (death).
This is not true for most retirees!
Early retirees, especially younger retirees, tend to spend more early in retirement. Early retirees tend to travel more, spend on hobbies, spend more on dining out, and are generally more active. These early retirement years are called the Go-Go years. As retirees enter their 70s, they tend to slow down, travel and dine out less, and are generally less active. These years are termed the Slo-Go years. The period after the early 80s is called the No-Go years and is described as being the least active of retirees’ lifetimes.
It’s easy to understand how spending changes over time. A fixed spending approach that uses the same annual spending year after year may not be appropriate for most retirees. I feel this way because Retirement spending is normally dynamic and doesn’t fit the confines of a regimented spending approach.
The Modified RMD Safe Withdrawal Method approach outlined above represents a suggested strategy. It is not a concrete approach to be blindly followed. It’s a guide to annual spending. My annual safe withdrawal process represents a suggested amount used as an annual spending guide.
Advocates who feel strongly about staying within certain parameters, or a certain withdrawal rate, fear total portfolio depletion before the end of life. But, spending is not linear. Most people don’t spend the same amount each year, and most people spend less later in retirement. Most retirees can adjust spending if necessary. The spending adjustments can be either upward or downward, so it doesn’t always mean pain from spending less.
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Final Thoughts
No one wants to live with a safe withdrawal rate of 0%.
I’ve outlined my own approach to safely withdrawing portfolio assets each year.
Once I determine my portfolio value at year’s end, it takes less than five minutes to determine my suggested spending for the following year. The harder the process of determining a safe withdrawal rate, the less likely, it will ultimately be implemented.
I use a simple withdrawal approach, and it’s supported by research.
No strategy is perfect, but I feel my approach outlined above is easier to determine and simpler to implement. For me, it is a simple guide to annual spending.
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