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Safe withdrawal rate

The percentage of an initial portfolio that can be withdrawn annually, adjusted for inflation, with a high historical probability of lasting a given horizon.

The familiar starting point is around 4% of the starting balance for a 30-year horizon from a balanced portfolio, so $40,000 a year from $1,000,000, rising with inflation thereafter. It is a research finding from a specific market history, not a law.

The number is sensitive to its inputs. A higher fee load, a shorter bond history, a lower starting yield, or a longer horizon all push the sustainable rate down; flexibility on spending pushes it up. Cutting withdrawals by 10% in years after a loss has historically raised the survivable rate by a meaningful margin.

Treat any single figure as a planning anchor to be revisited, not a promise. Nobody can guarantee a withdrawal rate. See sequence-of-returns-risk and monte-carlo-simulation.

Related: sequence-of-returns-risk, monte-carlo-simulation, glide-path, asset-allocation, time-weighted-return

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