Morningstar declares 4% safe once again

[MichaelB]

Morningstar has declared a 4% withdrawal rate is once again safe. In an annual “state of retirement income” (here, registration required)

An accompanying article can be read here

But for people who are about to retire, the prospects for retirement income look a bit brighter. In our newly released research paper, “The State of Retirement Income 2023,” my co-authors Christine Benz, John Rekenthaler, and I estimate that retirees drawing down income from an investment portfolio can now afford to withdraw as much as 4.0% as an initial spending rate, assuming a 90% probability of still having funds remaining after a 30-year time horizon. That figure is the highest safe withdrawal percentage since Morningstar began creating this research in 2021. (The highest starting safe withdrawal rate based on similar assumptions was 3.3% in 2021 and 3.8% in 2022.)

 

[tominboise]

Well, that's good to hear, 'cause I'm spending at least that.

 

[Major Tom]

A 90% probability of having money left after 30 years is still a little low for my taste. Plus, there are most likely some runs that leave you with surplus funds, which still dip rather frighteningly low. My WR represents ~2.6% of my current portfolio, and that's still a bit higher than I'd like.

For me, it's not merely about my portfolio surviving; it's about it surviving while simultaneously leaving me with clean underwear.

 

[jebmke]

Well, it should be safer. My portfolio is down something like 9% since December, 2021

 

[dknighd]

The 4% withdrawal rate "rule" is a myth. Nobody does that. It is conservative, but not risk free.


edit: it is a reasonable place to start your planning

 

[Gumby]

0% is my goal.

 

[flyingaway]

Higher inflation makes higher SWR?

 

[target2019]

We measure, we plan, then stuff happens.

 

[dknighd]

0% is my goal.

I hope that never happens.

 

[bada bing]

Wait, you guys are withdrawing money ?

 

[GrayHare]

sounds like Treasury rates figure into their formula

 

[donheff]

Sorry for the hijack but as I was laughing at these embedded Youtube clips I was amused to see that they even track you back here. My version of Bada Bing's video has two ads for astrophotography software on the left. That's some fine-tuned, on the fly ads.

 

[LateToFIRE]

0% is my goal.

It's the only way to be sure...

 

[LateToFIRE]

Well, that's good to hear, 'cause I'm spending at least that.

Oh yeh, I plan to blow right thru that,

90% certainty is too much.

 

[audreyh1]

0% is my goal.

I so loved Sigourney Weaver in that role. Became a big fan.

 

[SnowballCamper]

(The highest starting safe withdrawal rate based on similar assumptions was 3.3% in 2021 and 3.8% in 2022.)

So just wait until 2030 and the withdrawal rate will be up to 6.5%

 

[mathjak107]

4% inflation adjusted with at least 35-40% equities never changed being anything but a safe withdrawal rate at any point since 1966.

there was no actual basis for thinking we saw its demise in the first place.

it takes less then a 2% real return over a 15 year period mathematically to cause a failure.

we have not had that in decades

 

[cyber888]

I suppose so. I'm 8 months retired and nest egg is up 100K

 

[GenXguy]

I suppose so. I'm 8 months retired and nest egg is up 100K

Same here, up even more in nearly 8 months, but my are expenses are way up due to real world inflation well exceeding the government CPI figures while it took over two years for the S&P 500 to finally hit a new record. When will be see the big market drop?

 

[mathjak107]

we actually spend 80% of our investing lives somewhere between the last high and the last low .

for some crazy reason though we always use the last high though as our benchmark and consider anything less DOWN .

yet unless you just bought you are likely substantially up .

we just have a crazy way of benchmarking. i doubt there is anyone here who really expects or expected to sell at that exact momentary high

 

[LateToFIRE]

4% inflation adjusted with at least 35-40% equities never changed being anything but a safe withdrawal rate at any point since 1966.

there was no actual basis for thinking we saw its demise in the first place.

it takes less then a 2% real return over a 15 year period mathematically to cause a failure.

we have not had that in decades

+1, makes sense to me.

 

[mathjak107]

before the actual failures were able to be analyzed it was like driving and looking in the rear view mirror and it only included stocks and bonds .

well now thanks to research by michael kitces we know the math behind the failures.

so now it’s simple to watch the road in front of you .

if 5 years in you are not averaging at least a 2% real return a red flag should go up . by 8-10 years in corrective cuts need to be taken .

so staying on track is easy which is why all these nay naysayers have it wrong who try to predict in advance what’s safe

 

[Chuckanut]

we actually spend 80% of our investing lives somewhere between the last high and the last low .

for some crazy reason though we always use the last high though as our benchmark and consider anything less DOWN .

yet unless you just bought you are likely substantially up .

we just have a crazy way of benchmarking. i doubt there is anyone here who really expects or expected to sell at that exact momentary high

+1

I was chatting with a friend in January who complained that his investments were ‘going down’. When I switched the chart view from the last month to 2 years it looked like he was breaking even. At the five year view he was up quite a bit.

Short term anxiety is the curse of the inexperienced stock investor.

 

[mathjak107]

yep , those who don’t understand how investing works over time make the biggest mistakes and poor assumptions

 

[GenXguy]

yep , those who don’t understand how investing works over time make the biggest mistakes and poor assumptions

That's probably most people outside of these retirement forums.