Good to Know

Six of every ten Americans fear running out of money in retirement more than death.

This is the first of three blogs addressing financially dangerous and avoidable retirement mistakes. Today’s focus is upon avoiding excess withdrawal rates from one’s retirement portfolio.

Before we begin, let’s address the common phrase “safe withdrawal rate.” A safe withdrawal rate is a rate that significantly reduces, but may not completely eliminate, the risk of dying before your money dies. “Safe” is generally not “guaranteed.”

The author prefers the term “sustainable rate” over “safe rate.” A sustainable rate balances the need for current year income against the need to preserve the retirement income stream for future years. Candidly, a sustainable rate can be elusive. For example, your client can find astonishingly high (excessive) recommended withdrawal rates in the internet’s digital abyss.

One of the most effective ways for your client to make retirement income last throughout retirement is choosing a sustainable annual withdrawal rate.

Excessive withdrawal rate recommendations present an opportunity for the savvy advisor. You can lead your client into a discussion deeper than superficial internet “advice.” As but one example of your opportunity, your client should be informed of the key factors in choosing a sustainable withdrawal rate. The key factors include:

  • Risk tolerance/portfolio return
  • Life expectancy and confidence
  • Inflation
  • Planning for the unexpected

Risk Tolerance/Portfolio Return

Investment risk drives portfolio return. The higher the expected return, the higher the sustainable withdrawal rate. Consider the following:

  • A 3% withdrawal rate is probably not sustainable over the long term for a portfolio of guaranteed intermediate-term bonds. For example, 10-year Federal Treasury Bond yields are currently less than 2%.
  • An annual withdrawal rate of 4½% or more may be sustainable from a diversified portfolio.

Life Expectancy and Confidence

Investment risk drives portfolio return. The higher the expected return, the higher the sustainable withdrawal rate. Consider the following:

  • How long does the retirement income stream need to last and how confident does your client want to be in the withdrawal rate?
  • Assuming a diversified portfolio, the creator of the famous 4% withdrawal rule recently updated his widely respected 1994 research as summarized in the chart below:
Sustainable Annual Withdrawal Rates by Life Expectancy1
90% Confidence Level2
Diversified Portfolio of 50% Equities, 40% Fixed Income, 10% Cash
Sustainable Annual
Withdrawal Rate
Life Expectancy
(Retirement Period)
4½% 25 years
5% 20 years
6% 15 years


Here’s a common client question - “I took a 4% distribution from my $500,000 retirement portfolio last year. If inflation is 2% this year, how much should I take this year?”

Since the goal is to protect the purchasing power of last year’s distribution without depleting the portfolio prematurely, we add 2% to last year’s distribution amount. Assuming a $20,000 distribution last year and 2% inflation this year, this year’s distribution should be $20,800 ($20,000 x 1.02).

We do NOT add the 2% inflation rate to the 4% withdrawal rate to make the current year withdrawal rate 6%! Doing so could create an unsustainable withdrawal rate and cause your client to run out of money in retirement.

Planning for the Unexpected

What if your client is concerned about outliving his or life expectancy (or joint life expectancy if a married couple) by a wide margin or having large unexpected medical costs? Two potential approaches are:

  1. Saving an emergency cash reserve before retirement that is dedicated to the unexpected, or
  2. Reducing the withdrawal rate to preserve more of the portfolio for emergencies.

Your client should avoid using new debt as an emergency reserve if at all possible; the debt service payments could sharply erode his or her available retirement income.

Stay tuned for our next blog in this series, using tax-efficient spend-down strategies to boost after-tax retirement income.


A financial advisor’s role should be focused upon helping a client understand the key factors in choosing a sustainable withdrawal rate.

Generally, an advisor should not recommend a withdrawal rate unless the advisor is an experienced retirement planning professional acting with the approval of the firm’s compliance. department.


The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide financial advice to clients. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.

1 Rotblut and Bengen (2019, December). AAII Journal “Insights on Using the 4% Withdrawal Rate From Its Creator”. Retrieved from

2 A 90% confidence level means that the forecasted results will be achieved 90% of the time.