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Will your portfolio withdrawal rate be "safe"?

By John R. Berry, CFP®

Here at Corner Post Financial Planning, investing is a long-term endeavor, and funds you need in the near future should not be in the markets—which are inherently volatile.

When potential clients mention that they want their money to be “safe,” we steer them toward insured products such as bank CDs and savings accounts.

There’s another “safety” topic clients need to understand, as well. When it comes to a portfolio built for retirement, a lot of academic research has been done around “safe withdrawal rates.”

Essentially, this is how much of your portfolio you can spend each year with a low chance you will run out of money.

Withdrawal rates are part of every financial plan we do here at Corner Post, whether mentioned in those terms or not.

While we are planning, the client and our team discuss monthly spending needs. Either before or while you are retired, if we let you know that you are at serious risk of “running out of money,” we are giving you our professional opinion that your withdrawals rate is too high. This is based on an analysis of your spending coupled with your age and how long you could live. We usually plan for clients to live to at least 100. 

Breaking it down, research points to around 4 percent as an ideal withdrawal rate for those who retire at 65. Those who start withdrawals earlier would have a lower withdrawal rate, and older retirees could target a higher withdrawal percentage. Think 3 percent for a 50 year old and 6 percent for an 80 year old.

Translated into dollars, this means the following on a $500,000 portfolio:

Age 50 “safe” withdrawal: $15,000
Age 65 “safe” withdrawal: $24,000
Age 80 “safe” withdrawal: $30,000

Planning usually assumes the withdrawal number will be adjusted upward each year for inflation.

What is difficult sometimes for clients and potential clients to conceptualize is that a lump sum they have saved, such as $750,000 or $1 million, sounds like a very large number. But depending on client expectations, money savvy, and lifestyle, it might last either a long time, or a short while.

In practice, what I see most of the time are the extremes: either unsustainably high withdrawals due to excessive spending, or very low withdrawal rates, because many committed savers find it difficult to spend their nest egg!

There are no certainties with investing, but planning around a sustainable withdrawal rate is a smart strategy designed to help stretch your nest egg across your lifetime.

Your situation will be unique, so we encourage you to stay engaged with us as your advisors so we can work together to get the most out of your saving and spending plan.



Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through ICA Group Wealth Management LLC, a registered investment advisor. ICA Group Wealth Management LLC and Corner Post Financial Planning are separate entities from LPL Financial.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.