Investing Specialists

What We Know for Sure About In-Retirement Withdrawal Rates

Christine Benz

A retiree's portfolio withdrawal rate can make or break her plan. Take too much and she runs the risk out of running out of money prematurely. Take too little and she reduces her standard of living--and potentially her quality of life--over her retirement years.

Yet as important as the topic of withdrawal rates is, the "right" withdrawal rate for any given retiree is necessarily an educated guess, based on what we know about market history. As with the perfect asset allocation, the optimal withdrawal rate will be apparent only in hindsight. It will depend on the performance of stocks and bonds over the retiree's time horizon (not just his rate of return over the whole time horizon, but the sequence of those returns), as well as the investor's own allocations to each of those asset classes and the inflation rate.