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John Rekenthaler and Amy Arnott: What’s a Safe Retirement Spending Rate Today?

Amy Arnott and John Rekenthaler discuss Morningstar’s latest research, including flexible withdrawal strategies, guaranteed income sources, and TIPS ladders.

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Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar. Our guests on the podcast today are Amy Arnott and John Rekenthaler. Amy and John are two of the co-authors, along with me, of some recently released Morningstar research on retirement spending rates. The paper is called The State of Retirement Income, and it’s an update on some research that we published in 2021 and 2022. Amy and John are both long-tenured Morningstar researchers and part of Morningstar Research Services LLC, which is a wholly owned subsidiary of Morningstar. Amy is a portfolio strategist and John is director of research for that group. They’re both contributors to as well.


The State of Retirement Income 2023,” by Amy Arnott, John Rekenthaler, and Christine Benz,, November 2023.

Christine Benz and John Rekenthaler: How Much Can You Safely Spend in Retirement?The Long View podcast,, Dec. 21, 2021.

Christine Benz and John Rekenthaler: Revisiting What Is a Safe Retirement Spending Rate After a Tough Year,” The Long View podcast,, Dec. 20, 2022.

The State of Retirement Income,” by Christine Benz, Jeff Ptak, and John Rekenthaler,, 2022.

What’s a Safe Withdrawal Rate Today?” by Christine Benz and John Rekenthaler,, Dec. 13, 2022.

Base Case Conclusions

Determining Withdrawal Rates Using Historical Data,” by William Bengen, Financial Planning Association Journal, 2004.

Bill Bengen: Revisiting Safe Withdrawal Rates,” The Long View podcast,, Dec. 14, 2021.

Dynamic Spending Strategies

When It Comes to Retirement Spending, Flexibility Pays,” by Christine Benz,, April 14, 2023.

Want to Boost Your Retirement Income? ‘Guardrails’ Could Help,” by Christine Benz,, May 5, 2023.

Why Do People Spend the Way They Do in Retirement? Findings From EBRI’s Spending in Retirement Survey,” by Lori Lucas,, Jan. 14, 2021.

TIPS Ladders, Inflation, and Portfolio Returns

High TIPS Yields Are a Retiree’s Best Friend,” by John Rekenthaler,, Oct. 16, 2023.

What High Inflation Means for Your Portfolio,” by Amy Arnott,, April 24, 2023.

The Good News on Safe Withdrawal Rates,” by Amy Arnott,, Nov. 13, 2023.

Expenditure Patterns of Older Americans, 2001-2009,” by Sudipto Banerjee, EBRI Issue Brief, February 2012.


(Please stay tuned for important disclosure information at the conclusion of this episode.)

Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar. Our guests on the podcast today are Amy Arnott and John Rekenthaler. Amy and John are two of the co-authors, along with me, of some recently released Morningstar research on retirement spending rates. The paper is called The State of Retirement Income, and it’s an update on some research that we published in 2021 and 2022. Amy and John are both long-tenured Morningstar researchers and part of Morningstar Research Services LLC, which is a wholly owned subsidiary of Morningstar. Amy is a portfolio strategist and John is director of research for that group. They’re both contributors to as well.

Amy and John, welcome to The Long View.

John Rekenthaler: Glad to be here.

Amy Arnott: Thanks for having us.

Benz: Glad to have you both here. John, I want to start with you because I think that when we started on this research a couple of years ago, this was your brainchild. You felt like we should be doing research in the retirement withdrawal rate space. Can you talk about what the point is of this research and what we’re hoping to learn from it?

Rekenthaler: There are multiple points, in fact, for this research. One was to update Bill Bengen’s study from 1994, which was the founding—the first film in this series, I suppose you could say, which found that over history investors in a balanced portfolio of 50% stocks, 50% bonds had always been able to withdraw 4% a year over the next 30 years from their portfolios, adjusting those amounts for inflation.

So, I wanted to test that and see does that still hold during today’s time? A lot of things have changed since 1994, and asset prices have gone up a lot, which implies that asset returns may have gone down. I wanted to set a baseline of expectations for people. We also wanted to see how this would change over time. And the plan was to issue a new version of the paper each year, which we did. The first one was in 2021, next one last year, now this year. And finally, and this increasingly has become a larger part of the paper, we wanted to explore, OK, once we’ve established this baseline and we’ve seen how it changes over time, what can people do to improve their odds? How can people think about getting a higher withdrawal rate or finding strategies that are best suited for them? So, those are the three points.

Benz: You mentioned Bill Bengen’s research, and I wanted to follow up on that and talk about the differences in methodology versus how Bengen approached safe withdrawal rates when he did that seminal research back in 1994 versus how we approach it.

Rekenthaler: Well, there are a couple of things. One that we’ve kept the same is Bill specified a fixed withdrawal rate that would not change from year to year. It would be an amount that would be adjusted each year only for inflation. So, if you started off at, say, $40,000 a year you’re taking out of your portfolio and inflation is 5%, then the next year you would take out $42,000 from the portfolio and so forth. So, adjust by the rate of inflation. That we kept. What we changed was Bill did his calculations based on market history and we do our calculations based on forecasts of what we think will occur in the future. So, forward-looking expectations that we get from another wing within Morningstar that their tasked to come up with such figures.

Benz: Let’s talk about the audience for this research. Amy, maybe you can address that. Who are we pitching this research toward?

Arnott: I think the primary audience is really people who are getting ready to retire and need to figure out how much they can safely withdraw from their portfolios. This research is also very relevant for financial advisors who are working with their clients to figure out a withdrawal strategy. And then, it also has some implications for people who are saving for retirement because the safe withdrawal rate has a direct connection to how much you need to save. So, for example, if you know that 4% is a safe withdrawal rate, you can multiply that number by 25 to estimate how much you might need in total retirement savings. So, you’re taking the annual spending amount that you want to spend and multiplying it by 25.

Benz: To do this research, we have a baseline case that we use to determine what would be a safe withdrawal rate. John, can you discuss the assumptions that underpin that base case? What are we using as our baseline set of assumptions about the person’s retirement plan?

Rekenthaler: Well, the assumptions are that the investor has a portfolio. We set it at $1 million, but the number doesn’t matter since we’re deriving percentages. But they have a starting portfolio. We’re looking at a withdrawal rate that is pretaxed. So, we’re not taking taxes into consideration. It’s just how much can you withdraw. And each individual’s tax circumstances will be different, so they will need to do the math to figure out what that translates into actual take-home spending. But how much can you withdraw from the portfolio each year inflation-adjusted, as I said, over a 30-year time horizon is the standard assumption. We do vary that in the paper to see what the results look like over different time frames. And then, we do that over various asset allocations as well, ranging from 100% equity down to nothing but cash and bonds.

Benz: We also use this success rate metric, and we target a 90% success rate. I’m wondering if you can walk us through, John, what that means in practical terms.

Rekenthaler: Yes. We use a model that runs simulations. So, when we plug the numbers in for the expected returns on the asset allocation and the withdrawal amounts that are demanded of the portfolio, we will run various trials that simulate different results for those asset allocations. So, it’s not a fixed result on the investment markets or in the investment portfolio. We’re simulating how the investment portfolio might perform under various circumstances—bear markets, bull markets, medium markets, choppy markets, you name it. So, there’s 1,000 different trials of these 30-year time horizons. So, we run the 1,000 simulations, and then a 90% success rate is defined as the highest withdrawal rate that will succeed in 900 of the 1,000 simulations. So, that’s what a 90% success rate means. Nine times out of 10 per the simulations and the assumptions we used, the investor was able to sustain this withdrawal rate over the entire 30-year period.

Benz: So, let’s delve into the headline number, which is the starting safe withdrawal percentage for that base case jumped to 4%, sort of the standard rule of thumb for new retirees in 2023. That was up from 3.8% in 2022 and just 3.3% the year before. What are the key reasons for that increase?

Rekenthaler: Yeah, we’re right back where we started from, in the sense that Bill Bengen’s number that he published in 1994 was 4% is the magic number because he found when he was looking at history—balanced portfolio was always able to achieve at least a 4% rate. We were using forward projections, which were lower than what history had achieved. Our forward projections reflect the fact that asset prices have gone up a lot and stocks are more expensive than they used to be, and bond yields when we started this were particularly low.

So, to get directly at your question, how did we get from 3.3% to 3.8% to 4.0%? The main reason is the markets have gone down over the last two years, and particularly the bond market has been very poor, which has been unpleasant for those who own bonds, but good for future returns on fixed-income securities because now you’ve got yields that were right around 5% on Treasuries when we used this data for Sept. 30, and when we did this two years ago, those yields were much lower. So, higher yields mean higher returns, means a higher withdrawal rate.

Benz: I want to just back up and do some stage-setting about what we are talking about when we say 4%. I think there’s a lot of confusion about what that means, especially among individual investors who might assume that we’re saying that they need to take 4% of whatever their portfolio balance is in perpetuity. That’s not what it means. Amy, I’m wondering if you can clarify the system in place for this base case.

Arnott: It means you’re starting with the first year by taking out 4% of the portfolio’s value, and then that dollar amount becomes the baseline spending amount, which you would then adjust for inflation each year, and each year’s spending is based on the previous year’s amount adjusted for inflation. So, normally, the dollar amount of withdrawals would be increasing each year. For example, if you started with a $1 million portfolio, a 4% withdrawal rate and 2.42% inflation rate, which is the assumption we’re using this year, the retiree would take out $40,000 from the portfolio in the first year, then increase that by the inflation rate. So, it would end up with about $40,968 in the second year. Then that second-year amount gets increased by the inflation rate. So, you’re up to $41,959. So, you’re starting with a 4% baseline and then using that dollar amount and adjusting it by inflation each year.

Benz: It’s kind of similar to how your paycheck would work, or if you’re receiving Social Security, I think it works in the same fashion, right?

Arnott: Right, where it’s a stable dollar amount, but then you have an inflation adjustment, which we’re assuming that is once a year.

Benz: Amy, I’m wondering if you can talk about how individual investors, or their advisors should use this information. Say they have clients who are about to retire or people who are already well into retirement. If they see this 4% number, how should it influence their thinking, if at all?

Arnott: I think it gives you a starting point for thinking about what might be reasonable for withdrawal rate. And as we delve into a lot of detail in the paper about what that number might look like using different assumptions, say for example, you don’t feel like you need a 90% success rate; you’re comfortable with a lower chance of success, you might end up ending up with a different number. But I think it’s really meant to give people a starting point. And if you find that the amount that you want to spend translates into a much higher withdrawal rate, you might think about cutting back on spending a bit, or conversely—and I know that you’ve written about this quite a bit, Christine—is that a lot of people actually tend to underspend. So, if you find that your planned spending is actually significantly lower than 4%, you might want to consider increasing it.

And then, I think really the most interesting part of this research is it gives you food for thought to start thinking about what’s most important to you in retirement. Are you looking for consistency in your spending from year to year? Do you want to maximize your spending? Are you someone who wants to leave a bequest to your children or charity? And I think it’s helpful to start thinking through what your priorities are, and that can be really one of the most important foundations for building a solid retirement plan.

Rekenthaler: I just want to jump in and say, I think she framed it very well as a starting point. These numbers of 3.3% rising to 3.8% to 4.0%, they’re not conclusions. We’re not saying, we did all this work and we’ve got a 30-page paper, but you can boil down the answer to 4.0%. There’s a whole variety of assumptions that are embedded in when you arrive at these numbers, which people can reasonably disagree with or just have different personal circumstances, and then this will not entirely apply. But it’s a good framework because if you’re saying, well, I’m taking out 5% or 6%. OK, if you’re taking out 5% or 6%, and our paper says that 4% is the highest safe amount that you can take out with a 90% success rate, is it because you’re willing to accept a lower success rate? Is your time horizon different? Are you very flexible in your strategies? They’re very valid reasons. Or maybe you’re just off base with this. So, that’s how we look at it. I have to say there’s been quite a bit of media commentary on these papers. They’ve done well in terms of attention, and I’ve been pleased with how it’s been covered. I think, generally speaking, the discussions of our paper have made it clear to the readers that Morningstar doesn’t have all the answers on this. We’re just trying to prompt a good discussion.

Benz: You’ve both referenced this idea of success rates and being willing to accept perhaps a lower success rate than that 90% success rate that’s in our base case. I encounter a lot of individual investors who say, hang on there, I want a 100% success rate of my portfolio plan. Can you talk about that, like, why someone would even reasonably ponder a lower success rate and how you can make that work if indeed that’s your plan and what the trade-offs are with a lower success rate?

Arnott: Well, I think one reason is that you’re not locked into the withdrawal rate that you initially choose as you are first heading into retirement. We assume that there’s a 30-year period during which you’re retired, which is a long time. So, you do have a lot of time during those three decades to make course corrections. And if your portfolio seems to be dropping at a more rapid rate, you can cut back on withdrawals or you can adopt a more flexible strategy. So, I think really the ability to make course corrections and adopt a more flexible strategy, I think those are one of the main reasons why someone might be willing to live with a lower success rate.

Benz: The trade-off with being able to withstand or put up with a lower starting success rate is that you can typically enlarge your starting withdrawals. John, can you talk about that, the implications for starting withdrawals when you model in lower success rates?

Rekenthaler: Well, they go up a lot. For example, our portfolio with 40% equity is one of the asset allocations that has the 4.0% withdrawal rate with a 90% success rate. For those who are willing to accept a median expectation or a 50% success rate, the withdrawal rate goes to 5.3%, from 4.0% to 5.3%. If you accept an 80% success rate, it goes from 4.0% to 4.5%. If you want a 100% success rate per our simulations, the rate drops to 2.4%, which may answer your question of why don’t I just go for a 100% success rate?

Benz: You’ve got to live on 2.4%.

Rekenthaler: You’ve got to live on 2.4%. There are 1,000 simulations in here, so for the one chance in 1,000 that that might occur, and the other 999 being higher, that seems an unpleasant choice to make, and overly conservative, particularly as Amy said, you can change things. You’ve got 30 years. That 2.4% doesn’t just occur overnight. That’s 30 years’ worth of bad market returns basically in the simulation. Far along the way before getting to the end, the investor who started off with a higher rate would have a chance to ratchet things down.

Arnott: I think it also highlights the fact that if you are someone who craves certainty, maybe using an investment portfolio to support your retirement spending might not be the best solution for you. And if you’re looking for guaranteed income, you may be interested in purchasing a fixed annuity for a portion of your spending or building a TIPS ladder, which I know we’re going to get into a bit later. So, I think the investment portfolio, because you’re invested in the market, it’s inherently uncertain to some extent.

Rekenthaler: Right. The reason that we model 90% success rate and not 100% success rate is because of what Amy says. That’s not really what you want a risky portfolio to do. For one thing, this is just a model. So, our model could be wrong, and the actual withdrawal rate that I mentioned of 2.4% that we model as 100% success rate, maybe that number is even too high. It’s just a model. If you want guaranteed income with absolute certainty, and it’s adjusted for inflation, then a portfolio of stocks and bonds that are not adjusted for inflation and that don’t give you guaranteed returns that are adjusted for inflation, it’s not the right way of going about it. You would want an investment that does exactly that.

So, this paper was not meant to address the issue of how do I achieve the highest amount of investment with 100% certainty. We show these figures to give an idea of what these portfolios might generate, but that’s not the way to go about it. If you want: what are investment strategies that I can use with 80% or 90% certainty? Or say 90% is our baseline and adjust along the way and potentially give me a lot more money than if I use these guaranteed income strategies if the markets do well, that’s what this paper addresses.

Benz: John, I want to go back to that base case, the 4% starting safe withdrawal amount. Can you talk about the asset allocation that corresponds to that highest starting safe withdrawal amount of 4%? It’s like 20% to 40% equities, which seems really low to me, but maybe you can expand on that.

Rekenthaler: Again, this is a product of being a relatively conservative approach that we take where we’re looking for a 90% success rate. A lot of times, historically, when people model investment returns or model retirement plans, they’re picking the median number. They’re plugging in numbers and saying, on average, this is what you will get. Well, we’re looking for well above the average. We’re looking for a 90% success rate. We’re also using relatively low stock market forecast. Stock market over time has returned about 7%, 7.5% above the rate of inflation each year. That’s what stocks have done, and we’re modeling more like 5%, because we’re saying, look, stock prices are a lot higher than they were in the past when those numbers were achieved, so it’s not realistic to expect that same level of gain. So, those are things that would push these portfolios toward a more conservative allocation and has become even more conservative as this paper has gone along because the bond yields have risen. Bond yields are up substantially from when we did this a year ago, and this was the stock markets about the same price.

A final thing to mention is we’re talking about the headline number of 4.0% for the very highest safe withdrawal rate that’s associated with various allocations. But if you add more stocks, get to 60% or 70% stock portfolio, that withdrawal rate barely changes. It goes to 3.8% or 3.9%. So, it’s not like there’s a great danger by our analysis if somebody were to be in the 60% equity portfolio rather than the 30% equity portfolio. The 100% stock portfolio or the no-stock portfolio, those have dramatic results. But in the broad middle, effectively, the advice is any sort of balanced, just slightly conservative version of balanced portfolio is acceptable. And there are not great differences between them.

Benz: I want to delve into historical returns, which you just referenced, John. I think it was Amy’s suggestion that we actually run the simulations using historical returns. Can you talk about what you see when you look at that relative to this year’s finding that incorporates those forward-looking forecasts?

Rekenthaler: Yes. As I mentioned and have been mentioning, our forward forecasts are more conservative. Historical returns have been better. Over time, the 40% asset allocation that I’ve been referencing, which leads to the 4.0% withdrawal rate, the historic average for that has been 4.5%. So, our forecast is down about 0.5% from what historically, on average, people could have achieved. The other difference is over history, actually the 100% equity portfolio has supported the highest average withdrawal rate of 4.8%. But that has varied tremendously. For some 30-year periods, 100% equity portfolio has been down as low as 2% and other times up near 7%. So, it’s one of those you get to the 4.8% average sometimes by having one hand in ice water and one hand in boiling water, and you say you’re at room temperature. So, that’s the danger of printing a single number. You say, oh, 4.8%. The 100% equity portfolio is the best. It has the highest average over the 96 years that we tested. Well, yeah, but you didn’t want to be in some of the bad periods. There’s a reason why people prefer balanced portfolios rather than 100% equity portfolios when they get to retirement. And it’s not all just because they get nervous. It’s because you can really get hurt in such portfolios when you’re withdrawing money and you’re in a bear market.

Benz: I want to discuss the trade-offs of a conservatively positioned portfolio. So, our 4% safe withdrawal rate corresponded with portfolios with between 20% and 40% in equities. But there are some downsides to tilting a portfolio that heavily toward stocks. John, can you talk about that, some of the things that you give up when you are using such an equitylike posture with your portfolio?

Rekenthaler: Well, the obvious one is, since again, we’re testing for effectively what’s the borderline at the 10% of worst performances, so by definition, 90% or better. The stronger performances, the more equity-heavy portfolios become larger, and they have larger balances at the end of the 30-year period, sometimes substantially larger. Moreover, if—and Amy will talk about this shortly when you get into the dynamic spending strategies where, unlike the base case, is locked in and fixed with a withdrawal strategy that never changes over 30 years. If you have relatively happy, strong stock market returns and the portfolio rises a lot in value, you can start taking out more money. You can give it away, you can do whatever you want, you can do more things with it. So, there are a lot of advantages to being in a more equity-heavy portfolio. There are some disadvantages that our methodology points out with the base case because of its conservative structure, but there are certainly advantages.

Benz: Amy, you did the heavy lifting on the dynamic spending strategies this year. And I have to say, as we’ve done this paper a few years now, I’ve always been a little frustrated that the media don’t spend more time on the dynamic strategies because I think it’s so interesting. But can you describe some of the flexible strategies that you tested, and just the advantage of looking at some of these flexible strategies, which you’ve touched on a bit already?

Arnott: We tested four different flexible methods. The first one would be a very simple approach of any time you have an annual portfolio loss, you skip the inflation adjustment when you make withdrawals the next year. So, very simple, but you are making some adjustments to your spending, which can really help support a higher withdrawal rate over time.

The second one is the required minimum distribution method. This is the same framework that anyone who is required to make minimum distributions from a 401(k) or an IRA is familiar with. It’s basically just taking the portfolio value divided by life expectancy. And we use the standard life expectancy table from the IRS and assume a 30-year retirement time horizon. This method, it’s inherently safe because you’re always taking a percentage of the remaining balance, which means you never run out of money. But because it’s based on two different variables, the life expectancy and the portfolio value, you can have a lot of variability in cash flows from year to year.

The third method is what we call the guardrails method, which was originally developed by Jonathan Guyton, who’s a financial planner, and William Klinger, who’s a computer scientist. And the idea behind this is to start with a standard withdrawal rate, but then adjust that if the market has particularly good returns or particularly bad returns. And the way this is tested is, you calculate the withdrawal percentage based on the portfolio’s current value. And if that withdrawal percentage falls below 20% of what it was initially, then you give yourself a raise by increasing the withdrawal by inflation plus another 10% and then doing the reverse in down markets. So, if you find that the portfolio value is down, your withdrawal rate becomes higher because of that, then you cut back your spending by 10%. So, this method is a little more complicated but actually comes out with some of the best results in terms of being able to improve both the starting withdrawal rate and the lifetime withdrawal rate.

And then, finally, we also tested a new method this year. In previous papers, we looked at an assumption of what happens if you don’t increase spending by the full amount for inflation. So, last year, we looked at what would happen if retirees adjusted their withdrawals by 1 percentage point less than the annual inflation rate. This year, we refined that a little bit more by looking at specific data on how much retirees actually spend at different stages of their life. We looked at a paper that was published by the Employee Benefits Research Institute, which looked at actual spending patterns. They surveyed a bunch of people in retirement at different stages of life over an eight-year period to get empirical data on how people actually spend. And they actually found that inflation-adjusted household spending has historically fallen by about 19% from ‘65 to ‘75, and then continues falling from ‘75 to ‘85 and ‘85 to ‘95. So, there’s actually a pretty significant decline throughout that 30-year period. To reflect this, we assumed that inflation-adjusted spending decreased each year by about 1.9 percentage points between ‘65 and ‘75, then by 1.5 percentage points between ‘75 and ‘85, and 1.8 percentage points between ‘85 and ‘95. We chose those numbers to match up with the actual spending rate patterns that were published in this paper.

Benz: So a lot of flexible spending strategies there that you’ve just outlined. Do they generally enlarge starting withdrawals? So, if you say, I’m OK with this bargain that I may have to vary my spending as things play out and my portfolio value changes, but does the starting withdrawal generally go higher if someone is employing one of these variable strategies?

Arnott: It typically does. So, what happens when you’re changing your withdrawal rates from year to year is that it basically is keeping you from overspending when there’s a weaker market, but also letting you give yourself a raise in a stronger market environment. And making these types of adjustments based on how the portfolio performs also helps you draw down the portfolio more efficiently because you’re not just taking a set dollar amount and adjusting that for inflation, but you’re also taking into account how the value of the portfolio is changing.

Benz: Let’s discuss some of the less positive aspects of these dynamic strategies. One, obviously, is that they’re dynamic, that you’re going to have to put up with some changes in your cash flows. But Amy, maybe you can discuss other things that may be a little less obvious that come along with these dynamic strategies.

Arnott: We looked at four different metrics. We looked at the starting safe withdrawal rate, the lifetime withdrawal rate, which is like an average amount of how much you would be spending each year, the volatility of cash flows, and then the median ending value at year 30. And typically, if you choose a method that excels on one of those metrics, it won’t do as well on all of the others. So, for example, I talked about the RMD method and the guardrails method. Both of those would typically allow for a higher starting withdrawal rate, but also lead to much higher cash flow volatility from year to year.

Benz: Do you have a favorite when you look at these strategies? Or does it really depend on the level of cash flow volatility that the retiree’s willing to put up with along with their attitudes toward things like having money left over at the end?

Arnott: I think if I had to pick a favorite, it would probably be the guardrails method, which I think does probably the best job of maximizing the safe withdrawal rate. It actually has the highest starting safe withdrawal rate of any of these methods, but also leaving a decent median value at the end of the 30-year period. And there is a fair amount of volatility and spending rates from year to year, but it’s not quite as high as it would be if you were just following the RMD method. But as you said, it really depends on the individual and what your priorities are. If you wanted to maximize the portfolio value at the end of life to give a bequest, you probably would want to go with the base case instead. Or if you’re looking for very stable spending from year to year, you might also favor the base case.

Benz: You mentioned the method of looking at actual retirement spending and how retirees in aggregate do tend to spend less as the years go by throughout their retirements. A question occurs to me, which is how do we know when we look at that data that people aren’t spending less because they’re fearful about running out? Did the data somehow address that potential issue?

Arnott: I don’t think we really know what the reasons are behind the spending decline, but this is something that has shown up in a lot of other studies as well, that many people tend to underspend during retirement. I know this is something that you’ve written about quite a bit, Christine, that there seems to be this pervasive fear or reluctance to spend, even for people who have very high levels of wealth and very healthy retirement portfolios. So, I think it’s hard to figure out why that is, but I think part of it probably has to do with the fact that there’s a lot of uncertainty, especially as we get older. And you think about am I going to have a major medical issue that ends up costing me a lot of money, or will I need long-term nursing care or something like that, which could be hundreds of thousands of dollars? So, I think those are big unknowns that could be part of the reason why people seem to be reluctant to spend as much as they might be able to.

Benz: Yeah, and it does seem like the whole long-term-care element would be an argument. If you don’t have long-term-care insurance or some sort of dedicated fund for long-term care that you’d want to be careful about using one of these very consumption-oriented retirement spending strategies. Does that seem right to you?

Arnott: Yeah, I think that makes sense. If you don’t have long-term-care insurance or if you don’t have a separate pool of money that you’ve set aside for that possibility, you probably do want to be a little more conservative.

Benz: I want to talk about guaranteed income and TIPS ladders, which we’ve referenced previously in this discussion, but this year’s research does include a section on these guaranteed income sources, including a laddered portfolio of TIPS bonds. Our friend, Allan Roth, kept saying last year, you guys really ought to be talking about a laddered TIPS portfolio. So, this year, we did. First, John, can you talk about how one would go about assembling a ladder of TIPS bonds for a retirement that would last for, say, 30 years?

Rekenthaler: Well, my glib answer is with difficulty, but fortunately, that’s not actually true. In theory, a TIPS ladder is quite complicated to put together, by which we mean somebody buying a Treasury Inflation-Protected Security for one year, then one that has a two-year maturity date, then one that has a three-year maturity date, a four-year maturity date, and putting together 30 of these over the 30-year time horizon that we’re measuring. And then, what you do in practice—you receive income each year, you also spend down some of the capital, and by combining these two, an investor can come up with a 30-year inflation-adjusted, steady spending rate that matches just what we’re looking at in our base case: an inflation-adjusted spending rate that stays the same and just moves up each year along with inflation.

As you can imagine, the math for doing that is a little bit tricky because you’re combining your yields that are inflation-adjusted that you get on these securities along with spending part of their capital. But there are calculators out there online that you can go to, and they will show you how to set up a TIPS ladder. There’s still the matter of putting this together by buying all these TIPS where it can be a little bit of a laborious practice.

I think the reality is in practice, but I have not tested this yet. It’s something I’m going to do for next year’s paper is, if you just simply go out and buy a 30-year Treasury Inflation-Protected Security, there’s some reinvestment risk associated with that as opposed to a ladder, but I think you’d get most of the way there where there’s going to be a great deal easier to implement. Anyway, the point being that Treasury Inflation-Protected Securities match up very well with what we’re looking for in this paper, which is inflation-protected income. That’s different than a normal Treasury, which is guaranteed income, but it’s nominal, so you don’t know what the spending power will be 20 or 30 years down the line. It depends on where inflation is. If you’re thinking about spending and withdrawal strategies in an inflation-adjusted context, as with Social Security payments, then TIPS are absolutely the way to go.

Benz: When you ran the numbers, John, you came up with a 4.6% payout on a laddered TIPS portfolio. That’s higher than our base case of 4%. So, why wouldn’t someone just go that route for retirement spending? What are the disadvantages?

Rekenthaler: You sound like Allan Roth. No, Allan would also give you that. He’s a big fan, as we know. There’s a reason why he’s a big fan. 4.6% guaranteed, 100% certainty withdrawal rate, as we saw, is far higher than you can achieve through a risky portfolio. But there are some drawbacks. One is, TIPS laddered portfolio is self-liquidating. It goes to zero. At year 30, there’s no more money left in it. If you live to year 31, there’s nothing left in your portfolio. Whereas the median balance, as we saw with a 40% equity portfolio that’s modeled in our base case, is a $1.5 million—from a $1 million starting point. So, you give up longevity protection. There’s nothing left after year 30.

The other thing you give up is flexibility. Amy was talking about dynamic withdrawal strategies and all the different ways that people can ratchet up spending, ratchet down spending, this that. When you buy a TIPS laddered portfolio, you’re locked into that, even more than with a base case. The base case is mental. Still this portfolio, you can decide, hey, I don’t want to pursue the steady withdrawal rates. I want to change my withdrawal rate over time. With the TIPS ladder, that gets really tricky. You forego flexibility, and you forego an ending balance in return for the security. Amy talked about their trade-offs. They’re always trade-offs with withdrawal strategies. And the trade-offs are extreme with a TIPS ladder.

Benz: It seems like another thing that we should touch on is just that it’s not always a great time to implement a strategy like this. As it happens, right now, TIPS, bonds, real yields are pretty attractive, but there have been various points in time when that hasn’t been the case, right?

Rekenthaler: Right. The reason we got to these TIPS this year is, in 2021, a guaranteed TIPS ladder gave 3.2% with, again, no ending balance at year 30 and no flexibility, while the base case gave 3.3%. So, you had a higher withdrawal rate and with a likelihood of a substantial ending balance by using the portfolio of assets rather than TIPS. So, since then, TIPS—we saw that the risky portfolio, the portfolio of assets, has gone from 3.3% to 4%, the highest withdrawal rates, but TIPS have gone from 3.2% to 4.6%. They’ve really improved, so they’ve become much more attractive. This is the most attractive they’ve been in, I don’t know how long, at least the 10 years that I looked at, probably 20 years. So now is a particularly opportune time and that’s why they’re in the paper.

Benz: You mentioned in the paper that it’s not all or nothing with a TIPS portfolio. That you could use the TIPS portfolio with a sleeve of equities. Can you talk about that and what are the implications for withdrawal rates and ending balances if someone goes that route of a blended strategy?

Rekenthaler: Yeah, we just touch on this in the paper because this is a new topic. I view this section 3 of the paper on guaranteed income as being a steppingstone to doing quite a bit more work, that we’ll do more work on this next year. But the idea is, let’s say, you put 80% of the portfolio in a TIPS ladder that’s earning 4.6%, that will get you a 3.7% overall yield on all the dollars you have. So, you put 80% in the TIPS ladder to get a 3.7% withdrawal rate. The other 20% you put in stocks—you don’t touch, you don’t withdraw from them—and you’re getting a 3.7% rate over the whole portfolio. And meantime, that 20% in stocks position, it just keeps rising and rising and it gets bigger and bigger and it’s going to be more than 20% by the end. So, that’s an alternative way of getting out of portfolio that has a reasonably high withdrawal rate but also will have an ending balance over time. Something that really is more comparable with our baseline strategy.

Again, I just hint at that, and the numbers are attractive. You get, with the 4.0% withdrawal rate that the base case portfolio of assets achieves, you can do that with a TIPS portfolio in an equity sleeve and you get almost the same ending or median balance, final balance with a TIPS portfolio, slightly lower. But then again, that income is guaranteed. So, I think it’s a very promising line of inquiry, shall we say.

Benz: Amy, you worked on a section in the paper looking specifically at inflation and this recent bout of inflation that we’ve had. We talked about how the drop in the forward-looking inflation forecast is one of the things that nudged up our starting safe withdrawal rate for this year’s research. But for new retirees, can you talk about how the recent bout of inflation has affected how much money they’ll need to have for retirement in order to maintain their standards of living?

Arnott: I think this is a really important point. And when we see reports that inflation seems to be moderating, that’s definitely a positive thing. But the problem is that inflation is cumulative over time. So even when you have inflation slowing down, there’s still an upward trend in prices over time. And the impact of previous inflation doesn’t go away. So, if you look back to the end of 2020 versus now, you’ve had a cumulative increase in prices of about 18%. So, if you think about, let’s say, a consumption basket that retirees might have had a couple of years ago that was $40,000 a year, that same basket would now cost them about $47,000. And so that increase in turn means you need a significantly larger portfolio to support the same level of spending. So, right now, you would need about $1.2 million to support the same lifestyle that would have cost you about $1 million at the end of 2020.

Benz: Does when inflation occurs in your retirement lifecycle matter? I guess the question is, if I’m someone who’s just about to embark on retirement or just retired a year or so ago, is high inflation a bigger deal for me than when I’m 88? Can you talk about that sort of sequence of inflation risk?

Arnott: It’s definitely worse if inflation happens early in retirement. We talked earlier about the mechanics of how the inflation adjustments work—that you’re using the previous year’s spending level in dollars as a baseline and then adjusting that for inflation each year. So, if you have inflation early in retirement, that’s giving you an increase in baseline spending that really never goes away and it’s impacting spending levels over many years. But on the other hand, if inflation happens toward the end of retirement, it’s much less of a problem because it’s only leading to higher spending for a short period of time.

Benz: Retirees have recently had a pretty bad convergence of high inflation and not-great market returns in 2022. Things are little better, I guess, for the equity market in 2023, but still not great for bonds, certainly intermediate-term or long-term bonds. So, how do poor conditions like that affect retirees’ probabilities of success and what’s the best way for retirees to respond to them?

Arnott: Last year, we ran a test to see what would happen if you had a 15% portfolio loss in the first year of retirement, and that test actually ended up being pretty close to reality given how bad the market environment was in 2022. You would have actually ended up with a little bit more than a 15% loss with a 50-50 balanced portfolio. And we found that that early loss would have led to a much greater likelihood of running out of money by the end of the 30-year period. And then, we just talked about the negative impact from inflation, which is a double whammy. So, I think the overall headline news for this year’s study is pretty positive, but I think I would definitely temper that with the negative experience that new retirees have had, and the risk associated with that. So, if you’re someone in that situation where you’ve just retired and you suffered a big portfolio loss in 2022, I think you probably want to be pretty conservative.

Benz: John, you’ve worked on this paper all three years now. When you think about areas of further research that you’d like to delve into, what jumps out at you?

Rekenthaler: Well, I mentioned that didn’t I, the guaranteed income? I think pretty clearly when we set up this paper, the base case that we evaluate, we were not necessarily recommending that’s what you should do, is that investors, outside of Social Security, should own nothing but nonguaranteed investments, or at least investments that are not guaranteed against inflation increase, and withdraw at a steady rate. It’s a starting point or base case for analysis, and it’s good to see how that changes over time. That’s very instructive. But then, if this is the foundation, how do you build off of that foundation? How do you combine, use other things with that, use other strategies such as the dynamic withdrawal strategies that Amy mentioned, and then how do you combine that with truly guaranteed income, inflation-adjusted income, as in with the TIPS? So, going forward, we need to get more guaranteed income into this paper, and guaranteed strategies, and combining them with income that’s not guaranteed to get optimal outcomes.

Benz: Amy, how about you? What areas of interest are there for you when you think about working on this in years ahead?

Arnott: I think there are a couple of things. I think the idea of bucketing is something that we might want to expand on. I talked about possibly having a separate bucket of money for medical issues or long-term care, and having that cushion, does that allow you to feel more comfortable spending more than you otherwise would? I think another area that we might want to look into in the future is how do you calibrate spending after a negative sequence of returns early in retirement? I think there’s some more work we can do to try to help people course-correct if they do go through a market like what we saw in 2022.

Benz: I’m wondering if you two could talk about when you think about your own retirement plans, how has this research influenced you at all in terms of the approach that you might use in your own households? John, maybe you can start.

Rekenthaler: Yeah, you should start with me because I don’t know if Amy is old enough to answer that question.

Benz: I bet she has thought about it, though. But let’s start with you.

Rekenthaler: Well, she was ahead of me when I was her age, but I am now at the age—you look at the life expectancy charts and the joint life expectancy for my spouse, for my wife and for me is right around that 30-year time horizon. So, it’s really hitting home. You probably noticed I spoke with some fervor about guaranteed income. I’ve never thought about that before. It’s not something that one typically thinks about while accumulating. I’ve been a typical investor. In fact, even more really. It’s just an equity investor building for the future. Let it ride.

But when you’re looking on the other side of the equation and spending out of a portfolio, and the issues that this paper raises about spending from a portfolio that has volatility. And what happens potentially when you can get into this, not a virtuous circle, but a vicious circle where you’re spending the same amount of money, but increasing percentage from a declining portfolio, and that causes the portfolio to go down further. And then it can make less money the next year and so forth. You realize the importance of guaranteed income to stabilize the picture and to make planning more predictable and easier.

This has raised my awareness. I’ve not retired yet. I’m still working. That’s why I’m talking about this paper. But it’s raised my awareness of what it means to no longer have the human capital and the earning income and living off of retirement income. And the importance of stability along with the importance that I’ve always thought about, which is just making returns that are above inflation and making a return on the portfolio. It becomes increasingly also about the stability. This has very much been a personal project as it turns out.

Benz: Amy, how about you?

Arnott: As John mentioned, the older I get, the more real all of this becomes. I’m not ready to retire right now, but eventually I will be, and this will no longer be a theoretical issue. So, I think it’s definitely helpful. One way it’s changed my thinking is, just in thinking about spending, being able to separate essential expenses from discretionary expenses. And I think the approach that appeals to me is having a more stable income flow for all of the essential expenses. So, some sort of strategy, combining a TIPS ladder, possibly a fixed annuity, and then Social Security to cover the essential expenses, and then being willing to accept more variation from the investment portfolio to cover discretionary expenses. And being willing to spend a little bit less if the market is down or spend more, maybe do some gifting to my two sons if there’s a particularly good year in the market. I think that combination of having stable income for the expenses that you really can’t cut back on versus a portfolio with growth potential on the discretionary side is something that seems appealing to me.

Benz: Well, Amy and John, you’ve shared so much good food for thought today. We so appreciate you being here.

Arnott: Thanks. This has been a great discussion.

Rekenthaler: We appreciate the great questions, Christine.

Arnott: Yeah.

Benz: Thanks to you both.

Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. While this guest may license or offer products and services of Morningstar and its affiliates, unless otherwise stated, he/she is not affiliated with Morningstar and its affiliates. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis, or opinions, or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Authors

Christine Benz

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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. She is also the author of a new book, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement (Sept. 2024, Harriman House). She co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

Jeffrey Ptak, CFA

Chief Ratings Officer, Research
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Jeffrey Ptak, CFA, is chief ratings officer for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Before assuming his current role, Ptak was head of global manager research. Previously, he was president and chief investment officer of Morningstar Investment Services, Inc., an investment unit that provides managed portfolio services through fee-based, independent financial advisors, for six years. Ptak joined Morningstar in 2002 as a senior mutual fund analyst and has also served as director of exchange-traded fund analysis, editor of Morningstar ETFInvestor, and an equity analyst. He briefly left Morningstar to become an investment products analyst for William Blair & Company, and earlier in his career, he was a manager for Arthur Andersen.

Ptak also co-hosts The Long View podcast with Morningstar's director of personal finance and retirement planning, Christine Benz. A full episode list is available here: You can find him on social media at syouth1 (X/fka 'Twitter') and he's also active on LinkedIn.

Ptak holds a bachelor’s degree in accounting from the University of Wisconsin and the Chartered Financial Analyst® designation.

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