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Morningstar’s Retirement Income Research: Reevaluating the 4% Withdrawal Rule

Exploring the different strategies that retirees can use to determine the appropriate withdrawal rates for their portfolios.

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How much can you withdraw from your retirement portfolio each year?

For many investors, the go-to answer is 4%.

Researcher Bill Bengen developed that rule of thumb back in 1994, meaning an annual withdrawal rate of 4% is the amount that will see investors through retirement in any economic scenario. (Check out our interview with Bengen to hear how he thinks that rule has held up in today’s market environment.)

In 2021, against a backdrop of historically low bond yields and high equity valuations, we decided to reevaluate Bengen’s seminal work. The key difference is that our research embedded forward-looking return forecasts for the major asset classes, whereas Bengen relied on historical market returns.

Our inaugural research concluded that 3.3% was a more realistic estimate of a safe starting withdrawal rate in 2021—assuming a balanced portfolio, fixed real withdrawals over a 30-year retirement, and a 90% probability of success.

That number has ticked up in the years since. In 2022, we estimated a 3.8% starting withdrawal rate. In 2023, we estimated 4.0%, as the inflation forecast started to moderate and yields on bonds and cash increased.

That said, these are estimates for fixed withdrawal rates, and retirees can also use flexible withdrawal systems to enlarge their starting and lifetime withdrawals.

Our research has explored the potential benefits of the following strategies:

  1. Don’t fully adjust your withdrawal rate for inflation. For example, only adjust the annual dollar amount of withdrawals to reflect 75% of the actual inflation rate.
  2. Take withdrawals in line with required minimum distributions. Retirees can use the same framework that underpins RMDs from IRAs: Divide portfolio value by life expectancy to calculate an appropriate withdrawal rate.
  3. Implement guardrails on your portfolio. That is, take less in down markets and set a limit on how much more you can take during good ones.
  4. Assume spending declines in line with historical data. In 2023, we began exploring how retirees’ withdrawal rates can incorporate the decline in spending that typically occurs over retirement.

As the markets and economic environment continue to evolve, we expect so will our estimates. Retirement withdrawal rates can be a tough nut to crack, but the right level of flexibility can help set retirees up for success.

For more from our research and how it’s evolved over the years, check out the content below.

The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.

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

Amy C Arnott

Portfolio Strategist
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Amy C. Arnott, CFA, is a portfolio strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She is responsible for developing and articulating best practices to help investors and advisors build smarter portfolios.

Before rejoining Morningstar in 2019, Arnott was an Associate Wealth Advisor at Buckingham Strategic Wealth, where she was responsible for portfolio analysis, asset allocation, rebalancing, and trade recommendations. Arnott originally joined Morningstar as a mutual fund analyst in 1991 and held a variety of leadership roles in investment research, corporate finance, and strategy from 1991 to 2017.

Arnott holds a bachelor’s degree with honors in English and French from the University of Wisconsin – Madison. She also holds the Chartered Financial Analyst® designation.

Christine Benz

Director
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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also 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.

John Rekenthaler

Vice President, Research
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John Rekenthaler is vice president, research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Rekenthaler joined Morningstar in 1988 and has served in several capacities. He has overseen Morningstar's research methodologies, led thought leadership initiatives such as the Global Investor Experience report that assesses the experiences of mutual fund investors globally, and been involved in a variety of new development efforts. He currently writes regular columns for Morningstar.com and Morningstar magazine.

Rekenthaler previously served as president of Morningstar Associates, LLC, a registered investment advisor and wholly owned subsidiary of Morningstar, Inc. During his tenure, he has also led the company’s retirement advice business, building it from a start-up operation to one of the largest independent advice and guidance providers in the retirement industry.

Before his role at Morningstar Associates, he was the firm's director of research, where he helped to develop Morningstar's quantitative methodologies, such as the Morningstar Rating for funds, the Morningstar Style Box, and industry sector classifications. He also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

Rekenthaler holds a bachelor's degree in English from the University of Pennsylvania and a Master of Business Administration from the University of Chicago Booth School of Business, from which he graduated with high honors as a Wallman Scholar.

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