Tree of money implying safe amount to withdraw for retirement

Using Safe Withdrawal Rate in Retirement

What is the Safe Withdrawal Rate?

Safe Withdrawal Rate is the percentage of your investment portfolio that you can withdraw annually, ensuring that your nest egg lasts for a specified period, typically 30 years or more. By keeping your spending within a certain range you can ensure that your savings will last.

The 4% Rule: The Foundation of SWR

Originated from the Trinity Study, the 4% Rule posits that a 4% annual withdrawal rate from your investment portfolio is generally sustainable over 30 years, given a diversified mix of stocks and bonds such as the S&P 500. This is because the average returns of a stock market indicator such as the s&p 500 over time have been 7-10%. Although this is a useful starting point, taking into consideration factors such as inflation, market volatility, and personal lifestyle choices is wise.

Does it Work?

Historical Returns: Historically, the S&P 500 has provided an average annual return of around 7-10% before inflation. After accounting for inflation, the real return is somewhat lower but still generally above the 4% withdrawal rate.

Inflation Adjustment: The 4% rule includes an adjustment for inflation, allowing retirees to maintain their purchasing power. Historically, the S&P 500 has provided returns that outpace inflation, making it a good fit for this strategy.

Long-Term Focus: The S&P 500 tends to perform well over the long term, even if there are periods of downturn. The 4% rule is designed for a 30-year retirement period, which provides a reasonable time frame for the market to recover from downturns.

Average growth with 4% withdrawal

Average growth with 4% withdrawal

Is it safe?

There's no 100% guarantee when it comes to investing, but over time the S&P 500 has been proven to provide relatively consistent returns for investors and is a way to grow your wealth with minimal effort for the long term. Look at the additional sources below to learn more.

Original Trinity Study:

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