How to Customize Your Safe Withdrawal Rate

While the 4% rule works best with a stock allocation between 50% and 75%, what about other asset allocations? If you have fewer than 50% in stocks or more than 75%, how do you determine your safe withdrawal rate?

In this video, I'll use two tools to show how you can estimate a safe withdrawal rate that matches your investment portfolio.

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ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

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[AT-hsnf]

Just found you Rob. You are an asset yourself 😊. Thank you for all your videos and education. I am 41 and luckily been doing mostly what you have been educating and teaching. I also bought the NR calculator 1 week ago so still working through it and learning. Look forward to your videos.

[liverpool]

I live my life a little bit different than 4% every year. If everything is UP, my spending is up... I travel, change a house, buy a new stuff, buy a new car. If everything is DOWN, my spending is down too.... I shop groceries at Walmart, I clean up my house, I fix my stuff, I fix my car. So my plan for retirement is very simple: 5 years of cash and everything else for growth 100% stocks. When everything is down - cash only, limited spending. When everything is up - refill my cash buckets.

[janethunt]

Thank you, Rob. The FiCalc analysis made me understand why my parents avoided the stock market.

[DanABA]

I wish New Retirement had more withdrawal strategy options. For example, I'd love to see how different guardrail strategies work with it.

[jamest]

Portfolio Charts is another good resource.

[JJJ.]

Thx for answering my question. Good content on this channel.

[andrewroth]

Married retired at 60. Barbell approach 60/40. Have 5 years of cash to get me to at least 65. Not touching barbell till at least 65. If markets are good, will hold off on SS till at least 67.
Either way I’m covered if I just retired and it’s 1966-1982 all over again.

[eos]

Rob, thank you for an interesting video. You can safely withdraw the cash flow produced by your investment portfolio. Over time you can be safe withdrawing the expected geometric capital appreciation. You may encounter sequence risk, but you can use a fixed income buffer as a countermeasure. The third level of withdrawal is an amount greater than your geometric total return. This is always dangerous. The more you take the greater the danger. Rob shows some methods to assign probabilities. However, remember, probabilities collapse into outcome certainties. The probabilities may help with your confidence but do little to improve your ability to predict the future.

[sbkpilot]

The problem with Monte Carlo is that it generates extreme scenarios that are probably not likely. The reason I like historical analysis is that it represents predictable market cycles that have repeated time and again, there is no reason to believe that human psychology is suddenly going to be very different than how it was in the last 100 years, I think the phases of exuberance followed by panic are pretty much going to be there. Monte Carlo on the other hand will place a panic cycle after another panic cycle which is highly unrealistic... usually when things become cheap due to everyone exiting the markets new participants come in - i.e. the "greed" cycle. This is classic human psychology.

[keithherrington]

That was a good succinct answer. Thanks.

[johnurban]

My withdrawal rate is whatever I need for the month

[celtosaxon]

I’ve got lumpy withdrawals due to kids’ college and a move to a high COL area. I’m taking a 6% SWR with 0% inflation, and assume any spend above that shrinks my portfolio dollar for dollar, counting on SS to make up for it later.

[randolphh]

I would say for most people with moderate to larger portfolios, using the same withdrawal rate for 30 years that gives a high 90% success estimate, leaves a lot of money on the table. Leaving the option of a reduction in withdrawals over the last 15 years, will allow for more up front spending with virtually no risk. It also recognizes that people over 85 don’t spend much even if they are alive.

[benbobbitt]

This was a very useful video, thanks for creating it. How should we think about the ‘pessimistic’ projections? I’m referring to the Monte Carlo outputs, which might show a healthy 85% probability under average, but a scary 25% under pessimistic. If we get a reasonable ‘average’ projection using what we consider reasonable assumptions, but the ‘pessimistic’ projections are pretty dismal, what ought we do about that? How do we use that information constructively? We all know (or should know) that there could be circumstances that would cause any plan to fail. Working and saving until we succeed even using pessimistic projections seems… suboptimal.

[jet]

Curious about how the sequence of returns works out if, at the start of your retirement you walk into a down market as in 1968. You adjust your portfolio along the 4% guidelines but notice the market is coming back a bit and things are changing 6 years into retirement what would be the problem with a reset and starting over with the 4% adjusted to the new figures and moving forward ( I have a crystal ball for my hypothetical of course and am making the correct call) or would it make any difference

[rramteerath]

@rob_berger Truly enjoy these videos. Thank you for such solid advice. Was wondering if you have a take on the new retirement advisory services.

[TakeAHikeToday]

???- When using new retirement and adjusting to “average assumption” is 7% a good rule of thumb on my investments? My asset allocation is 65/30 Stocks/Bonds

[hanwagu]

Bengen's own current safe withdrawal rate is 4.7% with 55-60% stocks.

[eugenedvorkin]

How to add to the calculations money from the Social Security? That will greatly alter the withdrawal rate. I know New retirement can deal with it. Any other tools?

[everlastingarms]

Twice a year, I look at my (inflation-adjusted, insanely-tax-bracketed, Roth-conversioned, social-security-leveled, budget-included, RMDed at age 75) spreadsheets & re-make the assumption that I just retired. Things get adjusted up or down slightly based on that and all is good in the world so far. I do this with assumptions for 5%, 5.5%, 6%, 6.5%, & 7% average returns until I'm 105 (my wife would be 100).

While it is amazing how much better 7% is than 6%, we can survive well enough at 5%, and the 6% spreadsheet is my "base-line". Below 5% we'd have to cut a little bit.