Aside from how long a person pulls from a portfolio, and their asset allocation, a third key variable is the market environment when a retiree is drawing on that money, the report noted. While the highest safe withdrawal rate over rolling 30-year periods from 1926 through 1993 for a portfolio 75% in stocks was 6.7%, in tough markets the lowest safe rate was just 2.7%.
A 4% withdrawal rate is already a popular guideline used as a starting point in planning how much to safely take from portfolios in retirement. A safe percentage can be higher — maybe 5% — but only if a retiree is willing to do things like lower the percentage withdrawal in down markets, or to forego annual inflation adjustments.
Morningstar’s analysis noted that studies of real-life spending in retirement show that “retirees often decrease their inflation-adjusted spending over time, a pattern that can also lead to considerably higher safe withdrawal rates.”
This article was provided by Bloomberg News.