As for the other spending strategies, reducing spending over time meant a starting withdrawal rate of 5%, and retirees who chose either the RMD strategy or gave up inflation adjustments could start withdrawals at 4.4%, the report said.
The report also looked at the outcome of investing the entire portfolio in Treasury Inflation-Protected Securities. While building a TIPS ladder did bump up the safe withdrawal rate to 4.6% with a 100% probability of success, the portfolio was completely exhausted at the end of 30 years, Morningstar said.
The new 4% safe withdrawal rate represented a big jump from the 3.3% rate publicized in 2021, the first year of the Morningstar report. It now aligns with the industry standard of the “4% rule,” although the two percentages come from different sets of data. Morningstar looks to future estimates for its analysis, while the 4% rule relied on historic data for its calculation.
“We have a group within Morningstar that forecast future market returns based on current conditions. And then we plug those forecasted market returns into a computer model along with various withdrawal rates. And we run a bunch of simulations,” Rekenthaler said of the report’s methodology. “The number that we come up with is the number that succeeds in 90% of the trials when it’s adjusted for inflation over 30 years.”