Also called: SWR.
It is a percentage of the starting balance, not the current one — after a 30% drop, a 4% initial rate is 5.7% of what is left. A single number is only "safe" relative to a horizon, an allocation, fees and a spending pattern. Lengthen the horizon, cut equities or add a 1% fee and the sustainable rate falls.
Almost nobody spends the same inflation-adjusted amount for thirty years regardless of markets. Once spending can flex, the rate stops being a fixed number and becomes a policy. Use it as a sanity check: if intended spending is 6.5% of the portfolio in year one, no amount of modeling will rescue the plan. The calculator turns the rate into a first-year income or a required portfolio.
Research on this
See also
- The 4% rule — A rule of thumb from William Bengen’s 1994 research: withdraw 4% of the portfolio in year one of retirement, then raise that amount with inflation each year.
- Sequence of returns risk — The risk that the order in which investment returns arrive damages a plan, even when the average return is unchanged. It matters most when money is being withdrawn.
- Guardrails (Guyton-Klinger) — A withdrawal policy that starts from fixed spending, then cuts it when the withdrawal rate breaches an upper band and raises it when it falls below a lower one.
- Ruin rate — The share of runs in which a plan exhausts its portfolio before the horizon ends. A 5% ruin rate means the money ran out in one simulated run in twenty.