Are Safe Withdrawal Rates Still Relevant in Today’s Low-Return Environment?

Abstract

Safe withdrawal rates are designed to ensure sustainable spending from retirement portfolios throughout a wide range of economic scenarios. Today’s economic environment of low bond yields and high cyclically adjusted price-to-earnings ratios for stocks is somewhat unprecedented, but the traditional 4.0% safe withdrawal rate should remain an appropriate baseline, unless the forecast is that the fundamental engine of economic growth is damaged far worse than during the Great Depression.