GLOSSARY · RETIREMENT WITHDRAWALS & EARLY ACCESS

Withdrawal rate

The share of the portfolio you take out in the first year of retirement; in the usual method the dollar amount then rises with inflation each year regardless of markets. A lower rate needs a larger portfolio but survives longer and worse markets.

Also called: initial withdrawal rate, drawdown rate

FORMULA

Withdrawal rate = first-year withdrawal ÷ portfolio at retirement

COMPUTE IT WITH YOUR NUMBERS

Safe withdrawal rate / how long money lasts →How much can I withdraw each year without running out?FIRE Calculator →Given savings and spending, when can I stop working?

LEARN IT PROPERLY

CHAPTER · RETIREMENT PLANNING FUNDAMENTALS · FOUNDATIONSYour Retirement Number CHAPTER · RETIREMENT PLANNING FUNDAMENTALS · FOUNDATIONSTurning Savings into Income QUICK ANSWERWhat is the 4% rule?The 4% rule says that if you withdraw 4% of your portfolio in the first year of retirement and raise that amount with inflation each year, your money lasted at least 30 years in every period of US market history that its author tested from 1926. It is a finding about the past, built for 30-year retirements, not a guarantee.

SOURCES

Determining Withdrawal Rates Using Historical Data. Bengen, Journal of Financial Planning, 1994.

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