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Glossary / Behaviour

Safe withdrawal rate

A safe withdrawal rate is the percentage of a portfolio that can be withdrawn in the first year of retirement, then increased with inflation, with a high probability of the money outlasting the retiree.

The familiar four percent figure came from US historical data over thirty year periods, which is a specific market, a specific horizon and a specific asset mix.

Its practical use is the inverse: a four percent rate means you need twenty five times your annual spending.

Where people get it wrong

Applying a US derived rate to a portfolio that is not US, a horizon that is not thirty years, or a spending pattern that is not constant.

The framework behind it Safe withdrawal rate sets out the rule, the arithmetic and where it breaks.

Read the framework

Related terms

Sequence of returns risk Sequence of returns risk is the danger that poor returns arriving early in retirement permanently damage a portfolio, because withdrawals during a fall sell more units and leave less to recover with. Rebalancing Rebalancing is selling assets that have grown beyond their target weight and buying those that have fallen below it, restoring a portfolio to its intended allocation.

Investments Playbook publishes educational research and general information. Nothing on this site is personal investment advice, a solicitation, or a recommendation to buy or sell any asset. Property and securities can fall in value. Past performance does not predict future returns. Figures shown are indicative and may be delayed. Always take regulated professional advice before acting.