A common rule states that a withdrawal amount equal to 4% of your savings each year in retirement (adjusted for inflation) will be sustainable. In theory, withdrawing 4% each year during retirement should leave you with money even if markets perform poorly and you live longer than expected.


A seminal study by Bill Bengen on withdrawal rates for tax-deferred retirement accounts, published in the Journal of Financial Planning in 19941, looked at the annual performance of hypothetical portfolios that are continually rebalanced to achieve a 50-50 mix of large-cap (S&P 500 Index) common stocks and intermediate-term Treasury notes. The study took into account the potential impact of major financial events such as the early Depression years, the stock decline of 1937-1941, and the 1973-74 recession.

This study by Bengen found that a withdrawal rate of slightly more than four percent would have left a retiree with retirement savings even during the “worst-case scenario,” retirements starting in 1966. His analysis showed that even a retiree starting in 1966 could have withdrawn 4.15% from their retirement account each year and still have funds after 30 years2.

With this, the 4.00% rule was born.

More recently, Bengen used similar assumptions to show that a higher initial withdrawal rate – closer to 5.00% – might be possible during the early, active years, of retirement if withdrawals in later years grow more slowly than inflation.


While Bengen’s research is useful as a rule of thumb, the critical question for today’s retirees is:

“What is a sustainable withdrawal rate today?”

One of the biggest factors which will impact the answer to this question are future stock and bond market returns during retirement. While this is impossible to predict, there are several indications which show that today’s retirees may face unique challenges that Bengen’s analysis could not account for. These include historically low bond yields and historically high stock market valuations. This means that retirees will tend to receive less on their fixed income portfolio and their equity portfolio is subject to below average performance if a mean reversion is observed.

In simple English, this second point gets to the fact that when stock valuations are HIGH, long-run return expectations should be low. When stock valuations are LOW, long-run return expectations should be high3.


A 4.00% withdrawal rate may be reasonable today assuming we continue to see sustained growth in the U.S. equity market and fixed income portfolios are properly managed. Use the formula below to calculate your planned withdrawal rate.

Planned Withdrawal Rate = Planned Annual Withdrawals / Total Retirement Savings

Is this sustainable? Your Atlas Wealth Management Advisor can look at your current portfolio makeup, and dreams for retirement, to help build a model designed to provide a sustainable withdrawal rate.

1 William P. Bengen, “Determining Withdrawal Rates Using Historical Data,”; Journal of Financial Planning, October 1994
2 https://retirementresearcher.com/william-bengens-safemax/
3 http://www.cnbc.com/2017/02/24/robert-shiller-with-stock-valuations-high-its-time-to-reduce-your-holdings.html

You may also like

Investment Management, Blog/ Nov 1, 2018

Should I Own Bonds in a Rising Rate Environment?

By John C. Ogle | jcogle@atlaspwm.com We think that this fear…

Financial Planning, Resources/ Jun 22, 2018

The Responsible Millennial

By Kollin F. Allard, CRPC® | kallard@atlaspwm.com The oldest millennials are…