Like pacing for a marathon, withdrawing funds from an investment portfolio during retirement is a balancing act.

Withdraw too much and you risk running out of money. Pace too fast and you risk hitting the wall or injuring yourself.

Withdraw too little and you risk underliving. Pace too slow and you risk not realizing your full potential.

Finding a good balance can be tricky because some factors simply can’t be controlled. Marathoners can’t choose the weather on race day any more than retirees can choose future returns or inflation rates.

Much Ado About Nothing

2022 was a challenging year for investors, with all major stock and bond indexes ending the year in negative territory. With lower portfolio values and higher inflation, how should retirees approach withdrawal rates?

Not much differently than before.

While a bear market can be painful, particularly at the onset of retirement, Vista clients know markets like we experienced last year have already been factored into our plans and portfolios. We’ve long advised clients a safe withdrawal rate is close to 5%.

Why 4% is Too Low

Admittedly, our “about 5% rule” hasn’t grabbed the same attention as the original “4% rule,” popularized by Bill Bengen in the 1990’s.

So, it might be an appropriate time to revisit a particular scenario in Bengen’s research to demonstrate why a 4% inflation-adjusted withdrawal rate is likely too low.

Let’s remember that Bengen wanted to know the highest withdrawal rate from a 50% stock / 50% bond portfolio that would have never run out of money over a 30-year retirement horizon.

Bengen’s research included the 30-year period starting in October 1968. With the benefit of hindsight, we know the stock market at that time had hit an all-time high and runaway inflation was around the corner.

A new retiree in October 1968 would have experienced a 14-year bear market and crushing inflation that would have decimated the purchasing power of their hard-earned savings.*

Bengen’s research, however, concluded that October 1968 retirees would not have depleted their portfolios, even 30 years later after adjusting their initial 4% withdrawal rate for inflation each and every year.

That period was the “worst-case scenario,” according to Bengen, and 4% survived. What does this tell us?

A static 4% rule is likely far too low and far too rigid for most retirees.

Flexibility is Key

Despite the tough market conditions we’ve recently faced, we maintain there is no knee-jerk reason to decrease or pause portfolio withdrawals since times like these were carefully considered and built into each client’s investment plan before a single dollar was ever invested.

There is also no universal one-size-fits number—not 4%, 4.5% or even 5%–when it comes to the right level of portfolio withdrawals for any retiree.

Spending habits, health, charitable, and family inheritance goals are unique to each investor. So, too, are the amounts and timing of income sources like Social Security, pensions, and part-time work.

And, like running in bad weather, markets and inflation do not move in a linear fashion.

That’s why it’s important to be flexible and to regularly review your plan with your Vista advisor—whether you feel you’re “running” on a straight, sunny course or like you’re slipping and sliding in cold, windy conditions.

Either way, we’re here to help!


*Brett Arends. “Opinion: The inventor of the ‘4% rule’ just changed it.” MarketWatch. November 3, 2020. Opinion: The inventor of the ‘4% rule’ just changed it – MarketWatch