Is the Safe Withdrawal Rate Still Relevant?

Scott Sullivan |
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Retirement

 

Is the Safe Withdrawal Rate Still Relevant?

Rethinking Retirement Income

What Is the “Safe Withdrawal Rate” and the 4% Rule? How RISA Helps Personalize Your Retirement Strategy

Retirement planning often starts with a simple question: How much can I safely withdraw from my savings each year without running out of money? 

For decades, the “4% rule” has been the go-to answer. This guideline, introduced by financial planner William Bengen, suggests that retirees can withdraw 4% of their portfolio in the first year of retirement, then adjust that amount for inflation each year. The goal? To make your savings last for a 30-year retirement.

But is the 4% rule still the gold standard?

The Safe Withdrawal Rate: What You Need to Know

The safe withdrawal rate (SWR) is the percentage of your retirement savings you can take out each year, aiming to avoid depleting your funds too soon. Traditionally, most advisors have recommended a range of 3% to 4%, with the 4% rule serving as a popular benchmark. For example, if you retire with $800,000, withdrawing $32,000 in your first year (4%) is considered “safe,” adjusting for inflation in subsequent years.

However, recent research suggests that the “safe” rate might need tweaking. Factors like market performance, inflation, and your personal spending needs can all influence how long your money lasts. Morningstar, for instance, now recommends a slightly lower starting rate—around 3.7%—due to today’s market conditions.

Beyond the Rule: Why One Size Doesn’t Fit All

The biggest limitation of the 4% rule is that it assumes every retiree has the same needs, risk tolerance, and income preferences. In reality, everyone is different. Some people want the security of guaranteed income, while others are comfortable with more market risk in exchange for flexibility.

That’s where the Retirement Income Style Awareness (RISA) method comes in. The RISA is a psychology-based assessment that helps identify your unique preferences for generating retirement income. By understanding whether you lean toward safety-first or probability-based strategies, and whether you value flexibility or commitment, RISA helps tailor a plan that fits you—not just a generic rule.

How RISA Personalizes Your Withdrawal Strategy

RISA profiles retirees along two main dimensions:

  • Probability-Based vs. Safety-First: Do you prefer relying on market returns, or do you want more guaranteed income?

  • Optionality vs. Commitment: Do you want the flexibility to adjust your strategy, or do you prefer locking in a plan for the long term?

Based on your answers, RISA places you in one of four quadrants, each linked to different retirement income strategies—like systematic withdrawals, annuities, or “bucket” approaches. This framework helps ensure your withdrawal plan matches your comfort level and lifestyle needs, making it more likely you’ll stick with it through market ups and downs.

The Bottom Line

The 4% rule is still a useful starting point, but it’s not a one-size-fits-all solution. With tools like RISA, retirement planning can now be more personal, flexible, and aligned with your real-life goals and preferences.

Want to Know Your Retirement Income Style?

If you’d like to learn more about your own retirement income preferences—or see how a personalized withdrawal strategy can work for you—reach out to us today. Our goal and purpose at Bay Point Financial is to help you plan with confidence.