Morningstar Safe Withdrawal Rate Report: 3.3% Base Rate + Ways To Increase It

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Financial freedom seekers usually have a Number – the value at which their investments can support their spending indefinitely. This is directly linked to “safe withdrawal rates”. For example a 4% safe withdrawal rate is a 25x multiplier – meaning $30,000 in spending needs not covered by Social Security, annuities, or pensions would require 25 x $30,000 = $750,000. Morningstar recently released a 59-page research paper called The State of Retirement Income: Safe Withdrawal Rates (summary article) that digs deeper into the “4% rule”. The headline is that they now estimate 3.3% a conservative base rate (30x multiplier):

What’s a safe withdrawal rate for retirees? We estimate 3.3%. However, there are various factors that could affect this percentage, resulting in the retiree withdrawing a significantly higher amount. This report explores ways that retirees can make their savings last longer without compromising their standard of living.

Instead of focusing on the 3.3% base rate, look at the various ways you can improve it. The 3.3% base rate assumes a 50% stock/50% bond portfolio, fixed withdrawals (adjusted upwards for inflation annually, no matter what) over a 30-year time horizon, and a 90% probability of success. What if you changed up some of these assumptions?

Lever #1: Hold a higher percentage of stocks. Historically, having a minimum amount of stocks is important in order to outpace inflation. However, going past 50% to 75% stocks no longer helps your minimum safe withdrawal rate. Not much room for improvement here.

Lever #2: Tolerate lower safety (success rate). This chart is useful to help accept the role of luck for a stock-based retirement portfolio. The fact is that 50% of the time, you could have withdrawn 4.7% and been just fine. You simply don’t know. (This is hard for me as a planner.) The retiree “Class of 2011” could have spent more than that so far without even denting their nest egg. However, the “Class of 2021” may have a very different experience. Going down to 80% probability of success moves you up from 3.3% to 3.9%.

Lever #3: Don’t keep adjusting upward for inflation. Your personal inflation rate might not keep up with the national averages. You might very well spend less as you age. If you adjust for 3/4th of inflation, that 3.3% goes up to 3.6%.

Forgoing inflation adjustments–at least in part–is another lever. That might seem farfetched in the current environment, given that inflation is top of mind. But research from David Blanchett, formerly of Morningstar but now at PGIM, has demonstrated that retirement spending doesn’t necessarily track inflation and often trends down throughout the lifecycle. Our research shows that the retiree who adjusts his or her paycheck by just 75% of the actual inflation rate would be able to take a starting withdrawal of 3.6%, for example.

Lever #4: Work longer. Make more money, make retirement period shorter. Not much fun, but effective. My view is that any amount of income will help reduce your withdrawal rate, if you have the time and ability. It is less common nowadays to go from full-time job to zero income. Working 10 hours a week feels much different than 40-50 hours a week.

Reducing the time horizon for drawdown–for example, by delaying retirement a few years–can likewise contribute to a higher starting safe withdrawal rate. For example, delaying retirement by five years and truncating the in-retirement spending horizon to 25 years from 30 results in a starting safe withdrawal amount of 4.1%.

Lever #5: Flexible spending based on market performance. There are several ways that you could adjust your spending in retirement in response to your portfolio’s return. In general, you’d want to spend less when the market is down. Some of this will come naturally as it’s easier to cut back on spending when you see your friends and neighbors cutting back as well. However, I was surprised to see that several of the proposed methods really don’t change the numbers much.

The method that does help significantly is called the Guyton-Klinger “guardrails” method, which allows inflation adjustments but applies “guardrails” so that the spending rate stays within 20% of the initial withdrawal percentage. Lets say your initial percentage is 4%. If markets go sky-high, the guardrails let you spend at least 3.2% of your new portfolio value (with inflation adjustments). If markets plummet, the guardrails let you spend at most 4.8% of your new portfolio value (with inflation adjustments).

Hold up! Early Retirement Now has an excellent post about how the Guyton-Klinger guardrails are much more “variable” than just +/- 20%. The guardrails move with the portfolio value. If you started out taking $40,000 out of a $100,000 portfolio, by following this rule starting in 1966, your income would have dropped to below $20,000 a year! A 50% drop in income is far too flexible for most people.

My personal thoughts. Every year that passes, I pay less attention to historical backtests and precise safe withdrawal rates. Instead, I care more about understanding the earning power of the assets that I own (including my own skills), and understanding the structure and flexibility of my expenses.

In regards to market returns, it is better to be lucky than anything else. Let’s say you retired about a year ago on October 31st, 2020 and owned the Vanguard Balanced Index Fund (VBIAX) that is 60% US stocks and 40% US bonds. If you had a $1,000,000, a 4% withdrawal rate is $40,000. But a year later, on October 31st, 2021, your portfolio would be just shy of $1,200,000 ($1,195,584) even after taking out $40,000 during the first year. This is just after one year!

In other words, 3.3% could easily be obsolete in a year. You are multiplying a safe withdrawal rate by something that can easily move up or down 20% each year, so why care about decimal points? Focus on what you can control. Looking back at all the levers above, here is what I can control:

  • Accept that a stock-based retirement portfolio will rely on luck. 3% = very safe. 4% = probably safe. 5% = risky. 6% = not safe.
  • Keep your portfolio in retirement somewhere between 50% and 75% stocks, with the rest in investment-grade bonds.
  • Don’t blindly keep taking out more money each year for inflation.
  • Working longer may be required, but explore ways to downshift while still making some income. Even small amounts of income make a difference. For example, 1% of $750,000 is $7,500 per year ($144/week). Earning $144 per week in income would move you from a 5% withdrawal rate to a 4% withdrawal rate, from a 4% withdrawal rate to a 3% withdrawal rate, and so on.
  • Don’t plan to spend the same amount every year. Spend less when markets are down, as most people do anyway. Think about the flex in your budget. Don’t lock in long-term commitments (vacation home ownership, any debt, agreements to pay for your kid’s X). Pick things that you can shut off (vacation rentals, travel, dining out).
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

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  1. Jason Boxman says

    So it’s important to note that, if you completely retire prior to 65, you’ll be saddled with health insurance costs that increase at greater than the rate of inflation. And that’s just for individual coverage, with family coverage being even more expensive. Having a solid HSA balance, low health expenses in your accumulation years, and luck might mitigate this somewhat. Nonetheless. It’ll become your biggest expense, I think.

  2. Excellent summary and conclusions. I’d read their paper myself carefully and found it helpful. For those of us likely to have longer than 30 year retirements, it’s important to note than the safe withdrawal rate needs to be adjusted downwards. As you say, working part time but longer really is the key for many people, especially early retirees.

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