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Safe Withdrawal Rates: Everything You Need To Know

Jake - Author/Founder

Hi. I'm Jake, a frugal Canadian Engineer. I believe you can build a great life through frugal living and index investing.

Investment income must cover your expenses to reach financial freedom. 

To get to this point, you need to answer some questions:  

  • “How big does my portfolio need to be to generate a certain amount of investment income, adjusted for inflation, until I die?”
  • “With a given portfolio size, what risk will I run out of money in retirement?”

Safe withdrawal rates answer these questions.

I cover two key research papers on safe withdrawal rates using stock and bond index portfolios. The studies produce a range of safe withdrawal rates between 2.3% and 4%.

Finally, I cover (often overlooked) considerations that are unique to you. 

Table of Contents

What Is A "Safe Withdrawal Rate"

A safe withdrawal rate (SWR) represents the percent of your portfolio that can be extracted yearly for income. This amount is also adjusted for inflation. 

The SWR concept is best shown through an example, so let’s nerd-out for a second.   

Consider George. He has a $1,000,000 portfolio and uses a 3% safe withdrawal rate.

With a 3% SWR, George expects to pull $30,000 per year from his portfolio. In addition, the $30,000 of investment income will increase with inflation for the years to come. 

Let’s assume George retired in 2010. His portfolio provided $30,000 of investment income in 2010.

By 2022, his annual investment income must be $39,320 to retain the same purchasing power. Based on Canadian inflation data, I used the yearly inflation rate of 2.28%.

As you will see below, George has  a ~90% chance that his portfolio will provide the inflation-adjusted income until he dies, if he retires at age 65. 

Financial Independence

You have reached financial independence when income from your investments can be expected to cover your expenses until death, adjusted for inflation. 

When you reach financial independence, you longer need to rely on your human capital for income. Instead, you’re 100% reliant on your financial capital (investments). Work is optional. Not bad. 

Some define this as retirement. But you can also be financially independent and still choose to work. In this case, you would be financially independent but not retired. 

Sources Of Investment Income

You may wonder where the investment income comes from. Dividends may come to mind first. Investment income comes in three forms:

  • Capital gains income;
  • Dividend income, or
  • Interest income.

These types of income are taxed unless the investments are held in a tax-sheltered account (like the TFSA or RRSP). You can read this post to learn more about taxes on investment income in Canada.

Although seeing cash hit your account feels good, there is no technical difference between living off dividends and selling shares for capital gains. 

To understand this further, you can read Where Stock Returns Come from. Or you can watch this video on Dividend Irrelevance. 

Finally, all bond and stock returns referenced in the studies below represent returns of an index.

A stock index represents an extensive collection of stocks. Similarly, a bond index represents an extensive collection of bonds.

This is good. Index funds maximize risk-adjusted returns and can be accessed for a low cost by most investors. 

I could write about index funds forever. I’ll practice some restraint and move onto risks associated with safe withdrawal rates. 

How To Define "Safe": Risk Of Retirement Failure

How do you define “Safe”? It’s all about the level of risk you are willing to accept in retirement.

You may be comfortable with a 5% chance that your investment nest egg runs to $0 before you die. Or you may be okay with a 20% chance of failure. 

Below I cover failure probabilities (or success rates) for expected withdrawal rates from two studies. 

Studies on Safe Withdrawal Rates

For this post, I reviewed two major studies on safe withdrawal rates.

First, I cover the famous Trinity Study. It looks at SWRs with various portfolios of US stock and bond returns. 

Then, I cover a 2022 study. It assesses SWRs based on stock and bond returns from 38 developed countries. It is critical to look beyond US stocks and bonds due to the survivorship bias. 

The Trinity Study: The 4% Safe Withdrawal Rate

A 4% safe withdrawal rate is often thrown around by financial gurus in the financial independence community. 

In 1998, three authors wrote a paper on sustainable withdrawal rates at Trinity University. You guessed it –  this is the “Trinity Study“.

I read this study between sets at the gym. I get some weird looks, but that’s okay. 

Here are some assumptions in the Trinity Study that are often overlooked:

  • Observes a maximum retirement window of 30 years. 
  • Failure is defined as having your portfolio run to $0 before the end of the time period. 
  • Looks at US stocks and bonds only between 1926 to 1995.
  • Ignores fund fees, transaction costs, and taxes on investment income.
Here are the outcomes from the Trinity Study. You can see the inflation-adjusted success rates for various SWRs for specific time horizons. 
Trinity Study Safe Withdrawal Rate Charts

Some interesting points: 

  • Retiring for 30 years with a 100% US stock portfolio has a 95% chance of success.
  • The 75% stock and 25% bond portfolio has a higher success rate, at 98%.

Problems Using US Market Data For Future Returns: Survivorship Bias

The analytical approach in the Trinity study is sound. But the study only looks at the US market. And the US market suffers from survivorship bias

Everyone probably thought Japan’s market increase would continue forever in 1989. If you looked backwards from 1989, the Japanese stock market looked awesome. 

Nikkei 225 Up To 1989

But the historical performance did not persist. Moving forward, Japanese stocks returned -9% (cumulative return) between 1990 and 2019. Ouch. 

Both charts of the Nikkei 225 index are snipped from

Nikkei 225 Index

Similarly, talking to bloggers will make it seem like most blog owners are successful. 

In reality, most bloggers quit and fail. A small number of bloggers dominate the blogging market, since blog traffic is Pareto distributed.  You don’t talk to failed bloggers because they are now doing something else. They are no longer bloggers! 

The survivorship bias can be mitigated by following all bloggers from when they start their blog.  Monitoring from that point would capture the performance of all blogs, including those that fail. 

When looking at SWRs, expanding the horizon to global stock and bond market returns reduces survivorship bias.   

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Global Returns: The 2.26% Safe Withdrawal Rate

Let’s look at a different study that looks at SWRs based on stock and bond returns from 38 developed nations between 1890 and 2019. Data are selected to limit the survivorship bias. 

The specific study is Anarkulove et al, 2022. The Safe Withdrawal Rate: Evidence From A Broad Sample of Developed Markets.

By looking forward from where a country is defined as developed, you capture all counties that fail, not just the survivors. This data is more realistic.

Plus, this data is good for global index investors who understand that international diversification maximizes risk-adjusted returns. This is well-accepted in financial theories like the CAPM.

Here are the key findings from the study:

  • “A retired couple at age 65 faces a 17.4% probability of financial ruin” (depletion of financial wealth before death) using the 4% safe withdrawal rate with a 60/40 portfolio.
  • A 2.26% SWR reduces the probability of failure to 5% for a 60/40 portfolio.
  • The 60% stock and 40% bond portfolio had the best results of all portfolios. 

Lifespan and Failure Rates

You may be wondering, what retirement window was used in the study? 

The study doesn’t use a constant window of time. Instead, it uses Social Security Administration Tables to factor in the expected life remaining for the last survivor of a couple that retires at age 65.

Consider a couple retiring at age 65 and the remaining lifespan of the last remaining survivor. The unfortunate 5% will live another 12.3 years, while the lucky 95% live another 35.5 years. 

Success Rates Of Various Safe Withdrawal Rates

What is the success rate for a couple retiring at age 65 with different safe withdrawal rates (SWRs)?

The 60/40 portfolio was the most successful in the study. Here are the success rates for a 60/40 portfolio:

The 4% SWR — 17.4% failure rate.

The 3.3% SWR — 11.1% failure rate.

The 2.6% SWR — 95% success rate

Picking A Safe Withdrawal Rate: Factors To Consider

Safe withdrawal rates are an excellent model for retirement planning. A model is a simplified approximation of reality.

Reality is far more complex. Here are some other unique factors to consider when selecting your unique SWR. 

Time Horizon For Reliance On Investment Income

With lifespans increasing, a longer retirement window will be required. The longer your retirement window, the lower the SWR you can tolerate.

For example, a 65-year-old woman retiring in 2022 is expected to live for 21.6  years. A 65-year-old woman retiring in 2065 is expected to live another 24.3 years.

That’s a 12.5% increase in retirement time horizon. Wild.

If you are in your 20’s, you will likely retire sometime in the 2060s. The study above finds that you would need a 2% SWR to result in a 95% success rate (60/40 portfolio).

This chart, taken from Anarkulove et al, 2022  shows the lifespan remaining from age 65 in 2022, 2065 and 2085.

Failure rates for various safe withdrawal rates

Safe Withdrawal Rates and The FIRE Movement

I often see people throw around a 4% safe withdrawal rate in the Financial Independence Retire Early (FIRE) movement. This is a problem. 

If you retire at 40, you may need investment income to last 50 years. That’s way longer than the 30-year window used in the Trinity Study. It is also longer than the windows in Anarkulove et al, 2022 since SWRs are calculated for people who retire at age 65. 

FIRE folks can mitigate this risk by working to earn income. Otherwise, an SWR of ~2% can be used to reduce the probability of failure to ~5%. 

Finally, the longer time horizon for FIRE folks will result in a push towards portfolios with higher stock allocations. 

Earnings Power During Financial Independence

Are you willing to earn any income with your human capital in the financial independence stage? 

If yes, you can tolerate a higher SWR by earning income to prevent portfolio drawdown during down markets. 

When I’m old, you won’t find me sitting on a beach or relaxing. I plan to push my physical and cognitive limits for the rest of my life. One of the reasons for this is that I believe work is good for human wellbeing.

The capacity to earn income in retirement can increase your SWR.

Expense Adjustment Flexibility

Will you be able to reduce your spending in response to poor market conditions? 

If so, you can tolerate a higher safe withdrawal rate.

By reducing non-essential spending in bad markets, you can limit portfolio draw down. Then, you can increase your investment income in strong markets. 

Such spending flexibility will increase your SWR. You can use this income and expense tracker to determine your essential and non-essential expenses. 

Defined Benefit Pensions, CPP, Annuities

Your portfolio won’t be the only source of income. You will probably have some form of government pension as well. In Canada, we have the Canadian Pension Plan. Americans have Social Security

Finally, annuities (insurance products) must also be considered as they provide a steady stream of cash flow in retirement. 

Income from these sources must be considered when selecting your SWR. The reason is that these sources will increase your flexibility to alter withdrawals from your portfolio. 

For example, CPP covers 100% of Fred’s essential expenses. Fred uses his portfolio’s investment income to cover his “want” expenses. Fred understands that he can cut out all non-essential spending when markets are doing poorly. Therefore, Fred can tolerate a much higher SWR. 

Portfolio Terminal Value

This portfolio value at death is called your terminal value. The good news is that you have a high probability of dying with more wealth than you started retirement with. 

For example, the last survivor (from a couple) has an 82% chance of having money remaining at death when using the 4% SWR. This doesn’t even consider spending flexibility in retirement. 

Talking about death isn’t all that fun. It is always an unpleasant reminder to make the best use of your time. 

Jake's Safe Withdrawal Rate

The exact SWR isn’t a massive factor for me for three main reasons. First, I expect a defined-benefit pension. This pension will provide a known cash flow to cover my essential expenses. 

Second, I am saving and investing aggressively to build. This requires solid frugal living habits. 

These frugal habits suddenly change when I’m old. Therefore, my expenses will remain low.  A 2% SWR will provide more than enough income for frugal old Jake.

Finally, I’ll likely be earning income for a very long time. I need to be challenged. Any hobbies I have will probably grow into something more significant, bringing in revenue.

My remaining wealth will be used to give back to people and organizations that I believe will leave a positive mark on the world. 


  • All safe withdrawal rates come with a degree of risk, measured by the probability of failure running out of money in retirement. 
  • The typical 4% SWR suffers from the US survivorship bias and results in a 17.4% chance of running out of money in retirement for a couple aged 65. 
  • Looking at global returns is a more reliable indicator, resulting in a 2.3% SWR (5% probability of failure). 
  • It’s negligent to recommend a 4% SWR without communicating the associated risks.  
  • The 75/25 and 60/40 portfolios were the most reliable for a couple retiring at age 65. This would shift to a higher proportion of stocks for someone retiring younger. 
  • Reality is complex. Other factors that influence your SWR include your capacity to adapt spending in retirement, pensions, and your ability to earn income in retirement. 
I hope this post helps you make more informed decisions. For more posts like this, don’t hesitate to join the newsletter. 
Jake out.