Glossary
Withdrawal rate
Definition
A withdrawal rate is the first-year withdrawal as a percentage of a retirement portfolio, usually increased with inflation afterward. The often-quoted 4% rule is a historical guideline, not a guarantee, and longer retirements may call for lower rates.
How withdrawal rate works
Sequence of returns, early losses during withdrawals, has a large effect on sustainability.
Taxes mean pre-tax account withdrawals must be larger than spending.
Why it matters to a firm
Withdrawal rate is the core decumulation decision.
Questions about withdrawal rate
Is 4% safe?
It's a guideline, not a guarantee.
Should withdrawals rise with inflation?
Typically, to maintain spending power.
Do taxes matter?
Yes, they raise the gross needed.
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Related terms: Real return
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