I won’t bury the lede; here is the data:
Actual client data for portfolio sizes ranging from $1M to $6M (does not include client data for households below $1M and over $6M).
Our clients do an excellent job of remaining well within the “Safe Withdrawal Zone”. Defining this Safe Withdrawal Zone is not an exact science; it’s better to think of the Safe Zone as a “range” based on your age. We factor in annual increases for inflation. Our recommended Withdrawal Rates are:
For clients in distribution mode (aka “retirement”), we review their Portfolio Withdrawal Rate together at least once per year. The data above was compiled based on our retired clients’ 3-year withdrawal rates (2021-2024). We intentionally excluded the 2020 withdrawal data, as that initial COVID year skewed almost all clients’ withdrawal rates much lower than usual.
Life doesn’t happen in a linear fashion; for most clients, there are years with higher withdrawal rates and years with lower withdrawal rates. It’s not uncommon for a client to have one year with an 8-10% withdrawal rate. There are purchases of second homes, family cruises, international trips, major home remodeling, helping children or grandchildren with education, and more.
Our goal is to help our clients zoom out and see the long-term trend and averages of their overall portfolio withdrawal rate. In the end, we want our clients’ portfolios to “live” longer than they do.
Here is a sample of the report we deliver to each client at our review meetings:
I like that most of our clients withdraw less than the Safe Withdrawal Rate. As long as they are living life to the fullest, why not err on the safe side and enable your portfolio to grow over time, rather than shrink?