New research published by Morningstar recommends that retirees adjust how much they withdraw annually from their retirement accounts from the traditional “4 Percent Rule” down to 3.7 percent, according to 401(k) Specialist magazine.
Established in the mid-90s, the 4 Percent Rule is a widely used guideline for estimating a safe withdrawal rate from retirement savings over a 30-year time horizon, based on historical market returns and inflation.
The big picture: Morningstar’s report notes that while the 3.7 percent withdrawal rate might seem dismal, researchers undertook conservative assumptions in their calculations.
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“Our return expectations are lower than historical market returns, and we also assume a retiree is seeking a 90 percent probability of not running out of funds over a 30-year period,” researchers said.
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“Most importantly, we assume that a retiree will hold real spending constant over the whole 30 years instead of making adjustments along the way.”
