An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?

Journal of Financial Planning, Forthcoming

15 Pages Posted: 31 Oct 2010  

Wade D. Pfau

The American College; McLean Asset Management

Date Written: September 1, 2010

Abstract

Numerous studies about sustainable withdrawal rates from retirement savings have been published, but they are overwhelmingly based on the same underlying data for US asset returns since 1926. From an international perspective, the United States enjoyed a particularly favorable climate for asset returns in the twentieth century, and to the extent that the US may experience mean reversion in the current century, "safe" withdrawal rates may be overstated in many studies. This paper explores the issue of sustainable withdrawal rates using 109 years of financial market data for 17 developed market countries in an attempt to provide a broader perspective about safe withdrawal rates, as financial planners and their clients must consider whether they will be comfortable basing decisions using the impressive and perhaps anomalous numbers found in the past US data. From an international perspective, a 4 percent real withdrawal rate is surprisingly risky. Even with some overly optimistic assumptions, it would have only provided "safety" in 4 of the 17 countries. A fixed asset allocation split evenly between stocks and bonds would have failed at some point in all 17 countries.

Keywords: SAFEMAX, retirement, withdrawal rates, international comparison, sustainable

JEL Classification: G11, G15, G17, C15

Suggested Citation

Pfau, Wade D., An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule? (September 1, 2010). Journal of Financial Planning, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1699526

Wade D. Pfau (Contact Author)

The American College ( email )

Bryn Mawr, PA 19010
United States

HOME PAGE: http://www.retirementresearcher.com

McLean Asset Management ( email )

8200 Greensboro Dr
# 1150
McLean, VA
United States

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