The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets

Abstract

We use a comprehensive new dataset of asset-class returns in 38 developed countries to examine a popular class of retirement spending rules that prescribe annual withdrawals as a constant percentage of the retirement account balance. A 65-year-old couple willing to bear a 5% chance of financial ruin can withdraw just 2.26% per year, a rate materially lower than conventional advice (e.g., the 4% rule). Our estimates of failure rates under conventional withdrawal policies have important implications for individuals (e.g., savings rates, retirement timing, and retirement consumption), public policy (e.g., participation rates in means-tested programs), and society (e.g., elderly poverty rates).

Keywords: Retirement, safe withdrawal rate, survivor bias, easy data bias, financial ruin

JEL Classification: C15, D31, G10, G11, G12, G15, G17, G51, N20