June 21, 2024

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How retirees can safely withdraw more from savings—and not run out of money

1 min read

From Gen Z to baby boomers, one of workers’ darkest fears about retirement is outliving their money. So figuring out just how much to pull from retirement accounts for living expenses each year is, well, unnerving. You get it wrong, and the aftermath is bone-chilling.

But here’s some good news.

According to a Morningstar Inc. recommendation released this week, a new retiree can safely withdraw 4% of retirement savings annually over the next three decades without emptying the till. That’s the highest safe withdrawal percentage since Morningstar began creating this research in 2021. Last year, it was 3.8% and 3.3% in 2021.

The new withdrawal rate is based on a conservative retirement savings portfolio that consists of 20% to 40% in stocks, 10% in cash, and the rest in bonds with a 30-year time horizon, according to the researchers.

Read more: How much money do you need to retire?

Why the raise for retirees this year?

“Higher bond yields make everything easier for retirees and help explain why our highest safe withdrawal percent corresponds with portfolios that have just 20% to 40% equity,” Morningstar’s personal finance director and co-author of the research, Christine Benz, told me.

Otherwise, investing a higher percentage of your retirement portfolio in stocks will ding you in their calculations. If you have 70% in stocks, the safe withdrawal rate goes down to 3.8%, according to the data.

“Higher bond yields make everything easier" (Getty Creative)

“Higher bond yields make everything easier” (Getty Creative) (ImagineGolf via Getty Images)

By the numbers

The anticipated 30-year returns for stocks were slightly lower in this year’s research compared with the previous year, with projected returns for an all-equity portfolio sliding down to 9.41% from 9.88% in 2022. Meanwhile, expected fixed-income returns (including cash) edged up to 4.81% from 4.44% in 2022.

“Taking less investment risk makes sense for retirees who are seeking a high degree of certainty and consistency in their annual cash flows with a 90% probability of…

2023-11-18 08:28:36

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