Safe withdrawal rate (SWR)

Explanation

A withdrawal rate is your yearly withdrawal as a percentage of your portfolio. A safe withdrawal rate is the starting rate that would have lasted through some worst-case historical period, or that succeeds in a high percentage of simulated futures. The classic method sets the first-year withdrawal as a percentage of the starting balance and then raises it with inflation each year, regardless of market performance.

What moves the number:

• Time horizon: longer retirements need lower rates. Research based on US history often cites about 4% for 30 years and roughly 3.25% to 3.5% for 40 to 50 years.
• Asset allocation: portfolios with too little in stocks historically supported lower rates over long periods, because they grew too slowly.
• Fees and taxes: a 1% fee effectively takes a big bite out of a 4% withdrawal.
• Starting valuations and interest rates: some research suggests that high stock valuations at the start of retirement have historically been followed by lower safe rates.
• Flexibility: if you can cut spending in bad years (see guardrails), you can usually start higher.

“Safe” is relative. Historical data covers a limited number of independent 30-year periods, and the future may differ. Many planners treat the SWR as a starting point and plan to adjust.

In scenarios, you set a withdrawal rate or a spending amount, and the app shows the implied rate, the projected path, and (in Monte Carlo mode) the share of simulations that last your whole horizon.

Example

You retire with $1,000,000 and choose a 4% withdrawal rate. Inflation is 3% a year.

• Year 1: $1,000,000 × 4% = $40,000
• Year 2: $40,000 × 1.03 = $41,200
• Year 3: $41,200 × 1.03 = $42,436

At 3.5%, year one would be $35,000 instead. That $5,000 difference is the cost of extra safety, and it matters more the longer you expect retirement to last.