Is the 4% Withdrawal Really Safe Anymore?

  • Originally published March 1, 2013 , last updated December 31, 2015
  • Social Security
Is the 4% Withdrawal Really Safe Anymore?

There are many ways to generate income in retirement. One that is near and dear to our hearts is the annuity. Others include bonds, CDs and the good ole systematic withdrawal method. For years the general rule of thumb advocated by many advisors recommending systematic withdrawal has been to start the withdrawal rate at 4% the first year, then increase it each year for inflation.

Many have argued that the 4% withdrawal rate may not be as safe as once believed, especially in today’s rate environment and especially for retirements that can last several decades. A recent paper published by Michael Finke, a professor at Texas Tech University, and Wade D. Pfau, an incoming professor at The American College, actually puts some hard numbers behind that argument, showing that the 4% systematic withdrawal rate has only a 48.2% success in today’s low interest rate environment.

This was based on the following assumptions:

  • 40% allocation to stocks (S&P 500)
  • 30-year retirement
  • Initial interest rate of 2.5%
  • Rates assumed to rise to normal in 5 to 10 years

When the withdrawal rate was reduced to 2.8%, the success rate increased to 90, based on the same assumptions.

Here’s a key question for your clients: How much more would you need to save to still maintain the same income at 2.8% withdrawals compared to 4% withdrawals? For many of your clients who are coming to the end of their careers, saving more might not be an option. So how do they generate more income?

This is why we put so much emphasis on Social Security planning. By maximizing Social Security using Social Security Timing you could uncover up to $200,000 in additional income for your clients. This is a huge amount of money for a middle income couple facing a long retirement and low interest rates.

Call one of our marketers at 1-877-645-4939 to learn more about Social Security Timing or go to