A 64-year-old with a $2 million brokerage balance is deciding whether to retire now or work three more years. The key driver is the percentage withdrawn each year in real terms and whether withdrawals can be reduced during market stress. One framework based on historical 30-year rolling periods for a 60/40 portfolio finds about a 95% success rate at a 4.0% real withdrawal, about 85% at 4.5%, and about 70% at 5.0%. Delaying Social Security to age 70 increases benefits by roughly 8% per year up to 70. Recent guidance suggests safe starting rates around 3.7% to 3.9%, while higher real yields from TIPS and Treasuries can improve prospects.
"That matters because CPI has climbed from 320.6 to 332.4 over the last 12 months, eroding fixed dollar withdrawals in real terms. The ability to sustain withdrawals depends on keeping the withdrawal rate within a range that historical stress periods could support, while also accounting for inflation and the possibility of adjusting spending when returns disappoint."
#retirement-planning #withdrawal-rate-strategy #social-security-claiming #inflation-and-real-returns #portfolio-allocation
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