Safe Withdrawal Rate 2.0: A Terribly Complex Issue

  • November 5, 2015
Chuck Dudley

Chuck Dudley

The September and October issues of Financial Advisor magazine both contain articles about research on Safe Withdrawal Rates. Remember, the ‘Safe Withdrawal Rate’ is the amount you can take from your investments and retirement funds that will allow you to have a good retirement life, and, hopefully not run out of money. Advisors Wade Pfau and Wade Dokken wrote the articles and performed the research.

The first thing that stood out was the research indicated people are more concerned about running out of money than dying. The split was 70%/30%. What that tells me is there is a REAL fear for their personal finances. And that is not where we should be facing retirement.

Traditionally, the thought has been to take 4% out of investments, adjusted for inflation. But of course that assumes a steady increase in the value of your assets. People that retired during the 2008 financial crisis might have a different story to tell us.

Research these days is telling us that the real rate for sustainability is 2%. A much lower rate and it puts a lot of pressure on your assets to sustain and perform.

The complexity of this issue is just beginning to present itself. Lower returns could force adjusted spending habits, lowering quality of life.

Children depending on parents for support would be forced to go it on their own.

Debt would not be a good thing to have at this point either.


As you might guess, there is no one, correct answer. It will depend on lots of things: spending habits, age, family issues, psychological issues (do you have to keep up with the Jones next door?), saving habits, and protection habits.

The best answer is to start planning in your 20s and 30s. Start saving. Be intentional about having a financial plan, and working the plan every year.

Protect your assets against unseen events. Start with the most important asset, yourself. You are the greatest earning asset you have, as you create earnings and cash flow far superior than any investment you could imagine. Protecting yourself means you are protecting your family too.

If you are in your 40s and 50s, quit wasting time. This is when you MUST plan if you have not already begun. If not, the result in your 70s and 80s will not be a good one. And then you’ll know the fear of running out of money.

In your 60s? Let’s hope you have done a good job when you were younger.

Most importantly, you should examine the mix of your financial plan.  When you retire, it’s important to have different ‘pots’ of money you can use. These pots should have different characteristics to help you have a buffer when some of your assets don’t perform as projected.

It’s a lot like a farmer hedging their crops. Prices are not certain from year to year. Too many factors not under their control affect the price they get for their crops. Weather, demand, government intervention, social perceptions, weather, weather and weather……..

If a farmer is smart enough to hedge his major asset, shouldn’t we be smart enough to so the same?

It’s called Diversifying your Diversification. And we can help you find out how to do that.


Simply put……….a 4% withdrawal rate on a million dollars is $40,000.  A 2% withdrawal rate is $20,000.

That is the issue facing retirees unless habits, plans and perceptions are changed. It’s better to change earlier than later, because later just might be too late.


If you really want to make sure you have right ideas for moving forward in a positive manner, we will listen.  We’ve been able to help families and businesses learn to use money wisely, and we’d like to help you too.  We would be honored to visit with you about how to help you and your business.  My number is 501-318-0010, or you can send me an email at


An hour of your time spent analyzing your situation might make a lifetime of difference


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Chuck Dudley