Safe withdrawal rate
Also: safe withdrawal rate, SWR, 4% rule
The percentage of a retirement portfolio that can be withdrawn in year one, adjusted for inflation in later years, with high probability of lasting 30 years. The classic benchmark is 4% based on the Trinity Study.
The safe withdrawal rate is a rule of thumb for sizing retirement spending against assets. The Trinity Study and subsequent research found that a 4% initial withdrawal rate, adjusted for inflation annually, survived all historical 30-year periods with a 60/40 portfolio. More conservative research suggests 3.3% to 3.5% for current equity valuations and bond yields, especially for retirements longer than 30 years. Higher rates (5% to 6%) are possible with flexible spending, annuity floors, or shorter horizons.
Example: a 45-year-old tech retiree plans a 45-year retirement horizon with $5 million portfolio. At 3.5% initial SWR, year-one spending is $175,000. At 4%, it is $200,000. The $25,000 gap compounded across four decades is meaningful, and the choice depends on spending flexibility and Social Security claiming strategy.
Common mistake: applying a 4% rule while also drawing Social Security and a pension, then inflating the total spend. The SWR covers the portfolio-supplied piece of spending, not total income.
The safe withdrawal rate matters at early retirement from tech equity wealth, at Coast FIRE calculations, and at evaluating whether a current spending level is sustainable.