A withdrawal rate is a model input
A starting rate is the first planned annual portfolio withdrawal divided by the portfolio value at the starting point. It does not establish that the plan will survive. A fixed real-spending policy, a fixed percentage of the remaining balance and a flexible spending rule produce different withdrawals and risks.
Read the model before the headline
Morningstar’s 2025 retirement-income research reports a 3.9% starting rate under its base-case assumptions: a 30-year horizon, inflation-adjusted spending and a 90% modeled success target. This is a conditional research result, not a guaranteed outcome or a universal rate for people retiring early. Longer horizons and different assumptions require their own analysis.
A spending example without hidden valuation inputs
For an invented 1,500,000 portfolio, first-year withdrawals are 60,000 at 4%, 45,000 at 3%, and 40,500 at 2.7%. Conversely, funding 45,000 at an entered 3% starting rate implies 1,500,000 of starting assets. These calculations divide spending by a chosen rate. They do not use CAPE, forecast returns or estimate a survival probability.
Why the order of returns matters
Consider a 100 portfolio, a withdrawal of 10 at each year’s start and two invented returns: +20% and −20%. In that order, the ending values are 108 after year one and 78.4 after year two. In reverse order, they are 72 and 74.4. The same returns in a different sequence produce different results because money is being withdrawn. This small example omits inflation, tax and fees and is not a retirement simulation.
Create a plan that can be checked
- Define essential and flexible spending separately.
- Identify the withdrawal horizon and reliable non-portfolio income.
- Specify inflation, costs, tax and the investment allocation.
- State how spending changes after poor returns.
- Test multiple sequences and record model limitations.
- Review access restrictions and major one-off expenses.
A lower starting withdrawal generally asks less of the same portfolio, but a single percentage cannot establish suitability. Use a model that documents its data and rules, and obtain qualified advice for decisions requiring an individual assessment.
Sources and scope
References support the stated definitions or research context. The worked examples on this page use invented inputs and do not reproduce a market study. Source checks: 16 October 2026.
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