<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>This study considers one of the cornerstone questions in the retirement income debate; namely, what’s a safe withdrawal rate for retirement? This question is of particular importance to Australia’s superannuation system, which is characterised by having compulsory contributions during the retirement saving (or accumulation) phase, but no compulsory requirement to annuitise lump sums at the commencement of the retirement income (or distribution/decumulation) phase. As a result, many retirees face a classic asset–liability mismatch, the need to fund relatively short- and medium-term retirement spending needs with a long-term investment strategy. This study tests one of the most popular heuristics that have arisen from the safe withdrawal debate, specifically the 4% rule. Our findings question the validity of this approach using historical international return data.</p>
</abstract>

This study considers one of the cornerstone questions in the retirement income debate; namely, what’s a safe withdrawal rate for retirement? This question is of particular importance to Australia’s superannuation system, which is characterised by having compulsory contributions during the retirement saving (or accumulation) phase, but no compulsory requirement to annuitise lump sums at the commencement of the retirement income (or distribution/decumulation) phase. As a result, many retirees face a classic asset–liability mismatch, the need to fund relatively short- and medium-term retirement spending needs with a long-term investment strategy. This study tests one of the most popular heuristics that have arisen from the safe withdrawal debate, specifically the 4% rule. Our findings question the validity of this approach using historical international return data.

Just How Safe are ‘Safe Withdrawal Rates’ in Retirement?

Financial Planning Research Journal

This work is licensed under the Creative Commons Attribution 4.0 International License.

{"article-title":"Just How Safe are \u2018Safe Withdrawal Rates\u2019 in Retirement?"}

This study considers one of the cornerstone questions in the retirement income debate; namely, what’s a safe withdrawal rate for retirement? This question is...

Starting Balance	ASFA Modest $32,656	ASFA Comfortable $56,406
$250,000	13.06%	22.56%
$500,000	6.53%	11.28%
$750,000	4.35%	7.52%
$1,000,000	3.27%	5.64%
$1,250,000	2.61%	4.51%
$1,500,000	2.18%	3.76%

Ranking	Country	Annualised Performance (%)	Standard Deviation	Reward/Risk Ratio
#1	Australia	7.22	18.23	0.40
#2	South Africa	7.21	22.49	0.32
#3	United States	6.19	20.20	0.31
#4	Sweden	6.11	22.87	0.27
#5	New Zealand	5.76	19.66	0.29
#6	Canada	5.69	17.22	0.33
#7	United Kingdom	5.20	19.94	0.26
#8	Finland	5.01	30.41	0.16
#9	Denmark	4.85	20.90	0.23
#10	Netherlands	4.81	21.76	0.22
#11	Switzerland	4.13	19.73	0.21
#12	Norway	4.08	27.33	0.15
#13	Ireland	3.72	23.06	0.16
#14	Japan	3.62	29.78	0.12
#15	Spain	3.42	22.21	0.15
#16	France	2.87	23.45	0.12
#17	Germany	2.86	32.18	0.09
#18	Belgium	2.39	23.57	0.10
#19	Italy	1.68	28.99	0.06

Just How Safe are ‘Safe Withdrawal Rates’ in Retirement?

Online veröffentlicht: 17. März 2024

Seitenbereich: 22 - 32

Eingereicht: 14. Juli 2015

Akzeptiert: 28. Okt. 2015

DOI: https://doi.org/10.2478/fprj-2015-0002

© 2015 Michael E. Drew et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Figure 1:

Figure 2:

Withdrawal rates equivalents for varying starting values

Ranking of Annualised Performance (Stocks, real accumulated returns)