Dig into the research: Read the full State of Retirement Income report<\/a><\/p>\n Our \u201cbase case\u201d safe withdrawal rate is up slightly from the starting safe withdrawal percentage of 3.7% we estimated in last year\u2019s report<\/a>. (The base case estimates for starting safe withdrawal rates for a new retiree with a 30-year horizon with a 90% probability of success were 3.3% in 2021<\/a>, 3.8% in 2022<\/a>, and 4.0% in 2023<\/a>.) However, these numbers aren\u2019t meant to imply that people who are already retired should shift their spending up or down from year to year; rather, they represent our best estimate of the starting safe withdrawal rate for a person currently embarking on retirement.<\/p>\n In addition, new retirees don\u2019t have to settle for such a low number\u2014and arguably shouldn\u2019t. Our research concluded that those who are willing to tolerate some fluctuations in their spending can start with a withdrawal rate of nearly 6%. The right level of flexibility in a retiree\u2019s spending system will depend on the individual\u2019s tolerance for spending changes, including the extent to which fixed expenses are covered by nonportfolio income sources.<\/p>\n To help illustrate the interplay between portfolio spending and income from other sources, our research delved into several scenarios involving Social Security<\/a> and annuities<\/a>. We found that decisions to enlarge income from other sources, like delaying Social Security<\/a>, pair well with flexible withdrawal strategies. At the same time, a consistent finding in the research is that enlarging lifetime income generally reduces the amounts available for bequests.<\/p>\n Learn more: How to use Morningstar’s retirement income research<\/a>Is 3.9% the New 4.0%?<\/p>\n As in the past, we incorporated forward-looking asset-class return and inflation assumptions to arrive at a starting safe withdrawal rate for new retirees, excluding Social Security or other nonportfolio income sources. Our research takes a forward-looking view because at the outset of retirement, it\u2019s impossible to know what starting withdrawal percentage will be safe over the ensuing 30-year period. Factoring in current conditions can help retirees determine if their starting percentages ought to be higher or lower, as well as the right type of asset allocation given a retiree\u2019s spending plans.<\/p>\n To provide withdrawal-rate guidance that considers current yields, valuations, and inflation, we turned to our colleagues in Morningstar\u2019s Multi-Asset Research team for forecasts on those variables. Like many investment-research groups, the MAR team develops forward-looking asset-class return assumptions, as well as assumptions about the expected volatility of each asset class and future inflation levels. We then extrapolate 30-year forecasts based on the MAR team\u2019s assumptions.<\/p>\n The capital markets assumptions (which are expressed as arithmetic means) employed in this paper have changed modestly since 2024, and mainly in a positive direction. That stems from a methodology change the MAR team recently implemented. Whereas the capital markets assumptions we used in the past were derived from top-down measures like expectations of future earnings growth and valuation contraction or expansion for various market segments, this year\u2019s capital markets assumptions blend those top-down inputs with Morningstar equity analysts\u2019 bottom-up assessments of the companies they cover. While the expected inflation rate increased slightly from 2.29% in 2024 to 2.46% in 2025, expected returns are a bit higher across nearly every asset class thanks to the methodology change.<\/p>\n As shown in the table below, we estimate that a new retiree planning for a 30-year time horizon can safely withdraw 3.9% of a portfolio with an equity weighting of between 30% and 50%. Because of the higher volatility associated with higher equity weightings, boosting stocks detracts from the starting safe withdrawal percentage rather than adds to it. The below table also shows the connection between time horizon, asset allocation, and safe withdrawal rates, indicating that older retirees can reasonably spend well more than the 3.9% in our base case, which assumes a 30-year horizon.<\/p>\n We also explored the role of market, inflationary, and spending shocks such as early retirement in this year\u2019s research. We found that retirees who encountered poor returns in the first five years of retirement and didn\u2019t adjust their spending downward were much more likely to exhaust their savings than those who came through the first five years with positive returns. Similarly, we concluded that retirees who encountered high inflation early in retirement were also more likely to prematurely run out of funds unless they took steps to adjust their savings.<\/p>\n How Flexible Strategies Can Help (But Aren\u2019t for Everyone)<\/p>\n Because a 3.9% withdrawal rate\u2014or just $39,000 on a $1 million portfolio\u2014might be a bitter pill to swallow for new retirees, we also examined how flexible strategies can help boost starting safe withdrawal rates. Flexible strategies are effective because they help to prevent retirees from overspending in periods of market weakness, while giving them a raise in stronger market environments.<\/p>\n We tested some of the most widely used flexible strategies, benchmarking them against a system of fixed real withdrawals. Each flexible spending method supports a higher initial safe withdrawal rate than the base case (fixed real withdrawal method). The constant percentage and endowment methods support the highest starting safe withdrawal rates across most asset allocations. The constant percentage method simply applies a static percentage withdrawal to each year\u2019s portfolio balance, while the endowment method takes a percentage of the portfolio\u2019s average value over a 10-year period. Both approaches support higher initial withdrawals by making potentially significant year-to-year adjustments to dollar withdrawals, ratcheting down spending when the portfolio value is down.<\/p>\n The below exhibit shows how each of the flexible strategies balances a higher starting safe withdrawal percentage alongside variations in a retiree\u2019s cash flow volatility. In addition, the metric on the bottom line\u2014spending\/ending ratio\u2014aims to depict how each strategy balances lifetime spending with bequests.<\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/us\/wp-content\/uploads\/2025\/12\/5VN337XJ2JEWDKL3TLBIFKWCBI.png\")
<\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/us\/wp-content\/uploads\/2025\/12\/ODB77HJSWVEB7GWKWETOEGOZAM.png\")
<\/p>\n
![\"A](\"https:\/\/www.newsbeep.com\/us\/wp-content\/uploads\/2025\/12\/JQ6ELIF57NCJPPVZQHUPDR7BD4.png\")
![\"A](\"https:\/\/www.newsbeep.com\/us\/wp-content\/uploads\/2025\/12\/XA4OROPBMJC5BFRESLPTZMAUA4.png\")