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Retirement Withdrawal Rates and Portfolio Success Rates: What Can the Historical Record Teach Us?


  • Pfau, Wade Donald


Countless current and prospective retirees now rely on portfolio success rates calculated from the historical data for different retirement withdrawal strategies when planning their own retirements. Past history-based studies ushered forth what has become known as the 4 percent rule for retirement withdrawals, as historically 4 percent with inflation adjustments has served as a relatively safe withdrawal rate in the United States. But this study investigates whether the safety of the 4 percent rule achieved with an aggressive asset allocation is an appropriate conclusion to draw from the historical record. Historical portfolio success rates calculated from U.S. data may present a misleadingly rosy picture. In the time period covered by key withdrawal rate studies, financial markets in the United States performed exceedingly well from an international perspective, and such continued successes should not simply be assumed. Second, rolling historical simulations have made high stock allocations look more attractive than may be justified by over-representing a portion of the historical record in which bonds performed exceedingly poorly. Third, and most importantly, historical portfolio success rates teach the wrong lesson from the historical data as they do not account for the changing circumstances facing recent retirees. High earnings multiples, low dividend yields and low nominal interest rates indicate that conservative retirees should adjust their forecasts for future asset returns downward, which further implies lower sustainable withdrawal rates. For prospective retirees, the real lesson provided by the historical data is not past portfolio success rates, but rather to see how maximum sustainable withdrawal rates have related to the underlying sources of asset returns.

Suggested Citation

  • Pfau, Wade Donald, 2011. "Retirement Withdrawal Rates and Portfolio Success Rates: What Can the Historical Record Teach Us?," MPRA Paper 31122, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:31122

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    References listed on IDEAS

    1. Pfau, Wade Donald, 2011. "Can We Predict the Sustainable Withdrawal Rate for New Retirees?," MPRA Paper 30877, University Library of Munich, Germany.
    2. Wade D. Pfau, 2010. "An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?," GRIPS Discussion Papers 10-12, National Graduate Institute for Policy Studies, revised Oct 2010.
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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. How Much is Too Much? (Wall Street Journal)
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-11-19 22:03:00
    2. Wall Street Journal: How Much Is Too Much?
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-11-19 09:45:00
    3. Do-It-Yourself Safe Withdrawal Rates
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-10-27 19:31:00
    4. “Guidelines for Withdrawal Rates and Portfolio Safety During Retirement”
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-07-16 05:08:00
    5. "Making Retirement Income Last a Lifetime"
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-07-14 08:39:00
    6. Retirement Withdrawals and Leftover Wealth
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-06-22 10:02:00


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    Cited by:

    1. Pfau, Wade Donald, 2011. "Nearly optimal asset allocations in retirement," MPRA Paper 32506, University Library of Munich, Germany.
    2. Pfau, Wade Donald, 2012. "Choosing a Retirement Income Strategy: Outcome Measures and Best Practices," MPRA Paper 39145, University Library of Munich, Germany.

    More about this item


    safe withdrawal rates; retirement planning; withdrawal rate strategies;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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