Safe withdrawal rate (SWR)

The 4% rule, in plain language

In 1994, financial planner William Bengen analyzed every 30-year retirement period in US market history and asked: what's the highest withdrawal rate that would have survived even the worst starting year? His answer was about 4% — if you retire with $1,000,000 and withdraw $40,000 per year (adjusted for inflation each year), the money historically lasted 30 years even if you started in 1929 or 1973. This became known as the "4% rule."

The follow-up research (the Trinity Study, then dozens of later updates) confirmed the rough magnitude. For a 30-year retirement at a roughly balanced asset allocation, 4% is a reasonable starting withdrawal rate. For longer retirements (40+ years, common for early-retirement scenarios), the safer rate drops to about 3–3.5%.

What "safe" actually means here

"Safe" doesn't mean guaranteed. It means: across all historical starting points, this rate didn't deplete the portfolio in 30 years. The historical worst cases — the cohorts who retired right before the 1929 crash, or right before the stagflation of the 1970s — would have made it through with the principal still intact. That's the bar.

What "safe" specifically depends on:

• How long your retirement is. 30 years is the classic Bengen horizon. 40 years (early retirement at 55, planning to age 95) is harder; 50 years (very-early retirement) is harder still. Each adds a notch of conservatism — drop the rate by ~0.5% per extra decade.
• Your asset mix. The 4% number assumes roughly 50–75% stocks. An all-bonds portfolio supports a lower SWR (returns don't keep up); a 100% stock portfolio supports a higher long-run SWR but with much more bumpy ride.
• Whether you'll adapt to bad markets. If you can cut spending 10% in a bad year, you can support a higher starting rate. That's what dynamic withdrawal rules like Guyton-Klinger model — the Advanced calculator compares them.

Sequence-of-returns risk

The single biggest threat to a retiree's portfolio isn't bad average returns — it's bad returns at the start of retirement. If you retire and the market drops 30% in your first two years while you're also drawing $40,000/year, your principal shrinks fast — and even if returns rebound later, you may not have enough principal left to benefit. This is "sequence-of-returns risk." It's why retirees can't just look at the long-run average return when planning withdrawals.

Dynamic withdrawal rules and lower starting rates are both ways to mitigate sequence risk. The Advanced calculator's "5-rule comparison" panel shows you the historical success rate of each rule (static SWR, Guyton-Klinger guardrails, Bernicke age-decay, CAPE-based, and percentage-of-portfolio) under Monte Carlo simulation.

What this means for your number

At 3% SWR (Simple Calculator default, 50-year-safe): you need about $33 of savings for every $1/yr of spending.

At 4% SWR (classic, 30-year horizon): you need about $25 per $1.

At 5% SWR (riskier; works if you can flex spending in bad markets): about $20 per $1.

The Simple Calculator picks the most conservative anchor (3%) so you see a worst-case number. Most Canadians don't actually need a 50-year-safe rate — switching to Advanced lets you adjust based on your actual horizon and asset mix.