Is a Safe Retirement Withdrawal Rate Below 4% or Almost 6%?

In this podcast, Motley Fool retirement expert Robert Brokamp discusses the pros, cons, and trade-offs of various retirement-account withdrawal strategies with Christine Benz, director of personal finance at Morningstar and co-author of a new report on retirement income.

Also in this episode:

• Prepare for lower taxes in 2026 by having less withheld from your paycheck and contributing more to your investments.
• A recent Washington Post article argues that bigger houses lead to lower levels of happiness.
• The percentage of the global stock market that comes from U.S. stocks is near an all-time high, but non-U.S. stocks made up for lost ground in 2025.
• Listeners share their tips and tricks for staying on top of their investments and spending.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on Jan. 10, 2026.

Robert Brokamp: Is the retirement safe withdrawal rate below 4%, and how not to overpay Uncle Sam? That and more on this Saturday Personal Finance Edition of Motley Fool Money. I'm Robert Brokamp, this week, I speak with Morningstar's Christine Benz who, along with her colleagues, Amy Arnott, Jason Cepart and Tau Guo, recently published an extensive report on the state of retirement income. But first, let's talk about a few highlights from last week's financial headlines. Here in the US, income taxes are a pay-as-you-go system. A certain amount must be withheld or paid throughout the year. Otherwise, you may owe penalties and interest. To build in a buffer, most Americans have too much withheld. About two-thirds of tax filers get a refund with the average amount exceeding $3,000. And that figure will likely be even higher this year due to the passage of the one big beautiful bill last July, which will reduce the average household's tax bill by $3,700, according to the Tax Foundation. Plus, according to a recent CNBC article, the amount it takes to move into a higher tax bracket for 2026 will be increasing 2.3% to 4%, depending on the bracket. So more of your income will be taxed at lower rates this year. Now, it makes some sense to play it safe with having more withheld from your paycheck. And I understand there's no feeling like completing your tax return and seeing that Uncle Sam owes you money.

But you missed out on the returns that overpayment could have earned if it was in your account and not the government's. So now is the time to reevaluate and perhaps change the amount you have withheld from your paycheck, if you're working or from your Social Security, pensions and or retirement account distributions if you're retired. The IRS does offer a tax withholding estimator, but it's down for maintenance until January 17. You can find other calculators online from payroll and tax software providers, and states also offer tools to calculate your state tax withholdings. In the end, your goal is to pay enough taxes to avoid penalties but not much more. And if you determine that reducing your withholdings is appropriate for you in 2026, make sure you then increase the amounts you contribute to your retirement, college, brokerage, or high-yield savings accounts so that you're immediately putting those tax savings to work. For our next item, we turn to a Washington Post article by Michael Corn with the headline Why Smaller Houses Can Lead to happier lives. Corn cites research which shows that after an initial burst of satisfaction with new larger homes, people's life satisfaction typically returns to a baseline or even declines.

The problem isn't that big houses make us unhappy. It's what we sacrifice to obtain them, including longer commutes, larger mortgages, and less time for socializing. Many people end up being house rich but relationship poor with expensive features like home theaters in formal dining rooms becoming unused dead zones. Studies consistently show that happiness peaks in households of four to six people, regardless of home size, and that neighborhood factors matter far more than square footage. Research from Vancouver found no significant well being difference between people in various types of houses from single detached homes to townhouses or apartments. With residents prioritizing affordability, proximity to loved ones, and other factors like that. Europeans report higher well-being than Americans, despite smaller homes because their walkable neighbourhoods and public spaces reduce the pressure on the home as the primary living space. The article suggests we should ask not how big a house can I afford, but rather what kind of home will sustain the kind of life I want. And now the number of the week, which is 5%. That's how much Japan makes up of the global stock market down from more than 40% in the late 1980s, according to the most recent edition of JP Morgan's Guide to the markets. Meanwhile, the US share has grown from 30% to 64%, which is near the peak reached in the 1960s when US stocks made up more than 70% of the planet's stock market. But last year, international stocks made up some lost ground. Japanese stocks returned 26%, and non-US stocks as a group returned 32% in 2025. It was their best year since 2009, and the amount that international stocks outperformed the S&P 500 was the biggest margin since 1993. Up next, why a safe withdrawal rate in retirement might be less than 4% or almost 6% when Motley Fool Money continues.

Robert Brokamp: The number one financial goal for most Americans is retirement. And once they retire, the primary goal becomes now running out of money. Here to discuss how much a retiree can safely spend is Christine Benz, the director of Personal Finance at Morningstar and the co-author of a New Report on Retirement Income. Christine, welcome back to Motley Fool Money.

Christine Benz: Robert, it's so great to see you. Thank you for having me on.

Robert Brokamp: Atally this report has become an annual tradition that began in 2021 with you and your colleagues at Morningstar. So let's start with you giving us the headline takeaway from the most recent edition and how much a new retiree could safely withdraw.

Christine Benz: Right. So we use what we call a base case that we latch onto when we do this research. So we're assuming that someone wants a paycheck equivalent in retirement. And the idea is to see if someone is starting out with a portfolio, how much they could initially withdraw from that portfolio and then just inflation-adjust that dollar amount thereafter. So we've been doing this research, as you said, Robert, since 2021. And in 2025, when we did the research, we're using our team's forward-looking estimates for stock and bond returns and inflation, and we came up with a 3.9% starting safe withdrawal rate for new retirees. So if someone has $1 million portfolio, the sobering news from Mads that they would want to take 39,000 initially if they were using this very conservative spending strategy where they're just giving themselves a little nudge up or a little inflation raise for each year that pass.

Robert: The pioneers of this type of research is William Bangen, who is considered the father of the so called 4% rule. He came out with a new book last year and concluded that 4.7% is actually a good starting point with a well-diversified portfolio. One key difference between his research and what all are doing at Morningstar is that he looks at historical market returns, whereas your research is based on projected returns. So does this indicate that Morningstar expects below-average returns over the next 30 or so years?

Christine: It does not necessarily over the next 30 years, but certainly over the next decade, given the strong run-up that we've had in US equities, especially our return assumptions are reduced over that whole 30-year time horizon because we think that the next ten years probably won't be that great, largely because of high valuations. Also point out that the overvaluation that we see isn't equally spread across the style box, and it's mainly in that large-cap growth component of the style box. But nonetheless, we think that the next ten years, investors should be prepared for potentially some rough sledding inequities. A 30-year period should be more or less normal in the assumptions that we use.

Robert: Related to that, the research on safe withdrawal rates looks at how much someone can safely spend, but also what asset allocation supports that highest withdrawal rate. So what does this year's report say about how much a retiree should have in the stock market?

Christine: Well, it's interesting because it's quite low. I think the highest starting withdrawal rate that 3.9% corresponds with, like, a 20 to 50% equity allocation. Most of us getting close to retirement or in retirement probably have higher equity ratings. But the reason that our simulations home in on such a light equity weighting is because of this very conservative spending system that we employ as our base case. So the simulations are basically saying, Okay, if what you want is a paycheck equivalent over this 30-year period, you don't intend to waver in terms of how much you'll take out. Well, guess what? We can line that up today in fixed income, or we can get most of that in fixed income because yields are a little better today. And of course, yields have come down a little bit over the past year. But nonetheless, they're higher than they were a decade ago. So that's what our simulations arrive at is that fairly light equity weighting because fixed income returns and the stability of those returns are pretty attractive given today's yields.

Robert: Your report also addressed a few of the key risks that people worry about in retirement, things like the impact of market or spending shocks, series of bad returns, long term care expenses. Is there an overall takeaway from your analysis of these risks?

Christine: Yeah, I think the sequence of return risk is one that's top of mind for me when I think about people just embarking on retirement. The key point there is that it's helpful to have a couple of things in your toolkit to help address the risk of bad market returns showing up early in your retirement. So one is being able to rein in your spending if you possibly can. So if we have really calamitous market losses, your portfolio loses a lot of value if you can spend less during those periods, that's certainly a best practice for retirement spending. The other point I would make is build yourself a runway of safer assets that you could spend through if you needed to, so you wouldn't have to touch your depreciated equity assets. So those two strategies in combination should hold people in pretty good stead if a bad sequence of return shows up within the next couple of years early in their retirement. If people don't have safe assets to withdraw from and if they don't rein in their spending, then that means that sequence risk really imperils their portfolio's ability to last over that whole 30-year time horizon.

Robert: Mentioned early in retirement. To dig a bit into how you did your analysis, you used a Monte Carlo simulation to calculate a withdrawal rate that was successful 90% of the time. You also took a look at the 10% that failed, and what you found is that they tended to have bad returns or high inflation in that first five, maybe ten years of retirement, which is consistent with William Bengan's research, which found that what happens in those first several years will have a disproportionate impact on how long your money will last.

Christine: Exactly. For people who are well into their retirement, for folks who are listening who have been retired for 20 years and maybe they're in their 80s at this point, well, the good news is from a sequence of return risk standpoint, you've made it, that you've made it through the danger zone. The people who need to be really careful are the newly retired. And I think the high equity valuations they have today point to that as a real risk.

Robert: What we've been discussing so far is the classic way to think about SAFe withdrawal rates, which you call the base case scenario. And that's taking out 3.9% in the first year and then adjusting that dollar amount for inflation for each subsequent year. But your report also looked at several dynamic withdrawal strategies, which generally speaking, allow for a higher initial withdrawal rate. It may be even more down the line if your portfolio grows enough, but with the trade-off that you have to cut back whenever the portfolio loses value. Your report dug into the details of several of these methodologies, and they get pretty complicated. But can you talk a bit about a couple that you think demonstrate the pros and cons?

Christine: Definitely. And one thing I would say, Robert, is when I think about this research and the press it has garnered, I'm always sad when people home in on that 3.9% withdrawal, right? Because for one thing, most people don't spend that way that expenses are a little bit lumpy in retirement. We're not just spending the same amount like robots year after year. But the other key point is that if someone uses that base case spending system, they will tend to leave big leftover balances at the end of a 30 year horizon, so they will have dramatically underspent during their retirements, and many people have quite tight plans where there are real quality of life trade-offs if you underspend. And there are missed opportunities to do some lifetime giving versus leaving a big bequest after your life is over. So my hope is that people do explore some of these flexible strategies because they're the best way to lift your lifetime withdrawals from your portfolio. So, a really simple one that we use in the paper is to look at people's actual spending patterns throughout their time horizon. So if you look at retirees in aggregate, what you see is a tendency to spend less as we age.

For many of us, this very much dovetails with the older adults in our lives, whom maybe we have helped through their senior years. We know that as they move into their say, mid 70s, early 80s, oftentimes their spending slows down a little bit, and in general, they're slowing down. And of course, this isn't the case for everyone. I know plenty of us have plans to be very energetic and maybe traveling throughout our whole retirement. But if you are comfortable with this assumption that you'll be like most people and spend less during your later years of retirement, it should give you permission to spend more in those early years of retirement. So the roughly 4% that we came out with in our base case, which assumes that someone's going to take that inflation adjustment thereafter, it's more like 5%. Initially, if you're OK with that trade-off of potentially spending less as you move into your say, mid 70s and early 80s. So that's one strategy I would call out. Another one that our team really likes, but is complicated and probably too complicated to explain here is called the guardrail strategy. It was developed by Jonathan Guten, who's a financial planner, as well as William Klinger, who's a computer scientist. It calibrates changes in withdrawals a little bit more tightly based on how the portfolio has performed. But the guardrails aspect of it is that it doesn't jerk you around too much. So in a really bad market environment, it'll say, you should take less, but you're not going to have to cut your spending to the bone, and that's where the guardrails kick in to protect you from having to take too radical an adjustment in terms of your spending. So those are a couple I would call out. But I would urge people to explore some of the trade-offs that they're comfortable with in terms of their own spending plans.

Robert: Your report does a great job of evaluating these various methodologies based on various criteria. One being the initial withdrawal rate, and for some of these, it's as high as 5.7%. But also the spending volatility because if you're following one of these dynamic strategies, you may have to cut back on your spending based on your portfolio's performance. You think of a time like the.com crash when the stock market was down three years in a row, that means your spending in retirement had to go down three years in a row. And another criteria was how much you had at the end of your life for maybe long-term care or to leave to your heirs. So there are all these moving parts to think about as you choose the right withdrawal strategy for you.

Christine: Yeah, thank you for mentioning the spending volatility because when we initially did this research, I had begun talking to retirement planning experts and often heard, Well, the RMD method, the required minimum distribution method is a really elegant system in that it tethers your withdrawals to how your portfolios behaved and that it also adjusts based on how old you are and what your longevity expectations are. And the RMD method is really efficient in that way. It helps ensure that you spend your portfolio during your lifetime. The trade-off is that it jerks you around a lot in terms of your annual spending. So it's not for everyone. It's probably going to be most appropriate for people who have a lot of non-portfolio income. Coming in the door. So maybe you're someone with a pension, the dwindling share of our population with a pension, maybe you've got a pension and you're just using your portfolio spending to do fun stuff or to travel or whatever. Maybe that RMD type system is appropriate for you, but for a lot of people, I think it'll just be too volatile in terms of their paydays.

Robert: That's a good example to bring up in terms of how much you have at the end of life, right? So, based on your report, the median amount someone would have after 30 years with the base case is 1.42 times what they started with. So they died with 42% more money than what they retired with. Whereas, with the RMD method, after 30 years, they only had 12% of what they started with. So they were running out of money there at the end. And you have to ask, Are you comfortable with that when you make these types of decisions. So those are just some of the trade-offs to consider when determining which strategy is right for you.

Christine: Yeah, that was our goal with the paper. And I would say, Robert, too, when people embark on this, really a key step is to take a look at your household budget and see if you have fixed outlays, and we all do for our housing expenses, taxes, healthcare, et cetera. Look at those fixed expenses. If you can figure out a way to have your fixed income align with those fixed outlays, that is a really great strategy. So if figure out a way to have Social Security, maybe plus some other income, whether working income or an annuity or something like that. If you can get those items to line, that makes the portfolio spending discussion a whole lot easier.

Robert Brokamp: It's time to get it done, Fools, and last week we kicked off our year-long financial planning challenge, which we're calling a well-planned, and recommended that you calculate your net worth and track your spending. I also asked listeners to let us know how they stay on top of their finances, and I'd like to highlight three of the responses we received. First up from BG. I've used Quicken for decades, and they have a retirement planning section. It took me some time to work through, but also saved all of my work. As I approach retirement from 15 years away, I noticed I was less anxious about saving for emergencies, vacations, kids' college, a wedding for our daughter, et cetera. Planning was highly useful, and we are doing very well in retirement. The time and effort was worth it. I encourage all fools to get started. So thank you, Bj. And I agree that not only will the work pay off in a more secure financial future, you may just feel better thanks to being more on top of and in control of your finances. Quicken is definitely an excellent choice, and there are others to consider, including Empower, Monarch Money, Tiller, Wynab and others. So see what's out there and choose a tool that you feel will work best for you. Next up, we hear from Fred in Florida, who wrote, 12 years ago, my wife and I went on a strict financial independence journey. We calculated our annual cost of living at retirement until age 95, all inflation-adjusted. We came up with an amount that we should have by age 67 supplemented by 70% of Social Security, just in case. Is unique with our plan is that we have an annual checkpoint that shows us if we are ahead or behind of our annual goal, and we can immediately make adjustments if needed. This helped us set an annual return of investment goal that guided us if we needed to be more aggressive or cautious the following year. It also helped us have an actual risk tolerance number, like if the S&P 500 drops 20%, is that a hit we can take and still be on track? Lastly, it helped us transition out of the strict saving mindset and enjoy our financial freedom better. Very impressive, Fred. I love that you broke up your retirement goal into annual benchmarks, and I particularly appreciate that you built in the possibility that you won't receive as much from social security as currently projected, which probably makes sense for those not close to retirement, since the Social Security Trust Fund will be depleted by around 2032, which will lead to a 20% or so cut to benefits unless Congress does something about it.

Finally, given how much we hear about AI these days, let's hear from Greg in South Carolina who wrote about the tools he uses to track his investments at expenses, which starts with an Excel spreadsheet that shows the balances of various accounts, has a pie chart that aggregates and classifies the amounts based on tax status, and then a rather complex projection table that estimates how the balances will grow based on a given rate of return, inflation rate, and withdrawal amount. As for expenses, I downloaded all of my 2025 checking history and used copilot Microsoft's AI tool to help categorize everything. It worked pretty well, except for a few errors that weren't the AI's fault. That helped me understand how much money my wife and I would need for our current baseline lifetime expenses. Based on that figure, it should be easy to estimate how much we'll need overall, taking into account taxes, healthcare, vacations, and other planned future shocks, such as a new roof, new car, et cetera. End quote Well, nice work and excellent idea, Greg. You know, one of the tedious parts of budgeting and tracking your spending is staying on top of every little expense and putting it in the right category, but it looks like Greg found an excellent solution. Plus, this type of information will be crucial for calculating how much someone needs for retirement, a topic we'll cover in a future month during our year-end plan. And that, my friends, is the show. Thanks for listening and thanks to Bar Shannon, the engineer for this episode.

As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure. Please check out our show notes. I'm Robert Brokamp. Fool on, everybody.

Robert Brokamp, CFP has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.