Contributions

PFAU

An International Perspective
on Safe Withdrawal Rates: The
Demise of the 4 Percent Rule?
by Wade D. Pfau, Ph.D.

Wade D. Pfau, Ph.D., an associate professor at the
National Graduate Institute for Policy Studies in

Executive SummaryTokyo, Japan, holds a Ph.D. in economics from
Princeton University. His hometown is Des Moines,
Iowa. He can be reached at wpfau@grips.ac.jp.
Acknowledgements: The author is grateful for ﬁnancial support from the Japan Society for the Promotionof Science Grants-in-Aid for Young Scientists (B)#20730179, for excellent research assistance from
Carmina Mancenon, and for the detailed commentsof an anonymous reviewer for this journal.

For retirement savings that are
not annuitized, an importantand difficult question for retirees
regards ﬁnding a safe withdrawal ratethat will provide as much retirement
income as possible without exhausting
their savings. The starting point for
advice on this issue in the modern
era is Bengen (1994), who famously
motivated the 4 percent withdrawal
rule using historical simulations. He
later coined the term “SAFEMAX” todescribe the highest withdrawal rate
as a percentage of the account balanceat retirement that could be adjusted
for inﬂation in each subsequent year
and would allow for at least 30 yearsof withdrawals during all of the rolling
historical periods in his dataset. Several
years later, Cooley, Hubbard, and Walz
(1998) showed with historical simulation based on the same underlying datathat a 4 percent withdrawal rate with52

• Numerous studies about sustainable • The paper uses a historical simulawithdrawal rates from retirement
tions approach, considering thesavings have been published, but they
perspective of individuals retiring inare overwhelmingly based on theeach year of the historical period.
same underlying data for U.S. asset
Because the assumed retirement
returns since 1926.
duration is 30 years and the data
• From an international perspective,
end with 2008, retirements takethe United States enjoyed a parplace between 1900 and 1979. For
ticularly favorable climate for asset
each country and in each retirereturns in the 20th century, and toment year, the paper optimizes
the extent that the United Statesacross the three domestic ﬁnancial
may experience mean reversion in
assets, ﬁnding the ﬁxed asset
the current century, “safe” withallocation that provides the highest
drawal rates may be overstated insustainable withdrawal rate overmany studies.
the next 30 years, while controlling• This paper explores the issue offor a number of other structured
sustainable withdrawal rates using
assumptions.
109 years of ﬁnancial market data for • From an international perspective,
17 developed market countries in an
a 4 percent real withdrawal rate is
attempt to provide a broader persurprisingly risky. Even with some
spective about safe withdrawal rates,
overly optimistic assumptions, it
as ﬁnancial planners and their clientswould have only provided “safety”
must consider whether they will bein 4 of the 17 countries. A ﬁxed
comfortable basing decisions on theasset allocation split evenly between
impressive and perhaps anomalousstocks and bonds would have failed
numbers found in past U.S. data.
at some point in all 17 countries.

an underlying portfolio of 50 percent
stocks and 50 percent bonds provides
a 95 percent chance for success. Scott,Sharpe, and Watson (2009) argued
against the 4 percent withdrawal rule

JOURNAL OF FINANCIAL PLANNING | December 2010

as being an expensive and inefficientmeans for achieving retirement spending goals, but noted how widely it has
been adopted by the popular press andﬁnancial planners as an appropriate rule
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PFAU

of thumb for retirees.
Numerous studies on sustainable
withdrawal rates with various tweaks
and modiﬁcations followed this early
research. For instance, Google Scholar
indicates that 55 studies have cited theoriginal Bengen (1994) article, and theauthor counts well over 30 articles on
this topic in the pages of this journal. As
the 4 percent rule became established asa baseline, a fair number of these studies
were motivated by the search for ways tofurther increase the safe withdrawal rate.
Bengen (2006a) considered someof the subsequent research advances,such as diversifying into more ﬁnancial
assets, requiring sustainable withdrawals for longer or shorter periods,
changing withdrawal patterns to favorlarger withdrawals either in earlyor late retirement, making dynamic
adjustments to the withdrawal rate in
response to market conditions, andrebalancing the underlying portfolio atdifferent time intervals. By including
small-company stocks in addition to the
S&P 500 index, he found that the safe
withdrawal rate could be increased from
4.15 percent to 4.58 percent, and moregenerally, he wrote that the accumulated
effects of these modiﬁcations left him
comfortable recommending withdrawal
rates much closer to 5 percent than to
4 percent. Bengen (2006b) provided a
speciﬁc example of this revised recommendation: a retiree who includes smallcapitalization stocks, accepts a 6 percent
chance for failure, and rebalances theportfolio once every four years can enjoy
a 5.1 percent real withdrawal rate.
It is widely acknowledged andunderstood that the applicability ofthese withdrawal rate studies depends
on the future behaving with the same
patterns as the past. But a potential
problem with the ﬁndings of so manyof the existing studies is that they arebased on the same Ibbotson Associates’
Stocks, Bonds, Bills, and Inﬂation (SBBI)
monthly data on total returns for U.S.
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Contributions

has since been added to their dataset,ﬁnancial markets since 1926, a timeincreasing the total countries to 17).
interval for which there are fewer thanFor their study with data from 1900 to
three nonoverlapping 30-year periods.
2002, the real compounded return toEither these data are used directly for
the U.S. stock market was 6.3 percent,historical simulations or bootstrapping
compared to 5.4 percent for their index
approaches, or used to calculate paramof developed-country stock markets.
eters for Monte Carlo simulations. The
problem is that the period covered by this data may have beena particularly fortuitous one for
the United States. If one thinksof the world as a Monte Carlo
It is widely acknowledged
simulation, then the single pathand understood that theobserved in the 20th-century
applicability of these
United States may not represent
its true underlying distribution
withdrawal rate studies
of returns, and future returns
depends on the future
are likely to be lower.
This point is made forcebehaving with the same
fully in Dimson, Marsh, andpatterns as the past.
Staunton (2004). They argue
that looking only to past U.S.
data for future predictions
will lead to “success bias”
The argument in Dimson, Marsh,and sampling error. As the title ofand Staunton (2004) was not based on
their article suggests, it is “irrational
any underlying factors in the United
optimism.” In the ﬁrst case, they noteStates. But an established literature alsothat though the United States enjoyedargues that the United States should
remarkable growth and success in the
expect lower stock returns in the future
20th century, with its stock market
because of underlying fundamental faccapitalization growing from about 22
tors. Data available from Robert Shiller’s
percent of world’s total in 1900 to 54
homepage (www.econ.yale.edu/~shiller/
percent in 2003, such relative successdata.htm) indicate that the dividend
would have been difficult to predict inyield in June 2010 was 2.03 percent,1900 and cannot be extrapolated into
compared to an average value since
the future. As for sampling error, the1900 of 4.3 percent, and the cyclically
U.S. data does not reach over a longadjusted price-earnings ratio in Juneenough time interval to be conﬁdent
about its characteristics, as there are too 2010 was 19.79, compared to an average
few nonoverlapping periods. Examining since 1900 of 16.27. Low dividend yields
and a high price-multiple on earnings
asset returns for a larger selection ofshould both lead to lower future stock
countries should provide a better idea
returns on average. For this reason,
about the range of possibilities for the
Bogle (2009) is very skeptical about
future. Their hope was to eliminate thebasing stock return expectations on
widespread belief that the stock market
their historical performance.
will always provide a positive real
One study in this literature acknowlreturn over a 20-year period, as while
edging that past market conditions may
this was true in the United States, it
not suitably represent what will happen
was also true only in 3 of the remaining
in the future is Blanchett and Blanchett15 countries they investigate (Norway“”

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Contributions

PFAU(2008). Basing an average forecast
for future stock returns on a variety ofsources, they ﬁnd that the future real
return for a 60/40 portfolio of stocks
and bonds could be between 1 and 2 percentage points less than historical averages. They use Monte Carlo simulations
to consider how varying the returns andstandard deviations of an investment
portfolio will affect the sustainable real
withdrawal rate for 30-year periods,
which essentially allows the reader tochoose his or her assumptions for thesetwo portfolio parameters and see how
the probability of success changes forvarious withdrawal rates.

enjoy. Though an acceptable interpretation of the results is also that they
provide guidance to prospective retirees
in 17 countries, the intention is to apply
them more as 17 potential scenarios forwhat a prospective retiree in the UnitedStates may face in the future. Though
not all readers may accept the notionthat the experiences of other countries
are relevant to the United States, theseﬁndings do suggest that advisers andretirees should more critically consider
the safety of the 4 percent withdrawal
rule. Altogether, this paper argues that
conclusions reached by studies using
the SBBI data may be providing overly
optimistic estimatesof future sustainable
withdrawal rates.
The author uses this multiThis paper primarcountry data not because of a
ily uses the Dimson,
Marsh, and Staunton
belief that the United States is(DMS) dataset comdirectly comparable to the othermercially available from
Ibbotson Associates andcountries or because of a bearish
Morningstar. For each
outlook for the U. S., but ratherof 17 developed market
as a way to consider sustainablecountries, annual data
are available for stocks,
withdrawal rates under different
bonds, bills, and inﬂahistorical circumstances.
tion for the 109 years
between 1900 and 2008.
Results with these data are compared
Methodology and Data
to the results based on the Stock, Bonds,
Our approach for obtaining a better
Bills, and Inﬂation (SBBI) data commeridea about the implications of lower
cially available from Ibbotson Associates
asset returns on sustainable withdrawal
for the United States monthly sincerates is to replicate the methodology
of Bengen (2006a) using 109 years of1926. While the SBBI data include twoseries for stocks (large- and small-capﬁnancial market data for 17 developed
italization stocks) and three series formarket countries. The author uses thisbonds (intermediate-term government
multi-country data not because of abelief that the United States is directly
bonds (ITGB), long-term government
bonds (LTGB), and long-term corporatecomparable to the other countries orbonds (LTCB)), the DMS data provide
because of a bearish outlook for the
U. S., but rather as a way to consider
one series for each asset. Detailed
deﬁnitions and sources for the DMS
sustainable withdrawal rates underdata are provided in Dimson, Marsh,different historical circumstances,and Staunton (2002). With these data,acknowledging that U.S. asset returns
may simply be unable to continue thethe paper uses a historical simulations
approach, considering the perspective of
blazing path that past investors could

“

”

54

JOURNAL OF FINANCIAL PLANNING | December 2010individuals retiring in each year of thehistorical period. Because the assumed
retirement duration is 30 years and thedata end with 2008, retirements takeplace between 1900 and 1979. There
are 80 retirement dates for each of 17
countries, or 1,360 retirement episodes.
For each country and in eachretirement year, the paper optimizes
across the three domestic ﬁnancial
assets, ﬁnding the ﬁxed asset allocationthat provides the highest sustainable
withdrawal rate over the next 30
years. There are 5,151 possible asset
allocations, which consist of all possible combinations of each asset in one
percentage point increments. Other
important assumptions include:
1. SAFEMAX. Bengen (2006a)
describes SAFEMAX as thehighest withdrawal rate that would
have provided a sustained real
retirement income without being
exhausted for the required numberof years during every year of thehistorical period. In other words,
it is the maximum sustainable
withdrawal rate from the worstcase retirement year. This paper
uses Bengen’s SAFEMAX concept.
2. Perfect foresight assumption.
Much of the analysis provides abest-case scenario for increasing
the SAFEMAX by assuming ineach year for each country that the
new retiree has perfect foresight tochoose the ﬁxed asset allocation thatmaximizes the withdrawal rate forthe subsequent 30 years. Obviously
the assumption is not realistic andartiﬁcially inﬂates the SAFEMAX,
but even so, the traditional 4
percent withdrawal rule will still
perform surprisingly poorly. This
assumption avoids accusations thata poor-performing asset allocation
was chosen to discredit the 4
percent rule. To provide some idea
about this assumption, we will also
include a brief discussion for how
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Contributions

Table 1:PFAU

Summary Statistics for Real Equity Returns
Geometric Arithmetic
Mean
Mean

Australia
SwedenSouth Africa
United States
CanadaUnited Kingdom
The Netherlands
Denmark
Switzerland
Japan
NorwayIrelandSpain
FranceGermany
Italy
Belgium
U.S. SBBI S&P 500
U.S. SBBI Small-Cap

7.26
7.23
7.07
6.01
5.87
5.09
4.65
4.62
4.1
3.79
3.77
3.54
3.53
3.17
2.8
1.89
1.86
6.60
8.59

8.89
9.59
9.32
8.05
7.25
6.98
6.79
6.44
5.96
8.54
6.76
6.2
5.77
5.72
7.94
6
4.18
8.64
13.16

Standard
Deviation

Correlation Between
Stocks and Bonds

18.14
22.93
22.72
20.43
17.03
20.06
21.75
20.71
19.92
30.05
27.31
23.17
22.17
23.33
32.5
29.21
22.46
20.51
32.14

0.28
0.18
0.44
0.17
0.16
0.53
0.08
0.48
0.37
0.38
0.19
0.5
0.35
0.38
0.44
0.4
0.4

Note: Red highlighting indicates value is higher than the U.S. DMS value for means, and lower
for standard deviations and correlations.
Source: Own calculations from Dimson, Marsh, and Staunton (1900–2008) data and SBBI
(1926–2009) data.

the results change for a speciﬁc
portfolio mixed evenly between
stocks and bonds.
3. Portfolio administrative fees.
This assumption is rather vexing,
but to be consistent with moststudies (Ameriks, Veres, andWarshawsky (2001) and Pye (2001)
are two notable exceptions), we
assume that mutual fund companies and ﬁnancial planners do not
deduct any fees from the portfolio.
We do this in order to make clearthat the lower SAFEMAXs we ﬁnd
are due to factors other than such
fees. To provide some idea about
the potential effect of administrative fees, note that Bengen (2006a)ﬁnds a SAFEMAX of 4.15 percent
for a portfolio with 50 percent
large-company stocks and 50
percent intermediate-term government bonds. If we include averageannual administrative fees of 1.6
percent for stock mutual funds and56

1.2 percent for bond mutual funds(these are close to the averages
found by Morningstar in 2008,
see http://news.morningstar.com/
PDFs/Appendix_0409.pdf), which
we deduct at the end of each year
before rebalancing, the SAFEMAX
for this portfolio is reduced by 0.66
percentage points to 3.49 percent.
Looking to the future, index funds
and ETFs do provide very low
administrative fees, making it morereasonable to ignore them, but
retirees who invest in costly mutual
funds or who pay fees to ﬁnancial
planners must realize the strong
effect it will have on their sustainable withdrawal rate.
4. Portfolio rebalancing and taxes.
As with much of the literature,
we assume that the investment
portfolio will be rebalanced at theend of each year to maintain thetargeted asset allocation, and we
do not attempt to collect taxes.

JOURNAL OF FINANCIAL PLANNING | December 2010

This assumption is appropriate
for withdrawals from a RothIRA, but must be considered as a
pre-tax withdrawal rate for taxable
accounts.
5. Withdrawal amounts and patternof activities during the year.
We assume the annual accountwithdrawal is set as a percentageof the accumulated portfolio
at the retirement date. In eachsubsequent year, the withdrawal
amount is adjusted by the previous
year’s inﬂation. Withdrawals are
made at the start of each year.
The remaining account balance,
divided among the three assets,then grows or shrinks by that year’s
asset returns, and at the end of theyear the portfolio is rebalanced tothe target asset allocation. If thewithdrawal drops the account balance to zero at any point before the30th year, the withdrawal rate wastoo high and the portfolio failed tobe sustainable.

Results
Tables 1 and 2 provide summary
statistics for the 17 countries in the
DMS dataset for the years 1900 to
2008, and for the U.S. SBBI data forthe years 1926 to 2009. These statistics
are provided for the real returns after
removing the effects of inﬂation. Before
proceeding further, these tables alreadyserve to illustrate how the UnitedStates enjoyed relatively favorable asset
returns from an international perspective. For stocks, only three countries
enjoyed a higher compounded real
return than the U.S.’s 6.01 in the DMS
data and 6.6 in the SBBI data. Surprisingly, given the high values, the UnitedStates could also enjoy relatively low
volatility for stock returns, as only
four countries experienced standard
deviations below the 20.43 percent of
the United States. Australia boasts thedistinction of being the only country
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PFAU

Table 2:Contributions

Summary Statistics for Real Bonds and Bills, and for Inflation
Real Bills

Real Bonds
Geometric Arithmetic
Mean
Mean
Denmark
Switzerland
SwedenUnited States
CanadaSouth Africa
NorwayAustralia
United Kingdom
The Netherlands
Spain
Ireland
Belgium
FranceJapan
Germany
Italy
U.S. SBBI ITGB
U.S. SBBI LTGB
U.S. SBBI LTCB

3.04
2.59
2.51
2.12
2.1
1.77
1.69
1.52
1.39
1.37
1.36
1.08
-0.14
-0.2
-1.19
-1.62
-1.73
2.25
2.34
2.76

3.66
2.88
3.23
2.59
2.62
2.3
2.43
2.36
2.26
1.79
2.04
2.09
0.6
0.73
1.55
0.73
-0.43
2.48
2.87
3.18

Standard
Deviation

Geometric
MeanStandard
Deviation

11.72
7.88
12.48
10.03
10.41
10.44
12.29
13.26
13.75
9.46
11.82
14.76
12.09
13.12
20.28
15.49
14.17
6.87
10.69
9.51

2.29
0.8
1.95
0.97
1.64
1.02
1.18
0.67
1.05
0.72
0.36
0.67
-0.33
-2.85
-1.98
-0.32
-3.69
0.63

6.07
5.05
6.85
4.68
4.92
6.3
7.25
5.47
6.33
5
5.92
6.69
8.12
9.65
14.05
10.15
11.64
3.92

Inflation
Geometric
Standard
Mean
Deviation
3.93
2.34
3.6
2.98
3.07
4.92
3.77
3.88
3.95
2.95
5.9
4.37
5.39
7.32
7.17
4.87
8.58
3.01

6.17
5.29
7.33
4.88
4.65
7.58
7.4
5.3
6.64
4.8
6.95
6.98
9.04
12.38
42.08
15.21
35.29
4.20

Note: Red highlighting indicates value is higher than the U.S. DMS value for means (except inflation), and lower for standard deviations. For
Germany, inflation statistics are calculated after excluding two years of hyperinflation in 1921 and 1922. For the SBBI data, ITBG representsintermediate-term government bonds, LTGB represents long-term government bonds, and LTCB represents long-term corporate bonds.
Source: Own calculations from Dimson, Marsh, and Staunton (1900–2008) data and SBBI (1926–2009) data.

with both a higher return (the highestof all) and lower volatility than the
United States, while Canada enjoyed
the lowest stock volatility of any
country. Another beneﬁt for the UnitedStates was the low correlation between
stocks and bonds, which will reduce theoverall risk of portfolios that include
these assets.
Table 2 provides the details of asimilar success story for ﬁxed income
assets and inﬂation in the United States.
First, for bonds, only three countries
enjoyed higher compounded annual realbond returns than the United States. Of
these, only Sweden experienced higher
stock and bond returns than the UnitedStates. Equally important, only two
countries enjoyed less volatility for theirbond returns. Switzerland is the one
country with higher returns and lower
risks for its bonds. As for the SBBI data,
all three bond series showed higher
compounded returns than the U.S.
www.FPAnet.org/Journalbonds in the DMS data, while two of thebond series also experienced less volatility. As for the real returns on bills, there
were six countries with higher compounded real returns, but the standard
deviation for bills in the United States
was the lowest of any country. As well,only two countries experienced lower
compounded average inﬂation than the
2.98 percent value in the United States.
These two tables showed that conditions were quite favorable, relatively
speaking, for the United States. The
country consistently enjoyed among thehighest returns and lowest volatilities
for stocks, bonds, bills, and inﬂation.
As a consequence, simulations using
U.S. data should provide for relatively
high sustainable withdrawal rates fromretirement savings.
Figure 1 provides a historical perspective on the maximum withdrawal ratethat would have sustained inﬂationadjusted withdrawals for a retirement

duration of 30 years using DMS data for
the United States. It demonstrates theperfect foresight assumption visually,as the optimal ﬁxed asset allocationfor each retiree ﬂuctuates from year toyear. For instance, a new retiree in 1905
would have done best with an allocationof 95/1/4 for stocks/bonds/bills, while
the next retiree one year later would
ﬁnd that 53/0/47 provides the highest
sustainable withdrawal rate. The stock
allocation fell to a low of 24 percent forthe 1929 retiree, but in fact, 43 of the 80
retirees would choose stock allocationsof 95 percent or more to maximize theirwithdrawal rates. With this perfectforesight assumption, the SAFEMAX is
4.02 percent, which occurred in 1969.
The asset allocation for the SAFEMAX is57/6/37 for stocks/bonds/bills.
Table 3 (on page 60) summarizes
the information about sustainable
withdrawal rates provided in Figure
1 for each of the 17 countries. The

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Figure 1:

PFAU

Maximum Sustainable Withdrawal Rates in United States
by Retirement Year

14
12
10
8
6
4
SAFEMAX = 4.02
2
0
1900
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1900

1910

1920

1930

1940

1950

1960

1970

1980

1970

1980

Corresponding Optimal Fixed Asset Allocation

1910

1920
1930
1940
Stocks
Bonds

1950
Bills

1960

Note: Assumptions include perfect foresight, a 30-year retirement duration, no administrative fees, annual inflation adjustments for withdrawals, and annual rebalancing.
Source: Own calculations from Dimson, Marsh, and Staunton (1900–2008) data.

SAFEMAX exceeds 4 percent in only 4of the 17 countries: Canada, Sweden,
Denmark, and the United States. The
United States is ranked fourth, withthe previously mentioned 4.02 percent
SAFEMAX occurring in 1969. For theUnited States, the remaining columns
can be understood as follows. The 10th
percentile column value of 4.7 percent
means that for the 80 retirement years
in the United States, 4.7 percent would
have worked 90 percent of the time, anda slightly larger withdrawal rate would
have resulted in failures 10 percent of
the time (8 of the 80 retirement years).
The next columns reveal more about
the situation for a retiree using a 4
percent withdrawal rate and a 5 percent
58

withdrawal rate. In the United States,
the 4 percent withdrawal rate failed
in zero percent of cases and always
provided 30 years of withdrawals, whilea 5 percent withdrawal rate would have
led to failure in 22.5 percent of cases.
In the worst-case scenario, the retiree’s
account would have been depleted after
only 20 years with a 5 percent withdrawal rate.
As for the other countries in Table
3, the most unfortunate retiree of all
was a Japanese person retiring in 1940,
whose SAFEMAX was a miserably low
0.47 percent. Six countries experienced
SAFEMAX values below 3 percent. Withthe 10th percentile column, retirees
accepting a 10 percent chance for failure

JOURNAL OF FINANCIAL PLANNING | December 2010

could enjoy a withdrawal rate above
4 percent in nine countries, but ﬁve
countries still found these withdrawal
rates to be under 3 percent even withthe allowed chance for failure. For thecolumns showing what happens speciﬁcally when a 4 percent withdrawal rateis used, nine countries experienced
failures in 5 percent or fewer cases, butthen a large jump occurs so that the best
to be hoped for was failure in 25 percent
of cases. In Italy, failures occurred in
62.5 percent of cases, and in Japan,
withdrawals were sustainable for only
three years in the worst-case scenario.
Meanwhile, with a 5 percent withdrawal
rate, Canada was the only country
where failures occurred in less than 10
percent of cases.
Figure 2 provides a different
perspective by showing the maximum
sustainable withdrawal rates acrossthe distribution of stock allocations foreach country. This ﬁgure maintains an
aspect of the perfect foresight assumption, as for each stock allocation the
breakdown between bonds and bills
that provides the highest withdrawal
rate is chosen. The distribution for
the United States is shown with athick red line. Occasionally, becauseof the way the ﬁgure is constructed, acountry’s maximum is slightly less thanits SAFEMAX in Table 3. The reason
is that for each stock allocation, themaximum sustainable withdrawal rate
is found for each retirement year. The
plotted point is the minimum of thesemaximum sustainable withdrawal
rates across the 80 retirement years.
The plotted maximum will be smaller
than the SAFEMAX in cases where theparticular asset allocation that produced the SAFEMAX actually resulted
in a lower sustainable withdrawal rate
in some other retirement year (but was
not the other year’s SAFEMAX).
That being said, Figure 2 provides
two very interesting results. First, forstock allocations between 30 and 90
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Contributions

Table 3:

PFAU

Sustainable Withdrawal Rates with Perfect Foresight Assumption for Retirees, 1900–1979
Withdrawal Rate = 4%

CanadaSwedenDenmark
United States
South Africa
United Kingdom
Australia
Switzerland
The Netherlands
Ireland
NorwaySpain
Italy
Belgium
FranceGermanyJapan

SAFEMAXSAFEMAXYear

10th
Percentile

4.42
4.23
4.08
4.02
3.84
3.77
3.68
3.59
3.36
3.28
3.13
2.56
1.56
1.46
1.25
1.14
0.47

1969
1914
1937
1969
1937
1900
1970
1962
1941
1911
1915
1957
1944
1911
1943
1914
1940

5.04
4.92
4.6
4.7
4.88
4.17
4.91
4.08
4.14
3.41
3.46
3.07
2.61
1.78
2.62
1.52
0.54

Withdrawal Rate = 5%
# Years in% Failures# Years in% Failures
Worst Case Within 30 Years Worst Case Within 30 Years
30
30
30
30
27
26
25
26
22
21
20
19
6
11
7
9
3

0.0%
0.0%
0.0%
0.0%
1.3%
3.8%
2.5%
5.0%
2.5%
25.0%
32.5%
36.3%
62.5%
40.0%
42.5%
25.0%
37.5%

23
20
20
20
17
17
18
18
17
15
13
15
5
9
7
8
3

8.8%
11.3%
28.8%
22.5%
11.3%
27.5%
10.0%
40.0%
37.5%
45.0%
61.3%
68.8%
76.3%
68.8%
71.3%
41.3%
40.0%

Note: Assumptions include perfect foresight, a 30-year retirement duration, no administrative fees, annual inflation adjustments for withdrawals,
and annual rebalancing.
Source: Own calculations from Dimson, Marsh, and Staunton (1900–2008) data.

percent, the United States enjoyedhigher sustainable withdrawal rates than
any country except for Canada. For theUnited States, the maximum occurs
at 57 to 60 percent stocks, but unlike

The second interesting result fromthis ﬁgure relates to the stock allocations associated with each country’s
maximum. Switzerland, with 19 percent
stocks, is the only country where themaximum occurs exclusively
with a stock allocation under
48 percent. Meanwhile, 9These ﬁndings may beof the 17 countries experirather frightening. After all,ence maximum withdrawal
rates with stock allocations
who but the wealthiest could
between 48 and 75 percent,possibly save enough to live
and 7 countries have stock
comfortably from the global
allocations that are exclusively
80 percent or higher. These
SAFEMAX withdrawal rate ofinclude 100 percent stock
0.47 percent?
allocations in South Africa,
France, and Japan. SAFEMAX
does not obtain its safety frommany of the countries that show a much conservative asset allocations, and themore pointed hump, the maximum isﬁndings from this ﬁgure suggest that
only slightly less for stock allocations
from an international perspective, stock
between about 30 and 80 percent.
allocations of at least 50 percent during
Maximums for Sweden and Denmark
retirement should be given carefulcome close to the United States only
consideration.
for a few speciﬁc asset allocations.
Finally, to provide insight about the

“

”

60

JOURNAL OF FINANCIAL PLANNING | December 2010role of the perfect foresight assumption, consider a speciﬁc asset allocationof 50/50 for stocks and bonds, acommon choice for withdrawal ratestudies. A table for this allocation is notshown, but a 4 percent withdrawal rate
is not safe when using the SAFEMAX
criterion for any country in the DMS
data. Indeed, the original Bengen(2006a) result is the only case with a
SAFEMAX above 4 percent. For the
DMS data, Canada’s SAFEMAX of
3.94 is the highest, followed by theUnited States and Denmark with 3.66.
Even with a willingness to accept a 10
percent chance of failure, a withdrawal
rate of over 4 percent was possible only
in four countries.

Conclusions
With the SAFEMAX criterion, andfrom an international perspective, the 4
percent real withdrawal rule has simply
not been safe. With the perfect foresight
assumption, only 4 of 17 countries had
a SAFEMAX above 4 percent, while a
www.FPAnet.org/Journal

PFAU

Figure 2:

Maximum Sustainable Withdrawal Rate by Percentage
Allocation to Stocks

4.5

4Maximum Sustainable Withdrawal Rate (SAFEMAX)

50/50 allocation for stocks and bonds
led to zero successes for the 17 countries
in the DMS data. Granted, researchers
have demonstrated that including
more ﬁnancial assets, using dynamic
rules to adjust withdrawals to market
conditions, and changing rebalancing
strategies can all serve to increase safe
withdrawal rates, and these modiﬁcations have not been incorporated here.
As well, some of the worst outcomes
were connected with World Wars I andII, and we can hope that such devastating wars will never happen again. On
the other hand, the paper does alreadyprovide two important advantages toincrease the SAFEMAX, namely theperfect foresight assumption and thelack of administrative and planner fees.
These ﬁndings may be rather frightening. After all, who but the wealthiest
could possibly save enough to live
comfortably from the global SAFEMAX
withdrawal rate of 0.47 percent? The
results assume that historical patterns ineach country will prevail in the future,
though from the perspective of a U.S.
retiree, the issue is whether the future
United States will experience the sameasset return patterns as the past UnitedStates, or whether Americans should
expect some kind of mean reversion that
could lower asset returns to levels morein line with what many other countries
have experienced. It may be tempting
to hope that asset returns in the 21st
century United States will continue tobe as spectacular as in the last century,
but Bogle (2009) cautions his readers,“Please, please, please: Don’t count on it.”

3.5

3

CAN
USA
SWE
DEN
RSA
GBR
SUI
AUS
NED
IRL
NOR
ESP
ITA
BEL
FRA
GER
JPN

2.5

2

1.5

1

0.5

0

0

10

20

30

40

drawal Rates Using Historical Data.” Journal of
Financial Planning 7, 4 (October): 171–180.
Bengen, William P. 2006a. Conserving Client
Portfolios During Retirement. Denver: FPA Press.
Bengen, William P. 2006b. “Baking a Withdrawal
Plan ‘Layer Cake’ for Your Retirement Clients.”
Journal of Financial Planning 19, 8 (August):
44–51.

shawsky. 2001. “Making Retirement Income
Last a Lifetime.” Journal of Financial Planning14, 12 (December): 60–76.
Bengen, William P. 1994. “Determining With-

www.FPAnet.org/Journal

60

70

80

90

100

Association of Individual Investors Journal 20, 2(February): 16–21.
Dimson, Elroy, Paul Marsh, and Mike Staunton.
2002. Triumph of the Optimists: 101 Years of
Global Investment Returns. Princeton: Princeton
University Press.
Dimson, Elroy, Paul Marsh, and Mike Staunton.
2004. “Irrational Optimism.” Financial Analysts
Journal 60, 1 (January/February): 15–25.

2008. “Data Dependence and Sustainable RealPye, Gordon B. 2001. “Adjusting Withdrawal Rates

Withdrawal Rates.” Journal of Financial Planning

for Taxes and Expenses.” Journal of Financial

21, 9 (September): 70–85.
Ameriks, John, Robert Veres, and Mark J. War-50

Note: Assumptions include perfect foresight for each stock allocation, a 30-year retirement
duration, no administrative fees, annual inflation adjustments for withdrawals, and annual
rebalancing.
Source: Own calculations from Dimson, Marsh, and Staunton (1900–2008) data.

Blanchett, David M., and Brian C. Blanchett.

References

Contributions

Planning 14, 4 (April): 126–136.

Bogle, John C. 2009. Enough: True Measures

Scott, Jason S., William F. Sharpe, and John G. Wat-of Money, Business, and Life. Hoboken, Newson. 2009. “The 4% Rule at What Price?” Journal of

Jersey: John Wiley and Sons.

Investment Management 7, 3 (Third Quarter).

Cooley, Philip L., Carl M. Hubbard, and Daniel T.
Walz. 1998. “Retirement Savings: Choosing a
Withdrawal Rate That Is Sustainable.” American

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