Safe Withdrawal Rates in a Low Return World

The message of today’s blog entry is simple and obvious. That is, sustainable withdrawal rates depend on the underlying portfolio returns and volatilities. The following figure shows how just how important these connections can be. Now we are in a low-yield environment, and further decreasing returns from already low points cause accelerating increases in failure rates.

In a low interest rate environment, assuming that portfolio characteristics will match historical averages will result in overly optimistic expectations for low failure rates.

Update: this is for a 4% inflation-adjusted withdrawal rate.