Finding Your Safe Withdrawal Rate in Retirement
Don’t risk running out of money. A flat-fee fiduciary explains how to set a safe withdrawal rate based on your portfolio, taxes, and retirement lifestyle.
What Is an Appropriate Safe Withdrawal Rate for My Retirement?
One of the biggest fears retirees face is running out of money. That’s why financial planners often talk about a “safe withdrawal rate.” This is the percentage of your portfolio you can withdraw each year in retirement without running out of funds too soon. But here’s the catch: there is no one-size-fits-all number. The right safe withdrawal rate depends on your portfolio size, lifespan, tax strategy, and spending needs. Let’s break it down.
The Traditional 4% Rule
You’ve probably heard of the 4% rule. This old guideline suggests you can withdraw 4% of your portfolio each year, adjusted for inflation, and your money should last 30 years. For example: A $2,000,000 portfolio, when applying a 4% rate, generates $80,000 per year. While this is a good starting point, it has limitations:
- It assumes a fixed 30-year retirement, but what if you live longer?
- It doesn’t factor in taxes or Medicare surcharges.
- It assumes market returns that may not reflect today’s reality.
Why Your Safe Withdrawal Rate Might Be Lower or Higher
That number may sound straightforward, but the reality is much more nuanced. Several factors determine whether that $80,000 will truly sustain your lifestyle for decades:
- Your lifespan and health – If longevity runs in your family, you may need to stretch your portfolio across 30 to 35+ years of retirement. That means your withdrawal rate has to account for the possibility of living longer than average.
- Market conditions – Retiring at the start of a bear market can significantly stress-test your portfolio. Taking $80,000 during down years locks in losses, which can shorten the life of your nest egg unless your plan is flexible.
- Tax efficiency – Not all $80,000 is created equal. If it comes primarily from pre-tax accounts, you could owe tens of thousands in taxes. Poor sequencing of withdrawals from taxable, tax-deferred, and Roth accounts can cost six figures over the course of retirement.
- Flexibility in spending – Retirees who can adjust spending in response to market performance by cutting back in bad years and spending more in good years can often afford a higher overall withdrawal rate than someone with rigid expenses.
- Guaranteed income sources – Pensions, annuities, and Social Security reduce the amount you actually need from your portfolio. For example, if those sources cover $40,000 of annual expenses, then only $40,000 would need to come from your investments, effectively lowering your withdrawal pressure.
Why Tax Planning Changes the Math
When most people talk about safe withdrawal rates, they tend to leave out one critical factor: taxes. That’s a costly oversight. Your gross withdrawal amount is not the same as the money that actually lands in your pocket after the IRS takes its share. Even more importantly, the order in which you draw from different account types - taxable, tax-deferred, and Roth can dramatically affect how long your money lasts. Based on research, the way you structure withdrawals in retirement can significantly change the amount of after-tax income your portfolio produces.
- Without tax planning: A $2 million portfolio might support withdrawals of about 3.5% per year ($70,000 gross). But after federal and state taxes, your net spendable income could be far lower.
- With a tax-optimized strategy: Studies have shown that coordinating withdrawals across taxable, tax-deferred, and Roth accounts, along with strategies such as Roth conversions and tax-loss harvesting, can materially improve outcomes. In fact, the Journal of Financial Planning published research showing that tax-efficient distribution strategies can increase sustainable withdrawal rates by 0.5% to 1.0% or more, depending on account mix and tax brackets. On a $2 million portfolio, that translates to supporting closer to 4.5% withdrawals, or about $90,000 of income.
That is potentially an extra $20,000 per year in available income achieved not by chasing higher investment returns but simply by using smarter, tax-efficient withdrawal sequencing.
Sources:
- “Tax-Efficient Retirement Withdrawal Planning Using a Comprehensive Tax Model,” Journal of Financial Planning (2012), Financial Planning Association.
- TIAA Institute, “Withdrawal Strategies: A Tax-Smart Perspective” (2017).
- Schwab Center for Financial Research, “Why Withdrawal Order Matters” (2020).
A Smarter Way to Think About Withdrawals
The traditional “safe withdrawal rate” often gets oversimplified into a single, fixed percentage like 4%. But retirement isn’t static. Your income needs, tax situation, and lifestyle evolve over time. Instead of clinging to one “magic” number, a smarter approach is to view withdrawals as a dynamic strategy that adapts with each stage of life:
- Early Retirement (60s): This is when most retirees are healthiest, most active, and likely to spend more on travel, hobbies, or family experiences. Withdrawals may be higher during this period. It’s also a prime window for Roth conversions, which can raise taxable income temporarily but lower future taxes.
- Mid Retirement (70s): Once Required Minimum Distributions (RMDs) begin, taxable income often increases, sometimes significantly. Coordinating withdrawals across taxable, tax-deferred, and Roth accounts becomes essential to avoid pushing yourself into higher tax brackets.
- Late Retirement (80s+): Spending often slows down as lifestyles simplify, though healthcare and long-term care costs may rise. Withdrawal needs may be smaller overall, but the focus shifts to protecting against longevity risk and funding medical expenses.
By adjusting your withdrawal rate as life unfolds, you not only create flexibility but also reduce the risk of outliving your savings. For example, Imagine a couple retiring at age 65 with a $2.5 million portfolio:
- Years 65–70: They spend 5% annually to enjoy their most active years, while also converting part of their IRA to a Roth, accepting higher taxes now to lower their future tax burden.
- Years 70–80: They scale back to 3.5% withdrawals, supplementing with Roth assets when needed to smooth out taxes and maintain flexibility.
- Years 80+: Their spending naturally declines, so withdrawals drop to 3%. The reduced withdrawals, combined with earlier tax planning, help preserve the portfolio through their 90s and beyond.
The end result? They end up maximizing enjoyment in early retirement, reduce taxes in mid-retirement, and extend the longevity of their nest egg without being locked into one rigid number.
The Flat-Fee Fiduciary Advantage
Most traditional advisors charge around 1% of assets under management (AUM). That fee structure often comes with a narrow focus: managing investments. What gets overlooked? Withdrawal strategy and tax efficiency! These two factors that can be just as important as your portfolio’s returns in determining whether your money lasts.
As a flat-fee fiduciary, Singh PWM takes a different approach. Instead of charging more as your portfolio grows, I provide one transparent annual fee that covers the full scope of planning:
- Strategic investment management
- Retirement withdrawal planning
- Tax-efficient income strategies
When clients partner with Singh PWM, the result is a coordinated plan designed around your lifespan, lifestyle, and spending goals, not big firm incentives.
With the right withdrawal sequencing and tax planning, you keep more of what you’ve worked hard to build, while enjoying the confidence that your retirement income strategy is aligned with your future.
The Bottom Line
There isn’t a single “safe withdrawal rate” that works for everyone. The right number depends on your portfolio size, tax strategy, health and longevity, and lifestyle goals. The old 4% rule may serve as a starting point, but the smartest retirees know it’s not a rule, it’s a guideline. The real advantage comes from adjusting withdrawals dynamically and weaving in tax optimization.
When done right, this approach doesn’t just stretch your portfolio further and it can add years of financial security to your retirement and keep six figures or more from being unnecessarily lost to the IRS.
If you are ready to see how a tax-optimized withdrawal strategy could work for you? Schedule your free Retirement Tax Strategy Call today.
Raman Singh, CFP® Your Personalized CFO
Important Disclosures
The information provided herein was obtained from sources believed to be reliable and is believed to be accurate as of the time presented, but it is provided “as is” without any express or implied warranties of any kind. This material is intended for informational and educational purposes only and should not be construed as individualized investment, tax, or legal advice. You should consult with your own qualified investment, tax, or legal advisor before making any decisions based on this material. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Withdrawal strategies and tax outcomes will vary depending on individual circumstances, account types, tax brackets, and market conditions. No strategy can guarantee success or prevent losses. Investment advisory services are offered through Singh PWM, LLC, a registered investment adviser offering advisory services in the State of Arizona and other jurisdictions where registered or exempted. Singh PWM, LLC is a registered investment advisor offering advisory services in the State(s) of Arizona and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute.