Description
In this issue of The Kitces Report, we look back and review the past 20 years of safe withdrawal rate literature, in an effort to better understand the major revelations and research innovations, and arrive at some conclusions about what this entire body of research can tell us today about what is and isn't a safe, sustainable portfolio withdrawal.
Learning Objectives
LO #1: Be able to explain what the safe withdrawal rate is, who first published the idea, how it is determined, and what assumptions are necessary.
- LO #2: Show an understanding of how the safe withdrawal rate is influenced by time horizon, taxation, expenses, risk tolerance, and market valuation.
- LO #3: Describe how diversification influence the safe withdrawal rate, and why it may be difficult to determine the exact amount of the influence. Discuss why asset allocation glide paths may not actually be beneficial.
- LO #4: Explain how the ability, or inability, to be flexible with spending impacts the initial safe withdrawal rate.
- LO #5: Clarify the impact that annuitizing a portion of a portfolio may influence the withdrawal rate. Identify the potential benefits and risks of this strategy.
- LO #6: Discuss the limitations of prior research on safe withdrawal rates. Identify the many other considerations that should be accounted for when analyzing safe withdrawal rates.
- LO #7: Be able to understand and evaluate the prior research on safe withdrawal rates.