Safe Withdrawal Rate
Your safe withdrawal rate is the maximum percentage of your portfolio you can withdraw each year in retirement without running out of money over your planned time horizon.
The Standard Answer
The most commonly cited SWR is 4%, based on the Trinity Study. But "safe" depends on your timeline. The original study tested 30-year periods. If you're retiring at 35 and planning for 60 years, 4% may be too aggressive. Many early retirees use 3.5% or 3.25% for added margin.
Variable Withdrawal Strategies
A fixed withdrawal rate ignores market conditions. Variable strategies adjust spending based on portfolio performance: withdraw more in good years, less in bad years. Common approaches include the Guyton-Klinger guardrails method and the VPW (variable percentage withdrawal) strategy. These typically allow higher average spending than a rigid fixed rate.
How Dividends Change the Equation
For dividend-focused FIRE investors, a key question is: what percentage of my withdrawal comes from dividends vs selling shares? If your portfolio yields 3% and you're withdrawing 4%, only 1% requires selling. This provides a psychological and practical cushion during market downturns.
Related Terms
The 4% Rule
The 4% rule is a retirement guideline that says you can withdraw 4% of your portfolio in your first year of retirement, then adjust for inflation each year, and your money should last at least 30 years.
FI Number
Your FI number is the total amount you need invested so that your portfolio can sustain your annual spending indefinitely. It's the finish line for financial independence.
Fat FIRE
Fat FIRE means pursuing financial independence with a portfolio large enough to support a comfortable or even luxurious lifestyle, not just bare necessities.
This tool is for educational and informational purposes only. It does not constitute financial advice. Past performance does not guarantee future results. Consult a qualified financial advisor for personalized advice.