Will Your Savings Last?

Whether you're just starting your career, mid-way through the climb, or already enjoying retirement, one question connects us all: Will I have enough saved to last?

It’s easy to think of retirement planning as something for “future you,” but the truth is, the earlier and more clearly you plan, the more freedom and peace of mind you create—at every stage of life.

A recent article from Fidelity takes a thoughtful look at how long retirement savings might last based on different withdrawal strategies, lifestyle choices, and market conditions. It’s not just for those approaching retirement—it’s valuable for anyone who wants to better understand the mechanics of stretching savings and building a resilient plan for the future.

The sustainable withdrawal rate is the estimated percentage of savings you're able to withdraw each year throughout retirement without running out of money. As an estimate, aim to withdraw no more than 4% to 5% of your savings in the first year of retirement, then adjust that amount every year for inflation. Your sustainable withdrawal rate will vary based on things you can't control (how long you live, inflation, market returns) and things you can (your retirement age and investment mix).

Fidelity believes that day-to-day, must-have expenses in retirement like housing, food, and health care, are best covered by lifetime guaranteed income sources, such as OAS or CPP pensions, or income annuities.1 Consider paying nice-to-have, more easily adjusted expenses with withdrawals from savings.

After decades of saving, it's time to start spending once you enter retirement. But how much can you safely withdraw each year without needing to worry about running out of money? The answer is critical, as retirement can last 25 years or more these days, so you need a strategy that's built for the long haul.

The sustainable withdrawal rate is the estimated percentage of savings you’re able to withdraw each year throughout retirement without running out of money.

We did the math—looking at history and simulating many potential outcomes—and landed on this: For a high degree of confidence that you can cover a consistent amount of expenses in retirement (i.e., it should work 90% of the time), aim to withdraw no more than 4% to 5% of your savings in the first year of retirement, and then adjust the amount every year for inflation.

Of course, your situation could be different. For example, you might want to withdraw more in the early years of retirement when you plan to travel extensively, and less in the later years. But this 4%-to-5% estimate offers a handy guideline for planning.

Let's look at a hypothetical example. John retires at age 67 with $500,000 in retirement accounts. He decides to withdraw 4%, or $20,000, each year for expenses. Since John plans on withdrawing an equivalent inflation-adjusted amount from savings throughout his retirement, this $20,000 serves as his baseline for the years ahead. Each year, he increases that amount by the rate of inflation—regardless of what happens to the market and the value of his investments.

Of course, your actual sustainable withdrawal rate will vary based on many things, including some you can't control (how long you live, inflation, and the long-term risk and return of the markets) and others over which you may have some control (your retirement age and the investments you choose).

History suggests that the prevailing market environment at the time of your retirement may be particularly important, as a weak market early in retirement can significantly diminish your nest egg, especially if you don't dial down your withdrawals with the declining markets. On the other hand, a strong stock market early in retirement can put the wind at your back—financially speaking—for decades.

Unfortunately, it’s impossible to know what the stock market will be like when you retire. That’s one reason Fidelity suggests using guaranteed income sources for essential expenses in retirement. That way your necessities are taken care of, no matter what the market does.

Consider the following chart, which illustrates a historical look at how much an investor could have withdrawn from savings without running out of money over a 28-year retirement, depending on the date of retirement. As you can see, actual sustainable withdrawal rates varied widely,2 from just under 10% if you retired in 1982, at the beginning of a roaring bull market, versus more than 4% if you retired in 1937, during the Great Depression.

Past performance is no guarantee of future results. For illustrative purposes only. Analysis examined 829 completed 28-year planning horizons, the first of which began on January 1, 1926, and the last of which began on January 1, 1996, and ended on December 31, 2023. The bar chart shows the maximum sustainable withdrawal rate at the beginning of each assumed retirement year. Withdrawal rates and portfolio returns are pre-tax and use the historical rate of inflation. See footnote 2 and 5 for important details. Source: Morningstar EnCorr, Fidelity, as of December 31, 2023.

This analysis is based on a 90% chance that the portfolio would not run out of money within a given retirement horizon. The 90% confidence level reflects the "strong plan" framework used in Fidelity's retirement planning tools.3

Of course, 4% to 5% is just a starting point. Our research and the interactive tool below show how things you can control—like your retirement age and investment mix—can play a role in figuring out the right number for you.

One of the biggest factors that affects how much you can withdraw is how many years of retirement you plan to fund from your retirement savings. Say you plan on a retirement of 30 years, you invest in a balanced portfolio, and want a high level of confidence that you won't run out of money. Our research shows that a 4.6% withdrawal rate would have been sustainable 90% of the time (see the following graph).4

But if you work longer—say you expect to retire at age 70—or if you have health issues that compromise your life expectancy, you may want to plan on a shorter retirement period—say, 25 years. The historical analysis shows that, over a 25-year retirement period, a 5.0% withdrawal rate has worked 90% of the time.

On the other hand, if you are retiring at age 60 or have a family history of longevity, you may want to plan for a 35-year retirement. In that case, 4.4% was the most you could withdraw for a plan that worked in 90% of the historical periods. These may sound like small differences, but they could equate to thousands of dollars in annual retirement income.

The good news is that even with the market's historical ups and downs, these withdrawal amounts worked most of the time—assuming that investors stuck to this balanced investment plan. (See footnote 5 for more details on how these results were calculated.) The takeaway from this analysis is that the longer your retirement lasts, the lower the sustainable withdrawal rate.

Past performance is no guarantee of future results. 864, 804, and 744 overlapping planning horizons were analyzed for, respectively, 25-year, 30-year, and 35-year scenarios. Monthly returns data were used, starting from January 1926 and ending at December 2022. The chart shows historical maximum sustainable withdrawal rates that produced a 90% success rate over various time periods since 1926. Hypothetical scenarios assume a balanced portfolio of 50% stocks, 40% bonds, and 10% cash. Results are hypothetical and do not reflect actual investor experience. For illustrative purposes only. See footnote 4 for important details.

For people whose retirement planning includes a spouse or partner, it's important to consider not only the life expectancy of each person, but also the likelihood that one or the other will still be living (referred to as joint life expectancy).

The mix of investments you choose is another key to how much you can withdraw without running out of money. Portfolios with more stocks have historically provided more growth over the long term—but have also experienced bigger price swings.

Another important factor in determining the right asset mix for you: the degree of confidence you need that your money will last your lifetime. As the chart below illustrates, in about half of the hypothetical scenarios we tested, a growth portfolio (70% stocks, 25% bonds, and 5% cash) would have allowed you to withdraw more than 7% each year over 25 years of retirement—over 25% more than a conservative portfolio (20% stocks, 50% bonds, and 30% cash) with a sustainable withdrawal rate of 5.4%.6

If you want a much higher degree of confidence, the analysis suggests that increasing equity exposure doesn’t raise the sustainable withdrawal rate, and in fact becomes counterproductive. At a 90% confidence level, the sustainable withdrawal rate for the conservative portfolio is 4.2%, versus 4.5% for the growth portfolio. For a 99% confidence, the analysis suggests you could withdraw 4.1% from the conservative portfolio, versus only 3% from the growth portfolio.6

Data are for illustration only. All results are hypothetical and based on simulations using historical data, since 1926. Assumes a 25-year retirement period. See footnote 6 for important details.

If you feel you need high confidence that your savings will last throughout retirement—and in particular if you find volatility unnerving—history suggests that a high allocation to stocks may be less attractive to you.

Note: Diversification and asset allocation do not ensure a profit or guarantee against loss.

For people who do keep a relatively high level of stocks in their investment mix, it can make sense to adjust your withdrawals during times of market volatility. An unwavering 4%-5% withdrawal rate may not be suitable for every person in unpredictable social, economic, or market conditions. To help boost the odds that your money can last through retirement, it can make sense to reduce withdrawals during times of market stress if possible. The preceding analysis assumes you stay invested over the retirement horizon while withdrawals are taken.

And finally, the assumptions behind the sustainable withdrawal rate are based on an investor who stays invested during market volatility. The results may vary for investors who sell their portfolio and move to cash during short-term market drops.

The article highlights how even subtle decisions—like whether to withdraw 4%, 5%, or more—can make a major difference in how long your savings last. But that’s only part of the equation. Investment returns, inflation, taxes, and spending habits all play a role.

The good news? You don’t need to guess your way through it.

Let’s take a look at your current path and see if it’s designed to last. Whether you’re drawing income now or decades away from doing so, we can map out a plan that balances growth, protection, and flexibility—so your future doesn’t rely on rules of thumb or assumptions.

If this article made you think, let’s talk.Reach out and let’s run the numbers together—because retirement confidence doesn’t come from a calculator. It comes from having a plan that’s built for you.

1. Guarantees apply to certain insurance and annuity products and are subject to product terms, exclusions and limitations and the insurer's claims paying ability and financial strength.

2. For the illustration, "Market performance during retirement will affect your sustainable withdrawal rate," Fidelity analyzed 829 completed 28-year planning horizons, the first of which began on January 1, 1926, and the last of which began on January 1, 1996, and ended on December 31, 2023. The bars show the maximum observed withdrawal rate for one period each year for a balanced portfolio of 50% stocks, 40% bonds, and 10% cash. Withdrawal rates and portfolio returns are pretax and use the historical inflation data for each horizon. Planning horizons are not independent, as they contain overlapping months. See footnote 5 for more information on asset classes and historical returns.

3. IMPORTANT: The projections or other information generated by the Planning & Guidance Center's Retirement Analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Your results may vary with each use and over time.

4. For the illustration, "The longer your retirement, the lower your sustainable withdrawal rate," 864, 804, and 744 overlapping planning horizons were analyzed for, respectively, 25-year, 30-year, and 35-year scenarios. Monthly returns data were used, starting from January 1926 and ending at December 2022. The bars show the maximum observed withdrawal rate for the 3 planning horizons such that the hypothetical portfolio did not run out of money in 90% of the scenarios. A balanced portfolio of 50% stocks, 40% bonds, and 10% cash was assumed for the analysis. See footnote 5 for more information on asset classes and historical returns.

5. Monthly return data for stocks (domestic and foreign), bonds, cash, and inflation used various indexes as proxies. The historical range analyzed was January 1926 to December 2023. The indexes used were: stocks (domestic)—IA SBBI US Large Stock TR USD from 12/1952-1/1987 and DJ US Total Stock Market Total Return from 2/1987-12/2023; stocks (foreign)—MSCI EAFE 1/1970-11/2000 and MSCI ACWI Ex USA GR USD 12/2000-12/2023; bonds—US Intermediate -Term Government Bond Index from 1/1926-12/1975, Barclays Aggregate Bond from 1/1976-12/2023; cash—IA SBBI US 30-Day Treasury Bill TR. The stock component of each portfolio was selected to include 70% domestic and 30% foreign stock, from January 1970 to July 2013. Because MSCI EAFE data is available only from January 1970, the stock component before that time was 100% domestic equity (IA SBBI US Large Stock TR USD). Historical inflation rates were derived from the IA SBBI US Inflation Index.

Portfolios were rebalanced at the end of every month. No transaction costs were assumed for rebalancing, nor were any fees included. These costs would reduce portfolio returns. Neither asset allocation nor diversification ensures a profit or guarantees against a loss. All indexes are unmanaged. You cannot invest directly in an index. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes.

6. The chart, "More stocks may mean higher anticipated withdrawal rates, but with less certainty," was created based on simulations that relied on historical market data. The historical range analyzed was January 1926 to December 2022. These simulations take into account the volatility that a variety of asset allocations might experience under different market conditions. The illustration compares 3 different hypothetical portfolios—conservative, with 20% stocks, 50% bonds, and 30% cash; balanced, with 50% stocks, 40% bonds, and 10% cash; and growth, with 70% stocks, 25% bonds, and 5% cash. For each of the hypothetical portfolios, the maximum withdrawal rate was calculated such that the portfolios do not run out of money in 99%, 90%, and 50%, respectively, of the hypothetical scenarios. See footnote 5 for more information on asset classes and historical returns.

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed.All investments involve risk, including the potential loss of principal. Leveraged ETFs and other complex investment vehicles may not be suitable for all investors and should only be used with a full understanding of their risks. Asset class performance varies over time, and diversification does not ensure a profit or protect against a loss. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. The opinions expressed in the communication are solely those of the author(s) and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. Mutual funds and other securities are offered through De Thomas Wealth Management, a mutual fund dealer registered in each province in which it conducts business and a member of the Canadian Investment Regulatory Organization (CIRO).