Investiční slovník
Safe Withdrawal Rate: What the 4% Rule Says and Where It Fails
Key takeaways
- The safe withdrawal rate (SWR) is the percentage of your portfolio you withdraw annually without depleting it.
- The 4% rule originates from a study of the US market over 30-year horizons.
- For longer horizons (40+ years) and global portfolios, a more conservative 3–3.5% is appropriate.
- Sequence-of-returns risk — poor returns at the very start of withdrawals — can break the rule.
- SWR is a starting point, not a law — regular portfolio reviews are essential.
The safe withdrawal rate (SWR) is the percentage of total portfolio value you withdraw each year without running out of money over a given horizon. The most well-known figure is 4% — but behind that number lie more assumptions than are immediately apparent.
Where the 4% Rule Comes From
In 1994, financial adviser William Bengen published an analysis of historical US equity and bond market data going back to 1926. He found that at a 4% withdrawal rate, the portfolio survived every 30-year period — even the worst ones (the Great Depression, the stagflation of the 1970s). This gave rise to what is known as Bengen's rule. The Trinity Study, by three researchers, later confirmed and extended the findings.
Where the Rule Fails
Four percent is not a guarantee — it is a historical estimate for specific conditions:
- Longer horizons: FIRE plans call for 40–50 years of withdrawals. The historically safe rate drops to 3–3.5%.
- Sequence-of-returns risk: a market crash right after retirement damages the portfolio far more than a crash mid-retirement. More in the article sequence of returns.
- High valuations: when equities are expensive at the moment of retirement, future returns tend to be lower.
- Inflation: the rule assumes you index withdrawals to inflation. If inflation accelerates, the real value of withdrawals falls.
How to Work With SWR in Practice
The 4% rule is an excellent starting point for planning — see calculating your path to retirement income. In practice, supplement it with dynamic withdrawals: a bit more in good years, a bit less in bad ones. This dramatically improves the long-term survival of the portfolio. Once a year, review the portfolio and adjust the plan to match current conditions.
FAQ
What is the safe withdrawal rate in simple terms?
It is the percentage of your portfolio you withdraw each year without running out of money over your planned horizon. With a portfolio of 1 million CZK and a 4% rate you take 40,000 CZK annually. The number is based on historical data — it is not a guarantee.
Does the 4% rule apply in the Czech Republic?
The studies used the US market. A globally diversified portfolio (e.g. a world ETF) historically performs similarly to the US market, but differences exist. To be safe, use a more conservative figure — 3–3.5%, especially for longer horizons.
How does SWR differ from a withdrawal rate?
A withdrawal rate is simply how much you take — it can be anything. The safe withdrawal rate is a historically derived maximum that the portfolio will survive with sufficient probability. Everyone chooses their own number; SWR tells you where the historical safety boundary lies.
What should I do if the market drops right after I retire?
A bucket strategy or reduced withdrawals can soften the impact. Experts recommend keeping 1–2 years of expenses in cash or short-term bonds so you don't have to touch equities during a downturn — see <a data-go="#/clanek/bucket-strategie-pro-vyplatu-v-duchodu">bucket strategy</a>.