What Is a Safe Withdrawal Rate in 2025? Here Is What the Research Says
Part 1 of 6 in the State of Retirement Income 2025 Series
The answer changed from last year. And the reasoning behind it might surprise you.
If you have spent any time reading about retirement income, you have probably come across the 4% rule. Withdraw 4% of your portfolio in year one, adjust for inflation each year, and the math historically holds up over 30 years. It is a useful starting point. But is it still the right number?
Morningstar publishes this report annually, and the 2025 edition came out late last year. The numbers and methodology are still the most current version available, and the framework they describe does not expire with the calendar.
Morningstar's State of Retirement Income 2025 puts the current base case at 3.9%. That is actually up slightly from 3.7% in their 2024 report, which reflects modestly better projected bond returns going forward. The research assumes a 30 year retirement, a $1 million portfolio, and a 90% probability of success, meaning the portfolio survives in 9 out of 10 simulated scenarios.
The Counterintuitive Finding on Equity Allocation
More stocks does not always mean better retirement outcomes.
For a fixed withdrawal strategy, where you take the same inflation adjusted amount every year regardless of market conditions, portfolios with 20% to 50% equity actually support the highest starting withdrawal rates. Not 80% or 100% equity. The reason is that a fixed strategy must be designed around the worst case scenarios. Since it never adjusts for what the market is actually doing, it benefits from the relative stability that comes with holding more bonds. The tradeoff is that lower equity portfolios tend to produce smaller ending balances after 30 years.
This tension between withdrawal rates and ending balances is one of the core themes running through this entire research series. The right answer depends entirely on what you are optimizing for. For someone with a CalSTRS or CalPERS pension already covering essential monthly expenses, the portfolio does not need to carry the full weight of retirement income. That changes where you land on this tradeoff significantly, and it is one reason the base case assumptions in this research may not map directly onto your situation.
A Note on the Methodology
This research looks forward, not backward.
Unlike older research that simply looked backward at historical returns, this analysis uses forward looking projected returns based on current market conditions. That distinction matters because the starting point of valuations today is different from the starting points in historical data. A number derived from past data assumes the future will look like the past. A forward looking model adjusts for where things actually stand right now.
Next week in Part 2, we look at the specific market and spending shocks that can derail even a well-designed retirement plan, and which ones pose the greatest risk in the early years of retirement.
Alfred Edmonds is an Investment Advisor Representative at Cetera Investors in San Jose, CA. He specializes in retirement income planning for California educators, pre-retirees, and high net worth individuals. This content is for informational and educational purposes only and does not constitute financial, tax, or legal advice. References to Morningstar's State of Retirement Income 2025 report are for educational purposes only. Please consult a qualified financial professional regarding your specific retirement income strategy. A diversified portfolio does not assure a profit or protect against loss in a declining market.