Skip to main content
Article thumbnail
Location of Repository

Predicting Sustainable Retirement Withdrawal Rates Using Valuation and Yield Measures

By Wade Donald Pfau


This study attempts to quantify whether a 4 percent withdrawal rate can still be considered as safe for U.S. retirees in recent years when earnings valuations have been at historical highs and the dividend yield has been at historical lows. We find that the traditional 4 percent withdrawal rule is likely to fail for recent retirees. The maximum sustainable withdrawal rate (MWR) for retirees may continue declining even after the peak in earnings valuations in 2000. Our lowest point estimate for an MWR with a 60/40 allocation between stocks and bonds is 1.46 percent for new retirees in 2008. We also discuss confidence intervals for these predictions. The regression framework with variables to predict long-term stock returns, bond returns, and inflation (the components driving the retiree's remaining portfolio balance) produces estimates that fit the historical data quite well, and we use backtesting for a further robustness check. Nevertheless, there are important qualifications for these predictions. In particular, they depend on out-of-sample estimates as the circumstances of the past 15 years have not been witnessed before, and there is always potential for structural changes which could leave recent retirees in better shape than suggested by the model. Looking forward, this methodology can guide new retirees toward a reasonable range for their MWR so that the 4 percent rule need not be blindly withdrawal rates, retirement planning, market valuation, price-earnings ratio, dividend yield. stock returns, bond returns

OAI identifier:

Suggested articles


  1. (2010). Warning: Retirement Disaster Ahead." Wall Street Journal
  2. (1994). Determining Withdrawal Rates Using Historical Data.”
  3. (2006). Conserving Client Portfolios During Retirement.
  4. (2010). The First Retirement Calculator That Gets the Numbers Right." Google Knol. Available from (Accessed on
  5. (2008). SWRs versus Returns." Available
  6. (2010). Improved Inference and Estimation in Regressions with Overlapping Observations." The Review of Financial Studies.
  7. (1998). Valuation Ratios and the Long-Run Stock Market Outlook."
  8. (2004). Irrational Optimism."
  9. (2008). The Fundamental Differences in Accumulation and Decumulation.”
  10. (2008). Resolving the Paradox - Is the Safe Withdrawal Rate Sometimes Too Safe?" The Kitces Report
  11. (2008). Is the Safe Withdrawal Rate too safe? Or too aggressive!?" Available from!.html (Accessed on
  12. (2009). Unveiling the Retirement Myth: Advanced Retirement Planning Based on Market History.
  13. (2010). An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?"
  14. Will 2000-Era Retirees Experience the Worst Retirement Outcomes in U.S. History? A Progress Report after 10 Years." Munich Personal RePEc Archive Paper
  15. (2010). Safe Withdrawal Rates versus Valuations." Available from (Accessed on

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.