The 4 percent rule has long been a go-to strategy for retirees looking to make their money last. But according to Morningstar’s latest research, the safe withdrawal rate for 2025 is now 3.7%. This shift reflects changes in market conditions and inflation, making it crucial for retirees to rethink their strategies.
In this post and podcast episode, we’ll explain the new safe withdrawal rate and the key factors behind the change. We’ll also explore strategies for maximizing income while protecting your savings.
Why the Safe Withdrawal Rate Has Changed
Morningstar’s research points to a few reasons why the safe withdrawal rate has dropped from 4% to 3.7%:
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- Lower Market Returns: High equity valuations and lower bond yields reduce future growth potential.
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- Inflation Adjustments: A 2.3% inflation assumption impacts the amount you can safely withdraw.
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- Longevity Risks: Retirees are living longer, requiring portfolios to last longer.
| Year | Safe Withdrawal Rate | Key Factors Impacting Rate |
| 2023 | 3.8% | Stronger market conditions, increasing rates |
| 2024 | 4.0% | Stronger market conditions, stable rates |
| 2025 | 3.7% | Over valuations, declining rates |
Balancing Spending and Savings
Retirement is a balancing act. On one hand, you want to enjoy your savings. On the other, you may want to leave money behind for loved ones or charity. Morningstar highlights how flexible spending, delaying Social Security, and annuities can help balance these priorities.
| Goal | Strategy Example | Outcome |
| Maximize Spending | Aggressive withdrawal strategy | Higher-income upfront |
| Leave Money Behind | Conservative withdrawal strategy | Larger legacy for heirs |
| Balance Both | Annuities or Social Security to reduce or replace portfolio withdrawals | Stability and flexibility |
By defining the purpose of each dollar, you can create a strategy that meets your goals.
Should You Delay Social Security?
Delaying Social Security can increase your monthly benefits, but it has trade-offs. Here’s what to consider:
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- Pros: Larger monthly payments if you delay benefits until age 70.
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- Cons: You miss out on 8 years of income if you wait.
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- Crossover Point: The total income from delaying benefits doesn’t surpass starting the income at a younger age until your early-to-mid 80s.
The decision depends on your health, lifestyle, and financial needs.
Spending Patterns in Retirement
Retirees typically spend more in their early retirement years and less as they age. This pattern can affect your withdrawal strategy.
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- Early Retirement (60s–70s): Travel, dining out, and hobbies are common expenses.
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- Mid Retirement (70s–80s): Spending slows as activity levels decrease.
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- Late Retirement (80s+): Expenses often focus on healthcare and necessities.
Morningstar’s research suggests that accounting for these spending patterns can allow for a higher starting withdrawal rate of 4.8%.
Comparing Strategies: Managed Portfolio vs. Atlas Annuity Strategy
Morningstar’s research uses a 67-year-old retiree with a $1 million portfolio as an example. Here’s how the ATLAS Annuity Strategy stacks up against a traditional portfolio:
| Scenario | Income (per year) | Portfolio Liquidity | Outcome |
| Managed Portfolio | $37,000 + inflation | None | Full $1M invested, no flexibility |
| ATLAS Annuity Strategy | $37,000 guaranteed | $510,000 remaining | Guaranteed income and flexibility |
The ATLAS Annuity Strategy requires less than half the portfolio to generate the same guaranteed income, leaving the rest for growth, emergencies, or legacy planning.
What About Inflation?
A common concern is how inflation impacts retirement income. With the ATLAS Annuity Strategy, guaranteed income covers essential expenses, while the remaining portfolio can be invested more aggressively to keep up with inflation.
For example:
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- Annuity Income: $37,000 per year, guaranteed.
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- Remaining Portfolio: Invested in stocks to cover inflation needs.
Even in a worst-case scenario, with poor market performance, this approach provides income security and long-term flexibility.
Conclusion: Rethinking Retirement in 2025
The new safe withdrawal rate of 3.7% reflects the realities of today’s market. While this may seem like a reduction, it’s an opportunity to explore strategies like annuities that can help you maximize income while protecting your savings. Want to learn if the ATLAS Annuity Strategy is right for you? Click the Schedule A Call Button, and secure your time on my calendar.
All The Best,
Marty
Podcast Episode 58: The New Safe Withdrawal Rate for 2025
Download Episode 58: The New Withdrawal Rate for 2025 on Apple Podcast