For comparison purposes, does Pralana online have a report that calculates the standard 4% safe withdrawal rule? The other withdrawal rates within Pralana don't fit the bill. If not available, what are all the recommended sources/data points to build it myself? Ideally, I would like to see two sets of data: Using my data points, what are the suggested withdrawal rates using the 4% rule each year and what is my actual apple to apple Pralana withdrawal rate for comparison purposes.
The Constant Spending withdrawal strategy is what you are looking for. You click that select the percentage of your initial balance to spend each year (the default is 4%). Just like the 4% withdrawal method, the program adjusts spending each year for inflation. Note that this will fail in some years as the original study finding 4% was safe for 30 years of retirement came out in the early 1990's, a couple years too soon to see that it would fail for the 1965-1966 retiree cohort.
Actually, the 4% rule originally developed by Bill Bengen in 1994, has been adjusted by him to 4.5% in 2006 and 4.7% in 2021. In fact, he is coming out with a new book in August 2025 called "A Richer Retirement: Supercharging the 4% Rule to Spend and Enjoy More", in which he officially introduces his "4.7% rule."
4% Rule Gets New Asset Formula, Too
The updated "standard configuration" portfolio includes 55% in stocks, equally divided among five asset classes:
- 11% U.S. large-cap stocks
- 11% U.S. midcap stocks
- 11% U.S. small-cap stocks
- 11% U.S. microcap stocks
- 11% international stocks
- 40% in intermediate-term U.S. government bonds
- 5% in cash, represented by U.S. Treasury bills
This broader diversification, combined with annual rebalancing, has helped lift the worst-case safe withdrawal rate from 4% to 4.7%.
Actually, the 4% rule originally developed by Bill Bengen in 1994, has been adjusted by him to 4.5% in 2006 and 4.7% in 2021. In fact, he is coming out with a new book in August 2025 called "A Richer Retirement: Supercharging the 4% Rule to Spend and Enjoy More", in which he officially introduces his "4.7% rule."
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This broader diversification, combined with annual rebalancing, has helped lift the worst-case safe withdrawal rate from 4% to 4.7%.
Interesting, thanks for sharing this! The book has some heavy duty endorsements.
My favorite analysis of this type is the Early Retirement Now. https://earlyretirementnow.com/safe-withdrawal-rate-series/
The spreadsheet link is about half way down the page (part 28).
Karsten Jeske uses historical ranges of success, like Bengen. But he adds in the CAPE regime for each period--a high cape means lower withdrawal rate and vice versa. (Pralana has a version of CAPE-based historic analysis; but ERN uses it for future predictions.) You enter your own data each year, and the spreadsheet changes as new returns data comes in, so it's dynamic. (A warning: there are huge dangers to using a single figure based on a one year for your whole retirement.)
It's quite a bit of work he has put up for free, including a bunch of articles and the (free) spreadsheet. He even allows you to add your future income and expenses if you wanted to get a tailored answer. I use an actuarial method, but I do use ERN as a check, and it pretty much agrees.
The Constant Spending Strategy at 4% does not appear to be an accurate comparison to the standard 4% withdrawal rule. Has anyone used this and compared your results? I went from a 98% monte carlo results to 2% but I know my plan is not bad, and my specified expenses with the 98% MC results are pretty high.
For my education, does Pralana use "spending" as the same as "withdrawal"?
Looks like you are right, it's not comparable, sorry for leading you astray.
The note on the Withdrawal Strategy screen explains it:
PRC considers all expenses identified on the Personal Property, Rental Property, Children, Healthcare and Life Insurance pages as well as QCD's on the Charity page and the Essential line items on the Phased Expenses and Misc expenses pages to be essential expenses and uses them exactly as specified. However, non-essential expenses identified on the Phased and Miscellaneous pages and non-QCD's on the Charity page are replaced by non-essential expenses generated by the selected variable withdrawal strategy algorithm.
If you hit Review-Expenses you will see that you can't stop Pralana from determining the taxes you would owe and if you had identified any essential spending or if you asked Pralana to determine your Medicare Part B + Part D IRMAA, it will add those on top.
The closest you can get would be to eliminate all essential spending from you data entry and enter a Constant Spending percentage below 4% to give you a margin, then run Monte Carlo or historical and repeat until you have a success rate you are happy with.
@ricke No problem. I feel better knowing my plan results are not crazy! Thanks for the update.
@jkandell I read through your suggested link to Early Retirement Now web site. Does Big Ern ever sleep? 😴 He does have some very good ideas.
This is from the link you provided:
I’m not a big fan of the “Safety First” approach, i.e., using safe assets like a TIPS ladder and/or an annuity in retirement. At least not exclusively. How about shifting a portion of our portfolio to Safety First assets? I studied that in Part 61. Qualitatively, this boils down to a glidepath again. It can alleviate but not eliminate Sequence Risk.
Just an observation, but aren't you a Safety First guy? 😉 Just having a little fun....
Good catch. I think he is talking about a different form of “safety first”, maybe even a red herring: I don’t advocate having my whole retirement covered in tips! Rather, only tips for my essential expenses (like food and medical) not already covered by social security and pension. The rest, gets invested into a glidepath just like he recommends. He actually likes the actuarial method i use and has his own spreadsheet for it in part 56.
Also, i completely agree with him about longevity risk, hence leave open the idea of buying an annuity at age 80 (rather than more tips) if that is in question.
Ern’s best stuff is his historical analyses of safe withdrawal rates under different cape starting-points together with different drawdowns from sp500 high.
Did you see his spreadsheet in part 28? Genius. That is one of my top 3 tools (pralana and tpaw being the others).
Yup, I played around with the online version a little bit, seems a little basic compared to PRC. I quess it's good for looking at the big picture if I am using it correctly.
On another topic, you have said in other posts that your retirement portfolio is sensitive to inflation, can you clarify, just interested. Because of you I feel I might be missing out on not having any TIPs 🤣.
@jkandell Not trying to pick on you, just trying to understand TIPs. On Big ERN's Safety First SWR Series Part 61, he talks about TIPs. I understand he talks mostly about early retirees, but the below table implies that at a retirement portfolio withdraw rate of 3.5% and a retirement horizon of 30 years with zero bequest, a TIP would only need 0.33% real return to be worth it. Am I reading the table correctly??
From the web site:
Safety First, through a TIPS ladder, is even less attractive to early retirees!
Another reason I never felt a big urge to write about Safety First is that there is likely only limited use for this approach outside the traditional retirement community, say 65-year-old retirees with a 30-year horizon. That’s because even with today’s 2.25% real rate, we get a 50-year safe consumption rate of only 3.33% with portfolio depletion, according to my table above. We’re down to 3.06% with a 25% bequest target and 2.79% with a 50% final value target. Those are pathetic withdrawal rates. TIPS rates would have to rise again to about 3.5% (as they were in the late 1990s) for early retirees even to take notice.
Or we could calculate the real return necessary to achieve certain withdrawal rates and bequest targets over different retirement horizons; see the table below. For example, if I want to achieve a 4% initial rate over a 50-year horizon, even with capital depletion, I’d need a real rate of 3.25%. With a bequest target of 25% of the initial portfolio, I’d need a 3.5% real rate—far above today’s rates.
Worse, the Safety First approach is still not 100% safe because, with the financial tools available today, we can only hedge our real, CPI-adjusted retirement spending over the first 30 years, the longest TIPS maturity available today. Any horizon longer than that faces the reinvestment interest rate risk. So, Safety First, through a TIPS ladder, is unattractive for today’s early retirees trying to hedge 50+ years’ worth of retirement spending.
https://earlyretirementnow.com/2024/05/16/safety-first-swr-series-part-61/
@pizzaman It doesn't do what Pralana does, it complements it. The main point of his spreadsheet is: Based on asset allocation, and where the CAPE is at this year, and where SP500 is this year relative to its high, (and including your social security, pensions, special expenses, legacy, and chances of one of you being alive): given all this, how much does history 1871-2025 say I can safety withdraw this year so that I would have failed x% of the past?
Pralana doesn't generate that particular figure with that level of sophistication. Pralana has a more limited historical analysis and a crude ability to adjust to CAPE, so I would think of ERN's spreadsheet as a supplement to the Pralana historical analysis page.
@jkandell Not trying to pick on you, just trying to understand TIPs. On Big ERN's Safety First SWR Series Part 61, he talks about TIPs. I understand he talks mostly about early retirees, buy the below table implies that at a retirement portfolio withdraw rate of 3.5% and a retirement horizon of 30 years with zero bequest, a TIP would only need 0.33% real return to be worth it. Am I reading the table correctly??
Well Pizzaman, you chose his worst article to highlight. 🙂 Yes, you're reading the chart correctly. If you only had 30 years, then it would only take a 0.33% TIP to safely sustain 3.5% withdrawals with zero legacy amount. He thinks that is terrible on its face; I don't think 3.5% is so bad. But, again, no "safety first" advocate I know wants to put all their money into TIPs. I suppose his point is: even for the safe portion, look how much better you'd do with a regular 75/25 allocation.
But here's the rub: with a TIP you know you'll get the (relatively low) withdrawal. With the 75/25 it's in theory a higher safe withdrawal--but just based on faith in his model. There is a concept in economics of "certainty equivalence": At what rate of certain return (say a TIP) would you refrain from investing in equities, which as we know have a much higher expected return but with big drops? Some research shows most people would refrain from equities at somewhere around a 3.5% TIP. How about you? The fact this question even makes sense shows that he is comparing apples to oranges by his analysis.
I think he's just plain wrong on this one article you picked, out of his many brilliant ones, and a great spreadsheet..
@jkandell Your funny! If we were both in an action adventure movie I guess I would be your kryptonite 😆, short term anyway. The Big ERN spreadsheet now makes sense to me, thanks! The reason I put together a US Treasure bond ladder for future years 2-11 I guess is as a safety second idea. Over 30 years I still think the US stock market is still the "safest" bet for not running out of money in retirement. This is of course based on past history. Going forward I am starting to loss my faith in US politics and its effect on the "long term" viability of our economy. Exhibit A, the One Big Beautiful Bill (OBBB). I would consider investing in TIPs as a hedge just in case financial disaster occurs. I am still waffling.
@pizzaman I don't blame you for waffling on TIPs. I'm a huge fan and they form the bulk of my assets designated for future "dignity floor" beyond what's covered by ss and my pension. But their "achilles heel" (which is the same with nominal individual treasuries, and CDs) is you are locked into the rate you got when you bought the ladder--for better and worse. I didn't buy a ladder at all when rates were 0.5%. But 2%-2.5% is a level I can live with for the comfort of certainty, and knowing the rest of my assets are invested in much riskier assets. You can avoid the problem of interest-rate-regret with rolling ladders, but that defeats the main plus of individual TIPs: you want to go long and you know exactly what you'll get each year and at maturity in cpi-adjusted terms. So it's a trade-off for certainty (sleep at night) vs maximum efficiency. I'm leaving about half my TIPs money in TIPs mutual funds for this reason: to have flexibility to buy TIPs if rates go up, and to go with current interest rates, be they higher or lower.
