There have been many studies completed that examined what portfolio withdrawal rates are sustainable during retirement. A generally accepted rule of thumb is that you can withdraw 4 percent of your portfolio, adjusted for inflation, annually, and your funds will have a high probability of lasting for twenty-five to thirty years. The rule assumes your portfolio is invested in a roughly 60 percent stock, forty percent bond mix.

A new study in the April 2011 Journal of Financial Planning titled “Portfolio Success Rates: Where to Draw the Line” by Philip L. Cooley, Ph.D., Carl M. Hubbard, Ph.D., and Daniel T. Walz, Ph.D., provides new insight that somewhat higher withdrawal rates may be sustainable.

This new study uses a “rolling periods” approach to calculate end-of-period portfolio values from historical stock and bond returns from 1926 through 2009. It is considered to have some advantages over Monte Carlo simulation methodologies commonly used by financial planning practitioners.

The study showed that withdrawal rates as high as 7 percent, adjusted for inflation, are sustainable for fifteen years with a high probability, if 100% of the portfolio was invested in large-company common stocks. Six percent withdrawal rates were also sustainable for 20 to 25 years with a high probability, with a 100 percent stock allocation.

A 50 percent stock/50 percent bond portfolio with a 7 percent withdrawal rate had an 84 percent chance of the funds lasting for 15 years. With a 6 percent withdrawal rate the 50 percent stock/50 percent bond portfolio had an 80 percent chance of the funds lasting 20 years and with a 5 percent withdrawal, an 83 percent chance of lasting 25 years.

The study seems to indicate that a better than 4 percent withdrawal rate can be maintained with a high probability over a 20 to 25 year period with a 50 percent equity, 50 percent bond portfolio.

This is good news for retirees who are struggling to make their money last, particularly with worries of high inflation down the road.