Financial Quotient

What is a 'safe withdrawal rate'?

Understanding your safe withdrawal rate is a critical step towards creating a successful long-term retirement plan.
Understanding your safe withdrawal rate is a critical step towards creating a successful long-term retirement plan.ST PHOTO: KELVIN CHNG

In simple terms, a safe withdrawal rate is the amount of money that a saver can withdraw from his retirement funds each year, while still ensuring that there would be enough money to last for the rest of his life.

The safe withdrawal rate should take the rate of inflation into consideration, as future withdrawals might be higher as the cost of living increases. Ideally, savers who adhere to the safe withdrawal rate should have enough money to last their entire lifetime, with plenty of leftover capital for future generations to inherit.

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A version of this article appeared in the print edition of The Sunday Times on August 18, 2019, with the headline 'What is a 'safe withdrawal rate'?'. Print Edition | Subscribe