Break-Even Withdrawal Analysis
Calculate the maximum sustainable withdrawal rate for each historical period.
Understanding Break-Even Rates
What Is Break-Even: The break-even rate is the highest withdrawal rate that would deplete your portfolio exactly at the end of your retirement period - not sooner, not later.
Why This Matters: This analysis reveals the true "margin of safety" built into your chosen withdrawal rate. If the break-even rate for a period is 6.5% and your target is 4%, you have a 2.5% safety buffer.
Real-World Value: Adjust the target withdrawal rate to explore different scenarios. See how historical break-even rates compare to your planned withdrawal strategy.
Historical Context
With inflation-adjusted withdrawals the binding period is a December 1965 retiree (3.83% at 60/40) - weak markets plus 1970s inflation. With fixed dollar withdrawals it's October 1929 (4.08%).
Periods starting with strong bull markets (like 1982-2011) allowed inflation-adjusted withdrawal rates above 11% due to early portfolio growth.
The median historical period sustained about 6.2% with inflation-adjusted withdrawals (60/40, 30 years) - the 4% guideline exists for the worst periods, not the typical one.
Understanding Break-Even
Break-Even Rate: The maximum withdrawal rate that depletes the portfolio to exactly $0 at retirement end.
Safety Margin: How much cushion the 4% rule provides above the worst-case scenario.
Key Insight: The 4% rule is designed to work in ALL historical periods, including the worst market conditions.