Short answer
A lower rate generally leaves more room for a long horizon and bad early returns; a higher rate produces more income now but needs more flexibility later. Compare 3 to 5 percent as scenarios, then test the actual spending, pension, tax and portfolio rather than declaring one rate universally safe.Withdrawal rates explained
Which withdrawal rate is sensible?
A rate is a planning rule, not a property of the portfolio. The longer and less flexible the spending must be, the more demanding the same percentage becomes.| Rate | A year, before tax | A month | Shares sold against 3 percent |
|---|---|---|---|
| 3 percent | €15,000 | €1,250 | The baseline |
| 3.5 percent | €17,500 | €1,458 | A sixth more |
| 4 percent | €20,000 | €1,667 | A third more |
| 5 percent | €25,000 | €2,083 | Two-thirds more |
On a €500,000 portfolio, before tax and before any market movement. The percentages look close together; the last column is what they actually ask of the portfolio each year.
Start with the cash amount
On €500,000, 3 percent is €15,000 in the first year before tax, 4 percent is €20,000 and 5 percent is €25,000. The percentages look close; at the starting balance the 5 percent plan sells two-thirds more than the 3 percent plan. Later amounts depend on whether withdrawals are fixed-real, a percentage of the current balance, or governed by guardrails.
The first bad years matter more than the average
Two retirements can earn the same long-run average and end very differently. Losses while withdrawals are already selling shares leave less capital to participate in the recovery. This sequence risk is why a smooth 7 percent minus 4 percent calculation is not a safety test.
Flexibility can be worth more than a decimal point
A household able to pause inflation increases or trim travel after a crash can start from a different risk position than one whose entire withdrawal pays fixed housing and care costs. Separate essential spending from adjustable spending.
Pension and tax change what the portfolio must deliver
A later pension can make the early bridge the hardest part of the plan. German capital-gains tax applies only to the gain realised by a sale, so the same gross withdrawal can produce different spendable income as the cost basis changes.
Use a range, then stress the plan
Treat 3, 3.5, 4 and 5 percent as comparable scenarios. Look at first-year income, whether essential spending is covered, and what happens after early losses. A robust decision is a range you can respond to, not a percentage chosen in isolation.
Name the horizon, asset allocation, fees, tax and market history behind any success rate. The original U.S. research does not establish one safe percentage for every country or future market. International evidence has produced materially different historical results.