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Ep. 563 — Safe Withdrawal Rates, Drawdown Strategies, RMDs and 50 Year FI Timelines

Safe withdrawal rates for 50-year retirements, required minimum distributions, and drawdown strategies for very long FI timelines.

Brad Barrett · Sep 7, 2025 · Guests: Karsten Jeske, Ph.D., CFA, Fritz Gilbert · 53,323 plays

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The 4% rule might be dead—but not for the reason you think. New research suggesting a 5.5% safe withdrawal rate has been making waves in the FI community, and it sounds like great news for early retirees. The problem? The math doesn't hold up when you're planning for a 50-year retirement instead of 30.

Brad introduces a new ChooseFI feature where community questions get answered by financial independence experts. This episode features detailed responses from Karsten Jeske (Early Retirement Now) and Fritz Gilbert (The Retirement Manifesto) on safe withdrawal rates, required minimum distributions, and retirement timeline planning.

Key Topics

Safe Withdrawal Rate Controversy (00:05:26)

Traditional 4% rule designed for 30-year retirement horizons
Recent proposals to increase withdrawal rate to 5.5% analyzed
Karsten explains why the proposed increase is misleading for early retirees

Critical Withdrawal Rate Thresholds (00:07:45)

Minimum recommended rate: 3.25% for long-term financial stability
Lower rates necessary when planning for 50+ year retirement periods
Sequence of return risk amplified over longer timeframes

Required Minimum Distributions (RMDs) (00:36:16)

RMDs apply only to pre-tax retirement accounts
Don't confuse RMDs with total retirement spending needs
Strategic considerations for tax-deferred versus Roth accounts

Early Retirement Planning (00:34:25)

Time value of money becomes more significant over longer horizons
Asset allocation adjustments for managing sequence risk
Incorporating future income sources like Social Security into calculations

Dynamic Withdrawal Strategies (00:49:00)

Behavioral finance considerations in retirement spending
Flexibility versus rigid withdrawal percentages
Balancing security with quality of life

Key Quotes

"The proposed 5.5% withdrawal rate is misleading and overly optimistic." — Karsten Jeske (00:09:21)

"A safe withdrawal rate must not fall below 3.25% for financial security." — Karsten Jeske (00:35:41)

"RMDs do not dictate your total spending in retirement." — Fritz Gilbert (00:39:00)

"Behavioral finance warns against the pitfalls of emotional investing." — Brad Barrett (00:51:16)

Resources

Submit your FI questions: choosefi.com/feedback

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Comments (4)

dm7 8 months ago

I hated this episode. Is it just me or is Karsten cherry picking the data to prove his point? 1st he excludes market returns prior to 1981 to say that small cap value will no longer provide a performance boost of diversification. 2nd he includes the great depression to say what type of black swan event a SWR will need to survive. You can't just pick and choose which data you use and exclude. That's bad science! Does Karsten have a crystal ball? Because he appears to be able to predict the future.

JDFI 8 months ago

No, Karsten is not cherry picking data.

To understand why he is asserting that it is unreasonable to believe that small cap value will again generate the outsized returns it has in the past, you would need to read his detailed analysis on it:

Can we increase the Safe Withdrawal Rate with Small-Cap Value Stocks? – SWR Series Part 62

Also, please understand that while no one can predict the future, he is a Ph.D. economist, former quantitative analyst for the US Federal Reserve, and former economics professor. Forward market capital prediction is squarely in his wheelhouse, and not in Bengen's wheelhouse.

jmiahjones 8 months ago

I struggle to come up with a way to put this nicely, since I genuinely enjoy much of what ChooseFI does for the community. But I found this episode to be truly cringeworthy, if not outright misinformation.

Karsten alleges that Bill Bengen recommends 5.5% by taking two steps: (a) using a broader portfolio that Karsten believes will not perform as advertised, and (b) moving the SWR calculus from a minimum rate to an average rate. ("Thats how he goes from 4.7% to 5.5%. Did you see the sleight of hand? Going to 7% or even 5.5% is an average withdrawal rate, which is only safe on average." around 13:25). Point (b) is simply an outright falsehood that can be debunked with even the most cursory web search. If you don't believe me, look at the transcript of Bengen's interview on Motely Fool where he describes what 5.5% represents. Bill Bengen says that 5.5% works in 90% of cases, which means it is not an average as Karsten alleges, but it is the 90th percentile. Bengen has not performed any sleight of hand, instead he has been very transparent.

While Karsten is happy to label transparent information as sleight of hand, he is all to happy to perform some of his own. He works in the 7% figure into the conversation, even though it is not related to Bengen's discussion. He then doesn't directly say the 5.5% figure is an average (there's a bit of openness of interpretation here since he flubs the words a little while making the point), but mentions it while discussing the 7% average, making it an "average by association."

I believe that either Karsten didn't research this very closely (in which case he should have just declined to comment), doesn't understand the differences between averages and quantiles (in which case he shouldn't brag about studying the statistical properties of the market), or is actively trying to mislead listeners to make himself appear correct. I invite you to read Tyler's response to Karsten's blog post portfoliocharts.com as well as Karsten's comments on his own blog post to make up your own mind.

Finally, this is a minor point, and Tyler's response is probably all you need to debunk the remainder of Karsten's discussion of SMB (small cap) and HML (value factor). But Karsten's big mic-drop moment of arguing that "markets are too efficient for small stocks to have a premium" is ludicrous and ill-conceived. In case you are not aware, Eugene Fama (the Fama of the Fama-French model describing the small cap and value premia) was literally awarded a Nobel prize for all his work on proving efficiency of markets, in some small part by using factors to describe such market efficiencies.

No economist here, just a PhD statistician disgusted by bald-faced misinformation being presented clearly for self-gratification.

JDFI 8 months ago

Karsten did indeed mischaracterize Bengen's 5.5% recommendation in current conditions as an average, but he accurately assessed it as not a failsafe SWR.

Of the possible reasons you gave, based on my having read a lot of Karsten's writing at EarlyRetirementNow including his response comments, I'm confident that it is because he didn't research it closely enough, likely because Bengen has been asked about and mentioned this 5.5% withdrawal rate on many different podcasts and articles (Bengen is on a book promotional tour for his new book) and some of the podcast discussions are ambiguous at best, and inaccurately stated at worst, and Karsten did not go back to the original source to disambiguate: Bill's new book, or the article where he first described this analysis - tailoring SAFEMAX to CAPE (from Kitces' research) and inflation (Bengen's addition). I'm not excusing Karsten's mischaracterization, but I think you'll see that his criticism remains valid, even though his characterization is not fully accurate.

Bengen's 5.5% recommendation under current conditions is not a failsafe (what Bengen calls universal) SAFEMAX (which you alluded to by referencing a 10% failure rate) as it only remains a SAFEMAX as long as the inflation average for the subsequent 5 years does not rise above 5%, and Bengen admitted that if you go above his "universal SAFEMAX" of 4.7%, you may have to adjust withdrawal rate downward while in retirement, possibly significantly, if inflation spikes too much. So, given that 5.5% is not an actual failsafe SWR, Karsten is not wrong in saying that this is not actually a safe withdrawal rate anymore, so there was somewhat of a sleight of hand swap, but I don't think Bengen is intending to hide it. In fact, in Bengen's book "A Richer Retirement", in "Chapter 12.8 Managing Withdrawal Plan #2: Unexpected High Inflation" ("inflation accelerates into mid-single-digit range and remains elevated during the first 10 years"), he provides an example of a retiree starting with a 5.54% withdrawal rate, having to cut drastically to adjust for inflation. He says:

> Clearly, not taking action is not an option! Withdrawals must be reduced [...] In Figure 12.11, we apply a 28% reduction to dollar withdrawals in year #6. It looks as if we have finally rescued the withdrawal plan (at least through year #10) - but at what a terrible cost! Few retirees, I imagine, can cut their annual withdrawals by such a large percentage without significantly changing their lifestyle. But that is what is required, or the plan may collapse.

The problem is that while Bengen will transparently clarify when someone asks him, the way it comes across in several media appearances and articles by people who lose the nuance, is that 5.5% is a Safe Withdrawal Rate. It is not.

Bengen is recommending it as a flexible spending starting point under today's economic conditions - moderate inflation and high CAPE.

There is nothing wrong with a flexible spending strategy (which, of course, can start with a higher withdrawal percentage than an inflation adjusted fixed safe withdrawal rate). Indeed, academics (e.g. Ph.D. economists) often assert that a flexible spending strategy is most appropriate for a portfolio based total returns retirement income approach. But it is fundamentally very different than a Safe Withdrawal Rate, and causing people to conflate them is a problem. I don't believe Bengen's intent is to cause this confusion, but it is happening, likely because Bengen is so strongly associated with safe withdrawal rates, having developed the initial research which created them.

JDFI 6 months ago

You said:

> I invite you to read Tyler's response to Karsten's blog post portfoliocharts.com as well as Karsten's comments on his own blog post to make up your own mind.

Karsten has just responded specifically to Tyler's blog post (as someone had recently referenced it in a comment). Here is Karsten's reply (the link, not the auto-generated graphic link following, which goes to the top of the article instead of the embedded comment):

earlyretirementnow.com

Tyler's refusal to engage directly with Karsten does not bode well for the robustness of Tyler's critique.

Karsten is a Ph.D. economist and a statistician (a Ph.D. in economics confers at least as much statistics education as a Masters in statistics plus advanced econometrics) - Tyler has neither educational nor professional expertise in these areas [fundamentally required for this type of analysis], based on his own characterization of his background.

That said, I agree with Tyler that everyone has some biases, and that Karsten's analysis of gold appears to be missing an accounting of the impact of the change in legal status of gold (past exchange rate set by law). Karsten should rework his analysis of portfolios including gold to take that into account. But it doesn't affect his analysis of SCV as it relates to SWR.

kelway 8 months ago

Even if the small premium is gone, I think the diversification mitigates sequence of returns risk to support a potentially higher withdrawal rate. Not that I’d dare try.

JDFI 8 months ago

According to analysis published by Karsten/Big ERN (Ph.D. economist and former quantitative analyst for the US Federal Reserve), such a portfolio is less diversified, not more diversified: Small-Cap Value Stocks: Diversification or Di-WORSE-fication? see the specific section titled Diversification or Di-WORSE-fication? - so would not mitigate sequence of returns risk.

And to clarify, he isn't claiming there isn't a small premium left - only that the very large, outsized historical premium is likely gone, and the small premium that may be left would only raise SWR a bit.

JDFI 8 months ago

Thank you for highlighting these listener questions responses, especially both of Karsten's, as I think they correct some common misinformation (mainly due to missing nuances) in the FI community.

I would only clarify that per Karsten's listener question response on applying the 4% rule of thumb to early retirement timeframes (Safe Withdrawal Rates for Early Retirees: Does The 4% Rule Work Across a 40 to 50 Year Horizon), failsafe SWRs do actually fall all the way down to 3% or lower depending on asset allocation and FIRE timeframe (see Karsten's table at the end of his above listener response URL).

It is certainly true that non-portfolio cashflows (Social Security, pension, substantial post-RE earned income, etc) can and often do raise Safe Consumption Rate (SWR from portfolio + cashflow) higher, often to 4% or above, but without specific cashflow analysis (such as by using Karsten's SWR Toolkit spreadsheet), there is not a good way to know by how much above the failsafes in Karsten's table.

Ep. 563 — Safe Withdrawal Rates, Drawdown Strategies, RMDs and 50 Year FI Timelines

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