Morningstar Finds 50% of Retirees Underspend Using Simple Withdrawal Rules
MORN•Morningstar’s Behavioral Insights Group finds half of retirees rely on simplified withdrawal methods such as dividends, current expense calculations or required minimum distributions, leading most to withdraw less than their safe spending capacity. Even retirees following a 3.9% initial withdrawal rate often maintain substantial portfolio balances after 30 years.
1. Behavioral Insights Findings
Morningstar’s Behavioral Insights Group finds half of retirees use simplified spending methods—including dividends-only withdrawals, current expense calculations or taking required minimum distributions—that fail to account for total wealth and inflation adjustments.
2. Consequences of Simplified Strategies
These simplified rules lead many retirees with at least median asset levels to underspend, with portfolios often growing or barely declining over 30-year horizons, even when following a 3.9% initial withdrawal rate.
3. Personalized Planning Benefits
Advisors and retirees can use more personalized planning—factoring in life goals, total assets, and market conditions—to set sustainable withdrawal rates and improve retirement lifestyles, potentially increasing demand for Morningstar’s advisory tools.
