By Anne Tergesen

For those about to retire, here's a useful number to guide your spending plans: 3.7%.

That's the spending rate from an investment portfolio that's likely safe for people planning to retire soon to use in their first year of retirement, according to a new analysis released Wednesday by fund tracker Morningstar.

The 3.7% recommendation is slightly below the 4% rule that emerged as the wealth-management industry's standard advice for retirees in the 1990s. Research showed that starting at that rate would have protected retirees from running out of money in every 30-year period since 1926, even when economic conditions were at their worst.

The method targets an inflation-adjusted income over a three decade retirement. Using it, someone who retires today with a $1 million stock and bond portfolio would spend no more than $37,000 in 2025 from that portfolio. Assuming inflation will be 3% next year, the investor would give himself a raise to $38,110 in 2026, regardless of the market's performance.

The recommended initial withdrawal can rise and fall with projections of future market conditions and inflation.

Last year, Morningstar recommended starting retirement by spending 4% of savings. Today's lower rate is the result of higher stock valuations and lower bond yields, which may result in lower future investment returns, the report said.

Morningstar looks for the spending rate that allows retirees to maintain a steady annual inflation-adjusted income without running out of money in 90% of projected future market scenarios.

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(END) Dow Jones Newswires

December 11, 2024 14:16 ET (19:16 GMT)

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