Retirement Income 3 key considerations for sustainable retirement income

Kate Beattie

July 29, 2026

KEY TAKEAWAYS

  • The ability to adjust withdrawals in response to investment returns can enhance the sustainability of a retirement income portfolio.
  • A retiree’s planning horizon is a major consideration when identifying a sustainable withdrawal rate.
  • The desire to leave a larger legacy calls for a more conservative withdrawal rate.

Retirement income planning often centers around a key question: How much can I withdraw from my retirement portfolio? Striking the right balance is crucial. Excessive withdrawals can deplete the portfolio prematurely, while overly conservative withdrawals may result in a lower standard of living than desired.

 

Our analysis revealed that this critical calculation is not one-size-fits-all. Each retiree will have individual goals, risk tolerance and other unique factors. Such factors, including spending flexibility, retirement planning horizon and legacy goals, play an important role in determining a sustainable withdrawal rate, which may fluctuate over time.

 

Beyond the 4% rule

 

The 4% rule, suggesting a 4% initial withdrawal over 30 years and adjusting for inflation, is widely known. However, it lacks flexibility and assumes no changes in spending or investment mix. Although it can be a starting point, personalization is crucial.

 

But the 4% rule is not the only approach. Retirees can explore various other withdrawal approaches. Our research on retirement withdrawal strategies revealed several potential approaches, but this discussion will focus only on two fundamental withdrawal strategies: fixed and variable.

 

Consider two potential spending patterns for the same hypothetical 60/40 portfolio: one with recurring 2.25% annual withdrawal increases to account for inflation or cost-of-living adjustments, and another with 2.25% increases only during the years the portfolio’s value increases, with no such increases in the year after its value declines (defined as when portfolio return was less than $0).

Flexibility in withdrawals can have a big impact on success potential

The chart compares the likelihood of not running out of money for a hypothetical portfolio over 30 years. It assumes two initial withdrawal rates: 4% and 3%. At the 4% rate, adding recurring 2.5% annual withdrawal increases potentially results in a 79% probability of not running out of money. Limiting increases to years when the portfolio’s value rises potentially yields an 88% probability of not running out. At the 3% rate, recurring 2.5% annual withdrawal increases potentially lead to a 94% probability of not running out of money. Limiting increases to only those years when the portfolio’s value rises yields a potential 98% probability of not running out.

(Chart based on hypothetical scenarios.)

Source: Capital Group calculations based on a hypothetical Monte Carlo analysis. The chart represents two potential spending patterns for the same hypothetical portfolio invested with a 60% allocation to equities and 40% to fixed income. We also assume 2.25% annual increases to withdrawals to adjust for inflation if portfolio returns are positive the previous year. The chart shows an increase in the likelihood of having a remaining ending balance given reductions in withdrawal rate and inflation increases. Taxes and fees are not included. For further information about the assumptions used to create this chart, refer to the end of this article.

The tradeoffs are evident. Strategies with variable withdrawal amounts starting with either 3% or 4% initial withdrawals that adjust for portfolio fluctuations may increase the probability of money lasting more than 30 years. The constant withdrawal strategy may be appealing for retirees wishing to mimic the predictable cash flow of a paycheck. However, this approach, much like the 4% rule, may deplete the portfolio faster due to lack of adjustments to withdrawals.

 

Taxes and fees should not be overlooked, as they will also impact withdrawal sustainability. For example, our research found that when a 1% fee is assessed annually to the account balance as part of a variable withdrawal scenario over 30 years, the probability of success drops materially.

 

However, don’t overestimate the impact of fees by unnecessarily limiting clients’ spending because fees often decrease when account values decline. Along with flexible withdrawal strategies, retirees can use protected lifetime income like annuities, pensions and/or Social Security to help reduce some of the withdrawal stress. 

Retirement planning horizons and withdrawal rates

As expected, the length of retirement significantly influences portfolio withdrawal rates. A typical 30-year planning horizon may require a lower initial withdrawal rate to be sustainable. For example, a 65-year-old investor planning for a 30-year retirement horizon should spend less initially than an 85-year-old investor with a 10-year horizon.

 

A shorter retirement planning horizon due to delayed retirement or health conditions may justify a higher initial withdrawal but could potentially lead to overspending.  We analyzed a hypothetical 60/40 portfolio with various fixed withdrawal rates, with the goal of achieving a 90% probability of success.* Incorporating annual withdrawal increases of 2.25% to combat inflation results in shorter planning horizons with higher withdrawal rates.

 

When choosing an initial withdrawal rate, be sure to consider an investor’s longevity risk tolerance, life expectancy and cash flow predictability. In general, younger clients or those with a longer life expectancy should have lower initial withdrawal rates, especially if they are interested in maintaining assets for heirs or charity.

 

The length of retirement and initial withdrawal rate matter

The bar chart illustrates the relationship between withdrawal rates from a hypothetical retirement portfolio and the expected lifespan of the portfolio. The y-axis represents different withdrawal rates, ranging from 1% to 8%. The bars indicate the years of portfolio survival at each respective withdrawal rate. For 1%, 2%, and 3% withdrawal rates, the portfolio is expected to last 30+ years. At a 4% withdrawal rate, the portfolio is expected to last for 27 to 28 years. At 5%, 20 to 21 years. At 6%, 16 to 17 years. At 7%, 14 to 15 years. And at 8%, 12 to 13 years.

(Chart based on hypothetical scenarios.)

Source: Capital Group calculations based on a hypothetical Monte Carlo analysis. The analysis assumes a portfolio invested with a 60% allocation to equities and 40% to fixed income. We also assume 2.25% annual increases to withdrawals to adjust for inflation. Taxes and fees are not included. Neither past results nor capital market assumptions can guarantee future performance. For further information about the assumptions used to create this chart, refer to the end of this article.

Considerations for legacy goals

Certain withdrawal methods may be better for maximizing current spending potential, while others may excel in preserving one’s nest egg for a future legacy. A fixed-dollar strategy balances current spending needs while a variable strategy may help preserve the retirement portfolio to meet legacy goals. Adjusting withdrawal rates based on goals is crucial for efficient portfolio use.

 

For example, legacy-goal-focused investors often favor lower withdrawal rates. A legacy goal is the percent of the account balance an investor hopes to preserve over a specific time horizon. Our analysis found that an investor with at least a 50% legacy goal over a 30-year horizon may consider a 3.00% fixed withdrawal to meet this objective. If the legacy goal decreases to 25% of the account balance, the fixed withdrawal rate may increase to 3.25%.

Optimal withdrawal rates for retirement and legacy goals

The chart is a scatter plot showing the relationship between portfolio withdrawal rates and retirement time horizons for different legacy goals. The x-axis represents the retirement time horizon in years, ranging from 0 to 30 years. The y-axis represents the portfolio withdrawal rate, ranging from 0% to 10%. There are three series of data points representing retirement legacy goals and their optimal withdrawal rates, respectively: For a 0% legacy goal, the optimal withdrawal rates start at 9% for both a 5 and 10-year retirement horizon, decreasing to 6.5%, 5%, 4%, and 3.5% for 15, 20, 25, and 30-year horizons, respectively. For a 25% legacy goal, the withdrawal rate starts at 9% for 5 years, decreasing to 7.5%, 5.25%, 4.25%, 3.75%, and 3.25% for 10, 15, 20, 25, and 30-year horizons, respectively. For a 50% legacy goal, the withdrawal rates start at 9% for 5 years, decreasing to 5.5%, 4.25%, 3.5%, 3.25%, and 3% for 10, 15, 20, 25, and 30-year horizons, respectively.

(Chart based on hypothetical scenarios.)

Source: Capital Group calculations based on a hypothetical Monte Carlo analysis. This exhibit illustrates the withdrawal rate that returns a given proportion of initial account value remaining at the end of a given time horizon, where withdrawals are increased by 2.25% each year after the first to adjust for inflation. Note that withdrawal rates are evaluated in 25 bp increments. The analysis assumes a portfolio invested with a 60% allocation to equities and 40% to fixed income. Taxes and fees are not included. Neither past results nor capital market assumptions can guarantee future performance. For further information about the assumptions used to create this chart, refer to the end of this article.

Retirees who are primarily focused on maximizing their own lifetime income may benefit from a flexible withdrawal strategy during robust market periods. The probability of success involves balancing a retiree’s income and legacy objectives, not just avoiding portfolio depletion. Unexpected longevity can affect legacy planning as well. Financial professionals may aim to secure wealth beyond the planned horizon for this reason.

Putting it all together

Developing and overseeing a retirement-spending strategy can be complex. Focusing on these three key areas may help you create meaningful client conversations:

 

  • Flexibility: Discuss the importance of adjusting expenses in response to changing conditions. Ask your client, “How flexible can you be with your expenses?” The more a portfolio is relied on to support income needs, the more flexible a retiree may need to be. This flexibility often translates into a more conservative withdrawal rate. This calculator can help you demonstrate how protected lifetime income can impact your client's portfolio reliance and withdrawal rates. Stay flexible and evaluate the plan annually and when significant life events occur.

  • Planning horizon: Ask, “How long do you plan to live off your retirement savings?” The answer can help you tailor a withdrawal rate that aligns with their life expectancy. Remember, the younger a client or the longer their life expectancy, the more conservative the initial withdrawal rate should be.

  • Legacy goals: Understand your client’s legacy goals. Ask, “Do you want to maximize your income today or focus on leaving a legacy for tomorrow?” A larger legacy goal necessitates a more conservative withdrawal rate.

Read important disclosures

Kate Beattie is a senior retirement income strategist with 19 years of experience in the industry as of 12/31/2025. She holds a bachelor’s degree in economics with a business administration minor from Colorado State University. She also holds the Certified Financial Planner™ and Retirement Income Certified Professional® designations.

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*A 90% probability of success factor in a Monte Carlo simulation strikes a balance between conservative and aggressive planning. It is often utilized to ensure a high level of confidence that hypothetical outcomes have the potential to be achieved, accommodating for potential uncertainties and variations in the model. A lower probability would accept a potential higher risk with a greater chance the projected outcomes may fall short. 

 

A Monte Carlo simulation was used to calculate the probable range of outcomes and probabilities for hypothetical portfolio reliance.

 

A Monte Carlo simulation is a statistical technique that, through a large number of random scenarios, calculates estimated returns and a range of outcomes that is based on the assumptions included in this analysis. This is provided for informational purposes only and is not intended to provide any assurance of actual results. The simulation will not capture low-probability, high-impact outcomes. The results of the simulations may be presented in the form of percentiles, reflecting the probability distribution of the portfolio values and statistics. While we believe the calculations to be reliable, we cannot guarantee their accuracy.

 

The following assumptions were used in the Monte Carlo simulation:

 

  • The investor withdraws a fixed percentage of the initial portfolio value each year for up to 30 years. Withdrawals are increased by either 2.25% where noted each year after the first year to adjust for inflation.
  • The portfolio is rebalanced annually.
  • The 3% and 4% withdrawal rate scenarios are shown for illustrative purposes only.
  • The hypothetical portfolio used in these simulations employed Capital Group’s capital markets assumptions (CMAs) for 60% equities (using the MSCI All Country World Index as a historical proxy) and 40% fixed income (using the Bloomberg U.S. Aggregate Index as a historical proxy). Assumed hypothetical return for equity was 6.3% with a standard deviation of 15.7%; assumed hypothetical return for fixed income was 4.5% with a standard deviation of 4.3% as of December 31, 2025.
  • Each simulation was run with 2,500 iterations.

 

The portfolio success rate in the hypothetical illustration is the percentage of simulations where the hypothetical portfolio sustained the applicable withdrawal percentage each year for 30 years (inclusive of a 2.25% annual increase for inflation). While we believe the calculations to be reliable, we cannot guarantee their accuracy. Simulation results may vary.

 

About capital markets assumptions: This analysis represents the views of a small group of investment professionals based on their individual research and are approved by the Capital Market Assumptions Oversight Committee. They should not be interpreted as the view of Capital Group as a whole. As Capital Group employs The Capital System™, the views of other individual analysts and portfolio managers may differ from those presented here. They are provided for informational purposes only and are not intended to provide any assurance or promise of actual returns. They reflect long-term projections of asset class returns and are based on the respective benchmark indices, or other proxies, and therefore do not include any fees or any outperformance gain or loss that may result from active portfolio management. Note that the actual results will be affected by any adjustments to the mix of asset classes. All market estimates are subject to a wide margin of error.

 

Standard deviation (based on monthly returns) is a common measure of absolute volatility that tells how returns over time have varied from the mean. A lower number signifies lower volatility.

 

MSCI All Country World Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market results in the global developed and emerging markets, consisting of more than 40 developed and emerging market country indexes. Results reflect dividends gross of withholding taxes through December 31, 2000, and dividends net of withholding taxes thereafter. Bloomberg U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. These indexes are unmanaged, and their results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes. Investors cannot invest directly in an index.