Many Americans Overestimate Safe Retirement Withdrawal Rate

A 10-year comparison study by New York Life shows that while more Americans are estimating a safe withdrawal rate in retirement—23% of respondents think they can withdraw less than 5% of their retirement savings annually, up from 10% a decade ago—at least four in five Americans remain at risk.

The 2016 survey reveals that 77% of Americans older than 40 do not know how much of their retirement savings they can safely spend each year without running the risk of outliving their assets. In 2006, 90% of Americans did not know a safe withdrawal rate.

According to the survey, more than half of Americans older than 40 (58%) surveyed overestimated this safe withdrawal rate, which many experts benchmark at 4% annually for the typical retiree. Nineteen percent of respondents admit they do not know how much to withdraw without running out of money in retirement. 

At greatest risk are the more than three in 10 respondents (31%) who believe they can spend 10% or more of their savings each year. At that rate, based on historic investment returns, retirees risk running out of money in about 11 years or less—while studies show most of them will live significantly longer than that.

“There is a tremendous risk lurking in retirement—after years of doing your best to save, there is a risk of mismanaging that nest egg in retirement and running out of money,” says Dylan Huang, head of Retirement Solutions at New York Life. “Turning your savings into income for yourself in retirement is not easy, but the first step is knowing that anything above five percent is way too high.”

Huang adds that the survey found 58% of Americans are interested in learning about how to turn their savings into retirement income for life, up from 25% 10 years ago. In addition, 64% of pre-retirees are interested in learning about how to create their own pension-like income in retirement. “Without the peace of mind that pension income provided to previous generations, pre-retirees are the first generation that needs to turn their savings into adequate income in retirement on their own. It is a positive finding that they are open to finding out how to do that,” he says.

The survey was conducted by Ipsos Public Affairs March 23 through 29, among a national sample of 810 adults age 40 and older with a household income of at least $100,000.