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Retirees spending from an investment portfolio often balance two competing priorities: maximizing their own consumption vs. leaving behind an inheritance for loved ones. Morningstar’s 2024 State of Retirement Income report introduces a new metric, the “spending/ending ratio” that can help retirees assess how various spending strategies balance these outcomes.
While the ideal spending/ending ratio and overall spending strategy will differ for each individual, this year’s research suggests that new retirees searching for a safe starting withdrawal rate should go no higher than 3.7%.
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Morningstar’s 2023 research found that 4.0% was the highest safe starting withdrawal rate. However, 2024 has seen higher equity valuations and lower fixed income yields, leading to lower return assumptions for stocks, bonds, and cash over the next 30 years.
Retirees seeking the highest level of lifetime income should consider a combination of delayed Social Security filing and a flexible withdrawal strategy like the guardrails approach, which adjusts withdrawals annually based on portfolio performance and the previous withdrawal percentage.
We talked with Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar, about the new spending/ending ratio, as well as best strategies to help retirees asses how various retirement spending strategies balance competing priorities – maximizing a retiree’s own consumption or leaving a bequest for loved ones.
Q. How can pre-retirees best prepare for a safe withdrawal rate for the future?
Christine Benz: Pre-retirees can set themselves up for success in a few key ways. The first and most obvious way is to continue to save aggressively in the years leading up to retirement. The late 50s and early 60s are empty nest years for many, and they may also be peak earnings years, so that can be a great opportunity to superfund retirement accounts. (People over age 50 are eligible to make catchup contributions to their IRAs and company retirement plans, and people who are between 60 and 63 in 2025 can make "super catchup contributions.")The second key strategy to consider is to continue working a bit longer, if possible, which has the benefit of reducing the number of years that they'll be drawing upon the portfolio. (Our baseline finding was a starting safe withdrawal rate of 3.7% for people with a 30-year horizon, but that number jumps to 4.3% for a 25-year horizon.) In addition, pre-retirees will want to take steps to maximize non-portfolio income—especially from Social Security. That reduces pressure on the portfolio to supply the bulk of their needed income and enables retirees to be more flexible with their portfolio withdrawals.
Finally, pre-retirees will want to take steps to de-risk their portfolios well before retirement arrives. That way, if a bad market environment shows up early in their retirements, they'll be able to pull their spending money from safer assets rather than from stocks when they're in a trough.
Q. What is the new metric, the spending/ending ratio?
A: In our research, we noted that being flexible with withdrawals—taking less in bad market environments and more in better ones—leads to higher starting and lifetime withdrawal rates. However, those types of strategies also tend to reduce the amount of assets that are left over at the end of a retiree's life. We wanted to help show how various in-retirement spending strategies balance those two sets of goals: maximizing lifetime income or leaving a bequest.
Q: What is the guardrails approach to retirement withdrawal?
A: It's a strategy that was developed by financial planner Jonathan Guyton and computer scientist William Klinger to adjust annual withdrawals based on how the portfolio has performed relative to preset rules about spending. If the portfolio has lost value, the retiree may need to cut spending. If it has gained, the retiree might get a raise. The guardrails apply to how low the withdrawal can go in a bad year and how high it can go in a good year like 2024.
Q: How can employers best prepare employees to achieve guaranteed lifetime income?
A: The best way to enlarge guaranteed lifetime income is to make smart Social Security filing decisions, but that decision falls outside the bounds of the employer-employee relationship. (Keeping older workers employed longer is an indirect way to help facilitate delayed SS filing, though.) Some employers have also added annuities inside company retirement plans, though it's early days for those efforts.Related: Employers want to offer lifetime income solutions in 401(k)s, but lack ‘annuity fluency’: TIAA
Q: What percentage of retirees can afford to delay Social Security filing?
A: A healthy share, according to data from U.S. News. Meanwhile, the number of people claiming at the earliest possible age, 62, has been declining steadily over the past decade. Of course, some people can't afford to delay filing; they take benefits earlier because they need the money.Q: Why did Morningstar drop the retirement withdrawal rate down to 3.7%?
A: We take a forward-looking view in our research, incorporating our Morningstar Investment Management colleagues' estimates of stock, bond, and cash returns, as well as inflation, over the next 30 years. The safe withdrawal rate was 4% in 2023 but dropped to 3.7% in 2024 thanks to lower anticipated stock and bond returns.© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
