Safe Withdrawal Rate
The safe withdrawal rate is a concept from retirement planning that suggests how much you can draw from your nest egg each year while keeping the balance going for 25 to 30 years. The most commonly referenced figure is 4%, known as the "4% rule", which was developed from US market research.
The idea is simple: if you have a $500,000 nest egg and withdraw 4% per year ($20,000), your money should last approximately 30 years, assuming a balanced investment portfolio. Each year you adjust the withdrawal for inflation.
In practice, the right withdrawal rate depends on your specific circumstances: your portfolio mix, whether you have NZ Super, your living expenses, health, and how long you expect to live. Many NZ retirees find 3.5 to 4.5% works well, but individual advice is recommended.
The withdrawal rate determines how large your nest egg needs to be. If you need $40,000 per year from savings and use a 4% withdrawal rate, you need a nest egg of $1,000,000. A 3.5% rate means needing approximately $1,143,000. Small changes in withdrawal rate have large implications for how much you need to save.
See how this affects your numbers
Run the mortgage calculator to see how safe withdrawal rate plays out in your specific situation.