The 4% rule is back, but it’s not really a rule

investmentnews.com:

One of the most controversial numbers in financial planning, 4%, is back — but the “rule” that follows it less so.

On Monday, Morningstar Inc. published research showing that 4% is the “highest safe starting withdrawal rate for retirees,” as there is a 90% probability they will still have money left in their portfolios after 30 years, assuming an initial allocation to equities of 20% to 40%.

That is a couple of notches of a percentage up from the drearier withdrawal rate of 3.3% the company identified in 2021, which was markedly lower than the 4% made famous in the mid ’90s by financial advisor Willliam Bengen. By comparison, the rate Morningstar researchers cited last year was 3.8%.

Behind that are a couple main factors: higher fixed-income yields and lower expectations for long-term inflation.

“The famous 4% rule that started with Bill Bengen was looking at what was historically sustainable,” said Amy Arnott, portfolio strategist at Morningstar and one of the authors of the new research. “This is a little bit different, in that it’s forward-looking. And it’s not just assuming a single rate of return … We’re running a thousand different simulations and looking for the withdrawal rate that succeeds in 90% of those.”

Although the highest safe withdrawal rate over 30 years was 4% for portfolios with 20% to 40% stock exposure, the rate decreased for allocations outside of that range. For portfolios entirely in equity, the rate was just 3.3%, and for those holding no equities, it was 3.6%, Morningstar found.

The 20% to 40% equity weightings also showed the highest safe withdrawal rates over other time frames, which ranged from 10 years to 40 years.

However, portfolios more heavily allocated to stocks had higher ending