No. 06Paper2010
An International Perspective on Safe Withdrawal Rates
Wade D. Pfau
Critical for international frugalists or those planning geo-arbitrage. Shows that 4% rule is specific to U.S. history—other countries require 2-3.5% for same safety.
Abstract
First comprehensive study on safe withdrawal rates in 17 developed countries (1900-2008). Pfau discovers that U.S. had exceptionally favorable returns—safe withdrawal rates in other countries are significantly lower. Worst-case scenarios: Spain 1.9%, Italy 2.0%, France 2.3% (vs U.S. 4.0%). Implication: if you plan to retire outside U.S., or believe U.S. won't repeat 20th century performance, use more conservative rates. Paper shows that international equity diversification does NOT much improve withdrawal rates—home country bias persists due to currency risk. Studies impact of inflation, retirement duration, and asset allocation by country.
Key Ideas
- 1Safe withdrawal rates vary MASSIVELY by country: Spain 1.9%, Italy 2.0%, U.S. 4.0%
- 2U.S. had exceptionally favorable returns in 20th century—don't assume repetition
- 3International equity diversification doesn't much improve withdrawal rates (currency risk)
- 4If retiring outside U.S., use withdrawal rates of destination country (typically 2-3.5%)
- 5Local inflation and current market valuations matter more than global diversification
U.S.'s exceptional returns in the 20th century are not the global norm. Safe withdrawal rates in other developed countries are consistently lower.
1.9% vs 4.0%
Worst-case safe withdrawal rate Spain vs U.S.—more than double the difference