Motley Fool Money – Episode Summary

Title: Is the Retirement Safe Withdrawal Rate Below 4% or Almost 6%?
Date: January 10, 2026
Host: Robert Brokamp
Guest: Christine Benz (Director of Personal Finance, Morningstar)

Episode Overview

In this personal finance edition of Motley Fool Money, Robert Brokamp dives into two timely topics:

• How Americans can avoid overpaying income tax through smarter tax withholding.
• The new research on retirement “safe withdrawal rates” – the percentage you can withdraw from your nest egg each year without running out of money – with special guest Christine Benz from Morningstar. The discussion provides detailed insights into the methodology behind withdrawal rates, how current market expectations impact the numbers, the trade-offs among various withdrawal strategies, and practical advice for listeners preparing for or living in retirement.

Key Discussion Points & Insights

Smart Tax Withholding for 2026

[00:05–05:12]

• US Income Taxes: Most Americans over-withhold, resulting in refunds averaging over $3,000. With last year’s major tax legislation, average refund size is expected to rise even higher.
• Tax Bracket Shifts: For 2026, thresholds for higher brackets will increase 2.3%-4%, meaning more income is taxed at lower rates.
• Strategic Advice:
  • Assess and adjust your tax withholdings now to keep more of your money invested or earning interest.
  • Use online calculators (IRS’s is down until Jan 17, but alternatives are available).
  • If you reduce withholdings, redirect those funds into retirement, college, brokerage, or high-yield savings accounts immediately.

“Your goal is to pay enough taxes to avoid penalties, but not much more.” – Robert Brokamp [02:46]

Housing Size & Happiness

[02:50–04:15]

• Research Highlight: Satisfaction from upsizing homes is short-lived; happiness declines or plateaus as sacrifices (longer commutes, higher mortgages) weigh in.
• Key Takeaway: Factors like neighborhood, proximity to loved ones, and affordability matter more than square footage.
• European Example: Smaller homes with better public spaces and walkable neighborhoods equate to higher well-being.

“We should ask not how big a house can I afford? But rather what kind of home will sustain the kind of life I want?” – Robert Brokamp [03:53]

Global Stock Market Shifts

[04:00–04:15]

• Japan’s share of global equities has shrunk from over 40% in the 1980s to 5% today.
• US share has risen to 64% of the world market.
• 2025 was an exceptional year for international stocks, outperforming the S&P 500 by the largest margin since 1993.

(Transition to main interview)

Main Interview: Safe Retirement Withdrawal Rates

Guest: Christine Benz, Morningstar
[05:12–18:11]

Updated Morningstar Safe Withdrawal Rate

[05:46–06:48]

• Morningstar’s “Conservative Base Case”:
  • Assumes a retiree wants a “paycheck equivalent”—a steady, inflation-adjusted dollar amount each year.
  • For a 30-year retirement horizon, newly retiring in 2025, the starting safe withdrawal rate is 3.9%.
  • Example: With a $1,000,000 portfolio, the initial withdrawal would be $39,000/year, adjusted for inflation.

“The sobering news… is that [with] a million dollar portfolio … you would want to take $39,000 initially if you were using this very conservative spending strategy.” – Christine Benz [06:19]

Comparing Methodologies: Historical vs Forward-Looking

[06:48–08:04]

• William Bengen’s Historical Approach: Suggests 4.7% is reasonable with a well-diversified portfolio.
• Morningstar’s Approach: Based on projected returns, expects below-average investments (especially in the next decade due to high valuations), making their recommendation more conservative—especially for the near term.

“Investors should be prepared for potentially some rough sledding in equities… the next 10 years probably won’t be that great, largely because of high valuations.” – Christine Benz [07:32]

Optimal Asset Allocation

[08:04–09:31]

• Surprising Finding: The safest withdrawal rate (3.9%) aligns with a 20–50% equity allocation—lower than most retirees use.
• Reason: Better fixed income yields today give retirees more certainty and stability, reducing need for high stock exposure.

“…if what you want is … a paycheck equivalent over this 30-year period…we can get most of that in fixed income because yields are a little better today.” – Christine Benz [08:43]

Key Retirement Risks & Mitigating Sequence of Return Risk

[09:31–11:26]

• Sequence of Return Risk: Experiencing market downturns early in retirement can seriously reduce portfolio longevity.
• Two defenses:
  1. Willingness to temporarily reduce spending during market downturns.
  2. Keeping a reserve (“runway”) of safer assets (cash, bonds) to avoid selling depressed equities.

“If you can spend less during [bad markets], that’s certainly a best practice…” – Christine Benz [10:09]

• Monte Carlo Simulations: Show bad returns or high inflation in the first 5–10 years drive most “failures” (i.e., running out of money).

Dynamic Withdrawal Strategies: Flexibility Boosts Your Spending

[11:53–16:29]

• The “Base Case” Is Conservative: Most retirees aren’t “robots” spending the same each year, and this approach often leaves large sums unspent.
• Spending Slope Strategy:
  • Recognizes retirees spend less as they age.
  • Allows initial rates closer to 5% if you’re comfortable tapering later.
• Guardrail Strategy:
  • Adjusts withdrawals up/down based on portfolio returns but with limits—protects against drastic cuts.
• Required Minimum Distribution (RMD) Method:
  • Efficient and flexible, but payouts rise and fall sharply with portfolio value—best for those with other steady income.

“If someone uses that base case spending system, they…tend to leave big leftover balances at the end of a 30-year horizon.” – Christine Benz [12:52]

“The guardrails aspect…protect[s] you from having to take too radical an adjustment in terms of your spending.” – Christine Benz [15:14]

Trade-Offs: Volatility, Legacy, and Quality of Life

[17:38–18:11]

• Trade-off examples after 30 years:
  • Base case retiree ends with a median 1.42× their starting nest egg (i.e., 42% more than at retirement).
  • RMD retiree ends with 12% of starting value, much closer to exhausting funds.
• Important Step: Align fixed income (Social Security, annuities, pensions) with fixed expenses to simplify portfolio withdrawal decisions.

“If you can figure out a way to have your fixed income align with your fixed outlays, that is a really great strategy.” – Christine Benz [18:34]

Listener Tips: Financial Organization Success Stories

[20:09–End]

• BG: Used Quicken for decades, reducing anxiety and boosting confidence about retirement.
• Fred (Florida): Annual “checkpoint” system to recalibrate targets and risk, including Social Security assumptions and market shocks.
• Greg (South Carolina): Combination of Excel, Microsoft Copilot AI, and projections to accurately track needs and expenses—AI helped with categorization.

“Planning was highly useful and we are doing very well in retirement. The time and effort was worth it.” – BG [20:35, quoted by Robert Brokamp]

Notable Quotes & Timestamps

• “Your goal is to pay enough taxes to avoid penalties, but not much more.” – Robert Brokamp [02:46]
• “The sobering news… is that [with] a million dollar portfolio … you would want to take $39,000 initially if you were using this very conservative spending strategy.” – Christine Benz [06:19]
• “Investors should be prepared for potentially some rough sledding in equities… the next 10 years probably won’t be that great, largely because of high valuations.” – Christine Benz [07:32]
• “If you can spend less during [bad markets], that’s certainly a best practice…” – Christine Benz [10:09]
• “If someone uses that base case spending system, they…tend to leave big leftover balances at the end of a 30-year horizon.” – Christine Benz [12:52]
• “If you can figure out a way to have your fixed income align with your fixed outlays, that is a really great strategy.” – Christine Benz [18:34]

Key Takeaways for Listeners

• Plan Your Withholding: Adjust as needed to keep more of your money working for you.
• Rethink Retirement Spending: 3.9% is a safe—if conservative—starting withdrawal rate; flexible “dynamic” strategies can safely allow more if you’re comfortable with spending adjustments.
• Monitor Risks: Pay special attention to market conditions (especially early in retirement) and consider building a cash/bond “runway.”
• Personalize Your Plan: Asset allocation, withdrawal strategy, and budgeting should be tailored, factoring both spending needs and psychological comfort.
• Use Tools: From spreadsheets to AI–enabled apps, find the organization method that helps you track and manage your finances with confidence.