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How much can retirees withdraw? Capital Group offers new guidelines

The objective is to turn savings into income

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Mark Huffman
Reporter

Mark Huffman has covered consumer issues since 2004, with a special focus on protecting and empowering older adults. A former news correspondent for the Associated Press Radio Network, Westwood One, and ConsumerAffairs, Mark brings decades of journalistic experience to RetirementLiving.com. He is passionate about giving consumers a voice and helping them make informed decisions. Mark has also created educational content, including Senior Scam Alert, a video resource designed to help seniors recognize and avoid fraud. He holds a B.A. from the University of Kentucky and lives with his family in Richmond, Virginia.

Updated:

key insights:

  • Capital Group has published withdrawal ranges to help retirees turn savings into income.
  • Its two approaches offer different trade-offs between predictable spending and preserving savings.
  • The ranges are planning guidelines, with no guarantee that savings will last throughout retirement.

Turning a retirement nest egg into a paycheck requires deciding how much to spend without exhausting savings. Capital Group’s new framework offers two approaches, depending on a retiree’s need for predictable income and ability to adjust spending.

The first starts with an annual withdrawal of 4% to 4.5% of the account’s value at retirement, then adjusts that dollar amount for inflation each year.

For someone retiring with $500,000, that translates into $20,000 to $22,500 in first-year withdrawals, or roughly $1,667 to $1,875 monthly before taxes. If inflation were 3%, the following year’s withdrawal would rise to $20,600 to $23,175.

That predictability comes with greater risk of exhausting savings during unfavorable markets, Capital Group said.

The second approach withdraws 5% to 5.5% of the previous year’s ending balance. It carries a lower depletion risk but produces fluctuating income, making it better suited to flexible spending, the company said.

Budget adjustments

For example, a 5% withdrawal from $500,000 provides $25,000. If the balance used for the next calculation falls to $400,000, the withdrawal drops to $20,000 — a $5,000 reduction that would require a corresponding budget adjustment.

Capital Group developed the ranges using 100,000 hypothetical retirement paths and stress tests involving market losses, inflation, and other financial shocks.

The company emphasizes that withdrawal decisions should reflect individual circumstances and other income, including Social Security. It also renamed its 2010–2025 target date funds to include “retirement income,” highlighting their role after investors stop working.