Is the Retirement Safe Withdrawal Rate Below 4% or Almost 6%?
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What is the safe withdrawal rate for retirement?
Is the retirement safe withdrawal rate below 4%? And how not to overpay Uncle Sam? That and more on this Saturday Personal Finance edition of Motley Fool Money.
I'm Robert Brokamp, and this week I speak with Morningstar's Christine Benz, who, along with her colleagues Amy Arnott, Jason Kephart, and Tao Guo, recently published an extensive report on the state of retirement income. But first, let's talk about a few highlights from last week's financial headlines. You know, here in the U.S., income taxes are a pay-as-you-go system. A certain amount must be withheld or paid throughout the year. Otherwise, you may owe penalties and interest. To build in a buffer, most Americans have too much withheld. About two-thirds of tax filers get a refund with the average amount exceeding $3,000.
How can retirees prepare for lower taxes in 2026?
And that figure will likely be even higher this year due to the passage of the One Big Beautiful Bill last July, which will reduce the average household's tax bill by $3,700, according to the Tax Foundation. Plus, according to our recent CNBC article, the amount it takes to move into a higher tax bracket for 2026 will be increasing 2.3% to 4%, depending on the bracket, so more of your income will be taxed at lower rates this year. Now, it makes some sense to play it safe with having more withheld from your paycheck, and I understand there's no feeling like completing your tax return and seeing that Uncle Sam owes you money. But you missed out on the returns that overpayment could have earned if it was in your account and not the government's.
So now is the time to reevaluate and perhaps change the amount you have withheld from your paycheck if you're working, or from your Social Security, pensions, and or retirement account distributions if you're retired. The IRS does offer a tax withholding estimator, but it's down for maintenance until January 17th. You can find other calculators online from payroll and tax prep software providers, and states also offer tools to calculate your state tax withholdings. In the end, your goal is to pay enough taxes to avoid penalties, but not much more. And if you determine that reducing your withholdings is appropriate for you in 2026, make sure you then increase the amounts you contribute to your retirement, college, brokerage, or high-yield savings accounts so that you're immediately putting those tax savings to work.
For our next item, we turn to a Washington Post article by Michael Koren with the headline, Why Smaller Houses Can Lead to Happier Lives. Koren cites research which shows that after an initial burst of satisfaction with new larger homes, people's life satisfaction typically returns to a baseline or even declines. The problem isn't that big houses make us unhappy, it's what we sacrifice to obtain them, including longer commutes, larger mortgages, and less time for socializing. Many people end up being house-rich but relationship-poor, with expensive features like home theaters and formal dining rooms becoming unused dead zones. Studies consistently show that happiness peaks in households of four to six people, regardless of home size, and that neighborhood factors matter far more than square footage.
Research from Vancouver found no significant well-being difference between people in various types of houses, from single detached homes to townhouses or apartments, with residents prioritizing affordability, proximity to loved ones, and other factors like that. Europeans report higher well-being than Americans, despite smaller homes, because their walkable neighborhoods and public spaces reduce the pressure on the home as the primary living space. The article suggests 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. And now the number of the week, which is 5%. That's how much Japan makes up of the global stock market, down from more than 40% in the late 1980s, according to the most recent edition of J.P.
Morgan's Guide to the Markets.
Why do bigger houses lead to lower happiness levels?
Meanwhile, the U.S. share has grown from 30% to 64%, which is near the peak reached in the 1960s when U.S.
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Chapters
6 chapters
1
What is the safe withdrawal rate for retirement?
0:05–0:48
2
How can retirees prepare for lower taxes in 2026?
0:48–3:38
3
Why do bigger houses lead to lower happiness levels?
3:38–6:51
4
What percentage of the global stock market is made up of U.S. stocks?
6:51–13:47
5
What is the current safe withdrawal rate according to Morningstar?
13:47–19:41
6
How does market volatility affect retirement spending strategies?
19:41–22:34