What are the Safe and Perpetual Withdrawal Rate metrics?
Two of the detailed metrics answer a retirement question rather than an investment one: given this strategy's actual history, how much could you have pulled out of it every year without running out of money?
They are computed only for strategies with at least ten years of history. With less than that, the question has no meaningful answer and both metrics are blank.
Safe Withdrawal Rate (SWR)
SWR is the largest first-year withdrawal, as a percentage of your starting balance, that would have survived the entire selected period without the account hitting zero.
The simulation works like this:
- Start with a balance of 1.0 and a chosen annual withdrawal rate.
- Each month, apply that month's actual strategy return, then subtract one twelfth of the year's withdrawal.
- If the balance ever reaches zero, that rate failed.
- At each year boundary, increase the withdrawal to keep pace with inflation.
- Search for the highest rate that made it all the way through.
Step 4 is the part that makes the number honest. A withdrawal that stays flat in dollar terms shrinks every year in what it actually buys. SWR escalates the withdrawal by the inflation that was actually realized in each year of the historical record, so the figure represents a constant standard of living rather than a constant dollar amount.
There is one wrinkle worth knowing. When the Inflation Adjusted toggle is on, the returns feeding the simulation are already real returns, so the withdrawal is held constant in real terms and no separate escalation is applied. Applying both would charge inflation twice. Either way you are looking at a constant standard of living; the toggle only changes which side of the equation carries it.
Perpetual Withdrawal Rate (PWR)
PWR is the more conservative cousin. It asks a different question: what could you withdraw forever, never touching the principal in real terms?
The answer is simply the strategy's annualized return minus annualized inflation over the period. Whatever the strategy earned above inflation is what you could take out while leaving purchasing power intact.
PWR is always lower than SWR, often much lower, and the gap is the point. SWR permits you to spend down the account to nothing over the period. PWR does not touch it at all.
How to read them
- SWR is a single historical path, not a probability. It reports what would have survived one specific sequence of returns that actually happened. It is not a Monte Carlo simulation and it carries no confidence interval.
- Sequence matters more than average return. Two periods with identical average returns produce very different SWRs depending on when the bad years landed. A crash early in retirement, while the balance is large and withdrawals are eating into a falling account, is far more damaging than the same crash later. This is why SWR is worth looking at separately from CAGR.
- Both change with the date range. Select a window that excludes the strategy's worst stretch and SWR will rise, because the sequence that would have broken it is no longer in the test.
- The toggles apply. Trading Friction and Taxable Account both feed the return stream these metrics are built on. A withdrawal rate computed on frictionless, tax-free returns is optimistic in a way that has nothing to do with the withdrawal math.
- SWR is capped at 30%. The search does not look above that. If a strategy shows exactly 30%, read it as "at least 30%" rather than as a precise figure.
What these numbers are not
They are not a retirement plan and not a recommendation. They describe a strategy's historical capacity to support withdrawals over one particular stretch of market history.
A real retirement introduces everything the model leaves out: a specific time horizon rather than "the length of the backtest," taxes on the withdrawals themselves, Social Security and other income, spending that is lumpy rather than smooth, and the near certainty that you would change your behavior after a bad year rather than mechanically withdrawing the same escalating amount into a falling account.
The familiar 4% figure from the retirement literature came from a similar exercise on a traditional stock and bond portfolio. Comparing a strategy's SWR against that number is a reasonable use of the metric. Treating any SWR as a spending plan is not.