Safe Spending, Massive Growth—Backed by 100 Years of Data
By A Man of the Numbers, PhD
If you’re like me, you’ve heard about the great returns of the S&P 500 but are told to pull back toward retirement and put more money into bonds to diversify.
Well, what if you want to keep getting great returns in retirement even after you start living off your portfolio’s income? Can it be safely done?
I’m a 51-year-old engineer with three kids still at home (the oldest college-bound this year!) and have been mulling about retirement. I want to have something to pass onto my kids after I’m gone, so I want to have money I can spend in retirement (Travel!) and still see real growth.
I’ve always loved numbers and dug into the data to convince myself firsthand if it could be done with the S&P 500 — or if it was just a recipe for risking losing all my money and my kids getting nothing.
What I found was encouraging — one can safely withdraw up to 3% annually and adjust for inflation without relying on poor-performing bonds to protect your portfolio, like 10-year Treasuries that have returned just 1.9% annually in real terms from 2010 to 2020 while the S&P 500 soared over 11% — and the upside is incredible.
So why settle for that when you could aim for so much more?
I’ll share how I came to that conclusion so you can be confident in it as well, and how it results in an efficient set-it-and-forget investment approach that avoids complexity and is easy to do yourself. It’s simple, tax-savvy, and full of growth potential, and I’m excited to walk you through it!
How I Got the Numbers: A Lesson in Taking Charge
Ever wondered if the S&P 500’s rollercoaster could fund your retirement?
I’ve always heard it’s a winner, but its wild swings — like that 40% drop in 2008 — had me puzzled. So, I rolled up my sleeves and dove into the data, crunching S&P 500 total returns (dividends included) and inflation rates from 1926 to 2024, using official S&P index data.
I kicked off with a $100k portfolio, picturing a 30-year retirement, and hunted for the max annual withdrawal rate that could survive any market storm.
I calculated the highest percentage someone could withdraw annually if they retired any year from 1926 to 1995 (the last year with 30 years of data after it), adjusting for inflation each year by compounding the prior value — think of it as stress-testing every decade.
Here’s what I uncovered:
- To keep your portfolio’s real buying power steady (inflation-adjusted), the safe annual withdrawal rate is 2.9%, based on the toughest year, 1965, which faced high inflation and stagnant returns, ending at $100k in real terms by 1994.
- If you’re okay with the risk of depleting the portfolio to zero after 30 years, that ceiling jumps to 3.2%, tied to a 1929 retiree who started just before the Great Depression crash.
- Hit a golden year like 1949, and you could pull 11% annually while holding full inflation-adjusted purchasing power — or even 12.5% annually if you let it run dry.
But here’s the catch: we can’t predict the future or nail the perfect retirement year. So, history hands us a safe range of 2.9% to 3.2%.
Stick with 2.9% annually to protect your nest egg, or stretch to 3.2% annually if you’re fine with that depletion risk — the upside potential is huge if the market plays nice, as I’ll show you later.
💡 One risk to watch is early crashes — if your portfolio dips in the first few years, withdrawals could hurt more, but the S&P 500’s long-term growth often offsets this.
I then tested a 3% annual inflation-adjusted withdrawal — right in the sweet spot of that range — to see how it holds up.
- In the worst case, a 1965 or 1966 retiree saw their $100k dip to $89k in real terms — a small bruise but still standing.
- In the best case, a 1932 retiree’s portfolio skyrocketed to $1.3 million in 30 years in real terms (13x the original purchasing power!)
This hands-on dive gave me — and can give you — confidence to bet on the S&P 500 with a 3% annual withdrawal, knowing there’s growth to spare.
The real payoff? – This swaps gut feelings for solid numbers, letting you run your retirement without leaning on overpriced advisors.
What the Chart Shows
- In the toughest years (1965/1966), a $100k portfolio dips to $89k in real terms with a 3% annual withdrawal rate, showing resilience.
- In standout years like:
- 1932 – $1.30 million
- 1943 – $1.27 million
- 1975 – $865k
It explodes — 56% of cases exceed 5x growth in real terms because the S&P 500’s long-term gains outpace inflation in most decades.
Let’s see what this means for your retirement today.
What This Means for You Today
Retiring in 2025 with $100k?
Start with a $3,000 withdrawal, bumping it to $3,090 with a typical 3% inflation rate, based on historical averages.
In rough patches like 1965, it dipped to $89k in real terms — safe but modest.
The 1956 to 1973 period lagged due to inflation spikes, but still grew to a range of $140k to $370k, except of course during our worst case years of 1965 and 1966.
Compare that to:
- 1929 – $159k
- 1973 – $163k
- 1985 – $826k
Now look at a more recent example:
Someone who retired in 1995 with $100k, just before the dot-com boom in 2000.
They faced:
- The 2000–2002 crash (lost nearly 50%)
- The 2008 crisis (57% drop)
Yet, sticking with a 3% annual inflation-adjusted withdrawal rate, their portfolio’s real purchasing power grew to $712k by 2024.
That’s the power of staying invested through the storms. Even with those massive dips, the S&P 500’s long-term growth turned a modest nest egg into a substantial one — all while funding their retirement.
With $500,000, you’re looking at $15,000/year and potentially millions in real terms.
This isn’t a roll of the dice — it’s backed by nearly 100 years of S&P 500 real data.
Why the S&P 500 Rocks
The S&P 500, tracking 500 top U.S. companies, delivers about 10% annual returns with dividends, outpacing inflation’s 3% over decades.
Stay fully invested, and you ride out crashes:
- In 1929, the S&P 500 began an 83% drop through 1932, yet still grew to $159k in real terms by 1959 with a 3% annual withdrawal.
- In 1973, post-bear market, it hit $163k in real terms.
- 1985? $826k in real terms during a bull run.
Let’s talk about two major crashes to see this resilience in action:
The Dot-Com Crash (2000–2002)
The S&P 500 dropped nearly 50% as tech-heavy stocks collapsed — think Pets.com and other internet startups that burned bright and fizzled fast.
Yet by 2007, the S&P 500 had fully recovered, gaining back its losses with a 5.5% annualized return from the 2002 low.
The 2008 Financial Crisis
Triggered by the housing collapse and Lehman Brothers’ bankruptcy, the S&P 500 plummeted 57% from its 2007 peak to March 2009.
But again, it bounced back, hitting pre-crash levels by 2013 and delivering a 14% annualized return from the 2009 bottom through 2019.
These crashes were brutal, but staying invested paid off — each recovery turned a $100k portfolio at the peak into over $200k in real terms a decade later with a 3% annual withdrawal.
Even:
- 1932 post-Depression topped 5x by 1962
- 1982 $100k portfolio reached $700k by 2011 in real terms
Now, what about actively managed funds?
S&P’s SPIVA reports show 85–90% underperform the S&P 500 over 10–15 years. Why pay for lackluster results when the S&P 500 delivers?
Extra Perks: Simplicity, Taxes, and Giving
Here’s the kicker: Financial advisors often charge 1 to 3% annually, which can erase your entire real earnings in tough years.
On a $500k portfolio, that’s $5,000 to $15,000 yearly — money better spent on your retirement dreams!
Go with a low-cost S&P 500 fund and keep your money. I like Vanguard’s VOO that tracks the S&P 500.
It’s tax-smart too — long-term gains and dividends face 15–20% rates versus 37% for ordinary income. Sell high-cost-basis shares to minimize your tax hit.
Plus, for charity, donate appreciated shares — deduct the full $50k value of shares bought at $10k, skipping capital gains tax. It benefits you and your favorite causes!
Make It Yours
Here’s how to make this strategy yours — no financial advisor needed!
Choose Smart: Use SPY or VOO, which track the S&P 500 with rock-bottom fees under 0.1%, saving you money. I personally like Vanguard for their consistent low fees.
Track Inflation: Use CPI from bls.gov to adjust yearly withdrawals (e.g., $3,090 at 3% inflation).
Start Easy: Take 3% of your portfolio ($3,000 on $100,000, $30,000 on $1M) and adjust for inflation.
Hold Steady: Avoid selling in dips—recoveries follow every crash. Set a reminder to check your portfolio only once a year; don’t let daily dips scare you.
Tax Tips: Sell high-cost-basis shares, hold over a year for lower rates.
Give Back: Transfer appreciated shares right from you brokerage account to your favorite charity.
This comes from my 1926–2024 analysis—take the reins, save your cash, and let it grow!
Well I hope this helps and, if so, stay tuned for my future posts!
