Safe Withdrawal Rate and Taxes: Why Your Real Number Is Lower

3.9%. That's Morningstar's safe starting withdrawal rate for 2026, and it's the number many people now plan around. The catch is that the IRS takes its share before you spend any of it. If you're looking up safe withdrawal rate and taxes, here's the short answer: the 3.9% figure (like the older 4% rule) is a gross, pre-tax withdrawal. What you actually get to spend is lower, sometimes by a lot, depending on where your money sits and how your tax bill changes across retirement.

Here's how much lower, why it moves around, and what that means for the number you plan with.

The short answer: your safe withdrawal rate is a pre-tax number

Morningstar's The State of Retirement Income report (December 2025) puts the safe starting withdrawal rate for 2026 at 3.9%, up from 3.7% the year before. "Safe" has a specific meaning. The money should still be there in 90% of simulated outcomes over a 30-year retirement. The figure leaves out Social Security. Morningstar also notes that flexible spending approaches can support higher starting rates. (Morningstar, What's a Safe Retirement Withdrawal Rate for 2026?)

None of that research is about taxes. It measures how much can leave the portfolio, not how much reaches your checking account. MassMutual says the same about the classic 4% rule: it's a before-tax withdrawal. (MassMutual, The 4 percent rule explained)

So the honest question isn't "What's my safe withdrawal rate?" It's "What's my safe spending rate after tax?"

What taxes do to a withdrawal, by account type

How much tax you owe depends on which account the money comes from. Three buckets, three outcomes:

• Traditional 401(k)/IRA: every dollar you withdraw is taxed as ordinary income.
• Roth (qualified withdrawals): no tax on the withdrawal.
• Taxable brokerage: only the gains are taxed, not the money you originally put in.

Here's what the published examples show:

Sources: MassMutual; Kitces, The Impact of Taxes on the Safe Withdrawal Rate; Early Retirement Now, SWR Series Part 44.

One caution. The Kitces figures come from an analysis first published in 2010 and updated for 2013 tax rates. The direction still holds. The exact percentages may not.

To put Morningstar's figure through the same math: 3.9% of $1M is $39,000. At a flat 22% rate on Traditional money, that's about $30,420 to spend. That works out to roughly a 3% spending rate. It's an illustration, not a forecast, but it shows the size of the gap.

The gross-up: how much to withdraw for a spending target

Most people think in spending, not percentages. You know you need about $40,000 a year. How much do you have to take out?

The basic formula:

Gross withdrawal = Spending need ÷ (1 − tax rate)

Money/CNN worked through it. Netting $40,000 from a Traditional IRA at a 24% rate takes a withdrawal of roughly $52,600. (Money/CNN)

On a $1M portfolio, that's a 5.26% withdrawal rate, well above 3.9%. Same lifestyle, much more pressure on the portfolio.

This is the trap. If your calculator asks what you spend each month and checks it against a 3.9% rule, it's comparing an after-tax number with a pre-tax benchmark. Unless most of your money is in Roth accounts, you're probably overstating what's safe.

Safe withdrawal rate and taxes don't stay flat over retirement

Almost every article on this topic picks one tax rate (22%, 24%, 25%) and applies it to every year. Real retirements don't work like that. Your tax rate tends to move in phases:

Phase 1: The gap years

You've stopped working, but Social Security and required minimum distributions (RMDs) haven't started. Your taxable income can be unusually low. Some retirees use these years for Roth conversions or to fill low tax brackets on purpose. Rob Berger and Humble Dollar both cover this timing in detail. (Rob Berger, Tax-Efficient Retirement Withdrawal Strategies; Humble Dollar, Timing Those Taxes)

Phase 2: Social Security starts

Benefits add income. Depending on your other withdrawals, part of your benefit can become taxable too.

Phase 3: RMDs take over

Once RMDs begin, the IRS decides how much leaves your Traditional accounts, whatever your plan says. BiggerPockets notes that RMDs go above 4% of the account between ages 74 and 75, and keep rising after that. (BiggerPockets, Retirement Withdrawal Rates, Longevity and RMD Taxes) You can check the percentage for any age against the IRS Uniform Lifetime Table in Publication 590-B.

So your withdrawal rate isn't really a choice by your mid-70s. And because it's all ordinary income, the tax rate on it can rise just when you'd like it to fall.

What that means for you: one flat tax rate can make the early years look worse than they are and the later years look better than they are. The average might look fine while the timing is wrong.

The hidden tax costs that shrink your real number

Income tax brackets are only part of it. Several other costs depend on your income, and none of them show up in a flat-rate calculation:

1. The Social Security "tax torpedo." An extra IRA withdrawal can make more of your benefit taxable, so each extra dollar gets taxed more heavily than your bracket suggests.
2. IRMAA. Higher-income Medicare enrollees pay surcharges on their premiums, and the surcharge depends on your income. A big withdrawal or Roth conversion in one year can raise Medicare costs later.
3. ACA subsidy cliffs. If you retire before Medicare, your health insurance subsidy depends on your income. Withdraw too much in one year and you can lose part or all of it.
4. NIIT. The 3.8% net investment income tax applies to investment income above certain income thresholds.

Health care is a big line item. Fidelity's 2025 Retiree Health Care Cost Estimate (July 2025) puts it at $172,500 for a 65-year-old retiring this year. That covers Medicare premiums, deductibles and prescriptions, and leaves out long-term care entirely. That's why the Monte Climb engine charges Medicare premiums and income-based surcharges year by year instead of using one flat guess.

Taxes and bad markets interact

Sequence risk means a bad run of returns early in retirement. That's what usually breaks a plan. Taxes change how much damage it does.

Kitces points out a timing effect. Sell taxable investments after they've dropped and your gains are smaller, so the tax bill is smaller. Sell after a strong run and you owe more. Your after-tax spending power isn't a fixed share of your withdrawal. It moves with the market.

That's why a single "3.9% minus 22%" calculation can't tell you whether your money lasts. It's a starting point, a theme Retirement Researcher covers in Why the 4% Rule Is a Starting Point, Not a Plan.

A Monte Carlo simulation tests the plan against the uncertainty instead. In plain terms, it runs your plan through many possible market futures, good and bad, in different orders, and counts how many stay funded. You get a probability, not a promise.

How to adjust your number

This is planning software talking, not personal advice. Your situation is your own. Still, a few principles show up across the research:

• Know your account mix. Add up roughly how much sits in Traditional, Roth and taxable accounts. That mix decides how much of a 3.9% withdrawal you actually keep.
• Plan with after-tax spending. Start from what you spend each month, then gross it up to find the real withdrawal.
• Include state tax. Early Retirement Now's example shows a 4% state tax alone takes a 4% withdrawal down to about 3.84%.
• Mark your RMD age. Know when the IRS starts setting part of your withdrawal for you.
• Look at the gap years. If you have low-income years before Social Security and RMDs, they may be worth planning around.
• Plan for a long life. The Social Security Administration estimates that about one in three 65-year-olds may live to 90 or beyond. Taxes on a 30-year retirement compound. Monte Climb plans run to age 95 by default for this reason, and you can extend them.
• Count health care costs separately. Don't fold them into a rounding error.

Run your own numbers

The 3.9% figure is a good benchmark. It isn't your number, and taxes are a big part of the gap between the two.

You can start with three numbers: your age, what you've saved, and what you spend each month. Monte Climb's retirement calculator runs them through 1,000 simulated futures and tells you how many stay funded. It runs in your browser, and nothing is saved until you say so. If you want to dig into sustainable spending or whether you can retire at 62, you can ask William, our AI planner. He shows his work.

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Frequently asked questions

Is the 4% rule (or 3.9% safe withdrawal rate) before or after taxes?

Before taxes. Both the classic 4% rule and Morningstar's 3.9% figure for 2026 measure how much money leaves your portfolio. They don't measure what you have left to spend after taxes. What you actually get depends on which accounts you withdraw from.

How much do I need to withdraw to net $40,000 a year after tax?

Divide what you need to spend by (1 minus your tax rate). Money/CNN's example shows that netting $40,000 from a Traditional IRA at a 24% tax rate takes a withdrawal of about $52,600. That's roughly a 5.26% withdrawal rate on a $1 million portfolio.

Do Roth withdrawals affect my safe withdrawal rate?

Qualified Roth withdrawals aren't taxed, so a 3.9% withdrawal from a Roth is 3.9% you can spend. Traditional withdrawals are taxed as ordinary income. With taxable brokerage accounts, only the gains are taxed. So your mix of accounts largely decides your real spending number.

When do required minimum distributions push withdrawals above 4%?

BiggerPockets notes that RMDs go above 4% of the account balance between ages 74 and 75, and they keep rising after that. You can check the percentage for each age against the IRS Uniform Lifetime Table in Publication 590-B.

What hidden taxes reduce what I can safely spend in retirement?

Beyond regular income tax brackets, the main ones are the Social Security 'tax torpedo' (extra withdrawals make more of your benefit taxable), IRMAA (Medicare premium surcharges for higher incomes), ACA subsidy cliffs for people who retire before Medicare, and the 3.8% net investment income tax. All of them depend on your income, so they can change from year to year.