The best (and worst countries) for retirement

If you’ve been following my blog posts, you’ll be aware of the concept of the safe withdrawal rate.

The safe withdrawal rate is the percentage of your portfolio, which you can withdraw in the first year of your retirement. You can start by withdrawing this amount, and increase it in line with inflation every year, without the risk of exhausting your retirement portfolio.

You’ll find plenty of references to the 4% rule in the UK. But the 4% rule applies only in the USA; in the UK, if you had used 4% as your starting withdrawal rate, the probability of running out of money within 30 years would have been 23%.

However, the UK’s safe withdrawal rate is pretty good, compared to most other countries. Research by Dr Wade Pfau looked into safe withdrawal rates around the world.

It turns out that Canada was the best place for retirement since records began – with the highest safe withdrawal rate.

Canada has not only experienced good investment returns, but it has also managed to avoid high levels of inflation.

Sweden, New Zealand, Denmark and the USA are only just behind Canada.

Where were the worst places to retire, on this basis? Japan, Austria, Germany and France.

In Austria, the safe withdrawal rate is just 0.07%! So, if you started with £100,000, the safe withdrawal amount in year one was £70!

This meagre safe withdrawal rate was the result of hyperinflation following the first world war, as well as poor asset returns.

In Japan, if you retired in 1937, you would have run out of money unless your starting withdrawal rate was 0.27% or less. There does seem to be a correlation between losing a world war and a low safe withdrawal rate.

The safe withdrawal research assumes that you invest half of your money in local shares and the other half in domestic fixed interest stock. In a globalised world, it would be unusual to invest simply in UK shares and fixed interest stock, and returns from worldwide assets have more significance.

Interestingly, a portfolio of global shares and fixed interest stock produces a higher safe withdrawal rate than a portfolio of UK investments.

One of the conclusions from the research is that domestic inflation is as important (or maybe more important) for the success of your retirement income strategy as the return from investments.

Higher safe withdrawal rates correlate with countries that have avoided hyperinflation.

If you want to maximise the amounts you can withdraw from your portfolio, the research tells us that you should live in a country which controls inflation…and avoids being on the losing side of a world war!

It turns out that Canada was the best place for retirement since records began – with the highest safe withdrawal rate. Share on X