There's A Little Bit of Good News for Americans Close to Retirement

Things are looking up for people who are close to retirement, according to a Morningstar report published Monday.

With the outlook improving for stocks and bonds next year, the percentage of a nest egg that retirees can safely start withdrawing from savings has increased to 3.8%, up from 3.3% in 2021, the report said. That may seem strange with inflation still high, recession fears growing, and many portfolios down double-digits this year. But with the market battered, there are better odds that future asset returns will improve, feeding into the rationale for a higher withdrawal rate.

Morningstar Investment Management’s 30-year return forecast for US large-cap growth stocks is now 9.65%, up from 6.25% in 2021. US investment-grade bonds are now expected to return about 4.5%, up from less than 3% in 2021’s return assumptions. The long-term inflation forecast has also risen, to 2.84% from 2.21% in 2021.

“The biggest lift to our withdrawal rate came from higher fixed-income yields and cash yields,” said Christine Benz, Morningstar’s director of personal finance.