What is CAPE in simple terms?

CAPE is the stock market's price divided by its 10-year average inflation-adjusted earnings. It measures whether stocks are cheap or expensive relative to their long-run earnings power. Higher CAPE = more expensive = lower forward returns historically.

What's the CAPE ratio today?

As of 2026, the Shiller CAPE for the S&P 500 is approximately 33-35, compared to a long-run median of about 17. This is historically high, though not quite at the 1999-2000 peak of ~44.

Should I delay retirement because of today's high CAPE?

Not necessarily. A better response is to adjust your withdrawal rate down (use 3.25-3.5% instead of 4%), add a cash buffer for sequence risk, or adopt a dynamic strategy like Guyton-Klinger Guardrails. Delaying is one option among several.

Does CAPE predict crashes?

No. CAPE predicts forward 10-year returns reasonably well but is nearly useless for short-term timing. A high CAPE doesn't mean a crash is coming next year; it means the next decade's returns will probably be below average.

WADE PFAU

CAPE-Based Withdrawal: Adjusting Your Safe Rate for Market Valuations

High stock-market valuations predict lower forward returns — and lower safe withdrawal rates. CAPE-based withdrawal adjusts your SWR based on the Shiller CAPE ratio at retirement.

Primary author

Wade Pfau

Input metric

Shiller CAPE ratio

Current CAPE (2026)

~33–35

Historical median

~17

How It Works

The CAPE ratio (Cyclically Adjusted Price-to-Earnings, developed by Yale economist Robert Shiller) is the S&P 500 price divided by its 10-year average inflation-adjusted earnings. Unlike a standard P/E ratio, CAPE smooths out business-cycle earnings volatility. Historically, high CAPE readings at retirement have predicted lower forward 10-year real returns, which in turn suggest lower safe withdrawal rates. Wade Pfau's 2012 paper with Michael Kitces and David Blanchett operationalized this: instead of a fixed 4%, your safe rate becomes a function of starting CAPE. At CAPE 17 (median), use ~4.5%. At CAPE 25, use ~4.0%. At CAPE 35 (today), use ~3.25%. The formula is roughly: SWR ≈ 1.75% + 50% × (1/CAPE earnings yield).

Where It Came From

Robert Shiller's CAPE ratio has been published since 1988 and is one of the most studied valuation metrics in financial economics. Pfau's research in the 2010s connected CAPE to safe withdrawal rates by testing historical outcomes: retirees whose retirement start coincided with high CAPE readings (1929, 1966, 2000) experienced markedly worse sequences of returns than those who started at low CAPE readings (1982, 2009). The 4% rule's historical success came in part from being tested across retirement start dates with varying CAPEs, but high-CAPE starts had significantly lower actual realized SWRs.

Where It Breaks

CAPE-based withdrawal is contested. Critics argue: (1) CAPE has been elevated for 20+ years without the predicted reversion, suggesting structural changes (tech earnings quality, share buybacks, international diversification) that may permanently elevate the ratio, (2) CAPE only measures US large-cap valuation — retirees with globally diversified portfolios face different risks, (3) the correlation between CAPE and forward 10-year returns is real but wide (explains ~40% of variation), meaning any single CAPE reading gives only a rough signal, and (4) CAPE is a point-estimate — a retiree shouldn't drastically change strategy based on which specific day they retire. That said, at today's CAPE near all-time highs (excluding 1999-2000), most serious retirement researchers accept that forward returns will probably be below the historical 7% real average, and that initial SWRs above 4% face elevated risk.

Worked Examples

Low-CAPE retirement (1982)

Setup: CAPE ~8 at retirement (S&P 500 at 30-year low valuations)

CAPE-based SWR: ~5.5%. Actual historical SWR for 1982 retiree: >7%.

High-CAPE retirement (2000)

Setup: CAPE ~44 at retirement (dot-com peak)

CAPE-based SWR: ~3.0%. 2000 retirees using 4% had failure rates in Monte Carlo simulations >30%.

Today's environment (2026)

Setup: CAPE ~33–35 at retirement

CAPE-based SWR: ~3.25-3.5%. Notably below Bengen's 4%, consistent with most current academic research.

Run Your Own Numbers

Put the math behind CAPE-Based Withdrawal to work with your own portfolio, spending, and time horizon.

Open Safe Withdrawal Rate Calculator

Research Citations

“CAPE predicts forward 10-year returns” — Shiller, various works; Asness et al.
“CAPE-adjusted SWR framework” — Pfau, Finke, Blanchett (2012), 'An International Perspective on Safe Withdrawal Rates'
“High CAPE starts historically had lower realized SWRs” — Kitces, 'Dynamic Withdrawal Strategies', 2013

Related Strategies

SAFE WITHDRAWAL RATE

The 4% Rule

SWR RESEARCH

Safe Withdrawal Rate by Age

RETIREMENT RISK

Sequence of Returns Risk

ADAPTIVE WITHDRAWAL

Dynamic Withdrawal Strategies

Sources

Pfau & Kitces (2013), 'Reducing Retirement Risk with a Rising Equity Glidepath', Journal of Financial Planning (accessed 2026-04-17)
Bengen (1994), 'Determining Withdrawal Rates Using Historical Data', Journal of Financial Planning (accessed 2026-04-17)
Bogleheads Wiki — Safe Withdrawal Rates (accessed 2026-04-17)

Last verified: 2026-04-17

Educational content only — not individual investment advice. Retirement planning involves significant uncertainty. Consult a qualified fiduciary advisor before acting on any strategy.