Retirement Withdrawal Rate Calculator
Understanding Your Retirement Withdrawal Rate
A retirement withdrawal rate is the percentage of your total savings you take out each year to cover living expenses. Getting this number right is the difference between a comfortable retirement and the risk of outliving your assets. Traditionally, many financial planners point to the "4% Rule" as a starting point for sustainability.
The Impact of Inflation and Returns
Your withdrawal rate doesn't exist in a vacuum. To maintain your purchasing power, you typically need to increase your dollar withdrawal amount each year to match inflation. Simultaneously, your remaining balance continues to earn returns in the market. This calculator factors in both variables to estimate the longevity of your portfolio.
Example Calculation
If you have $500,000 in savings and plan to withdraw $25,000 per year:
- Initial Withdrawal Rate: ($25,000 / $500,000) = 5.0%
- Impact: If your investments return 7% and inflation is 3%, your portfolio may last approximately 33 years.
- Assessment: A 5% rate is slightly aggressive but potentially sustainable depending on market conditions and life expectancy.
What is a "Safe" Withdrawal Rate?
While the 4% rule is famous, modern research suggests that "safe" rates can fluctuate between 3.3% and 5% depending on your asset allocation (stocks vs. bonds) and the current economic climate. If your withdrawal rate exceeds 6%, you face a significantly higher risk of portfolio exhaustion within 20 years.