Understanding the "How Long Will My Money Last" Calculator
This calculator is a crucial tool for financial planning, particularly for those relying on savings for retirement or other long-term financial goals. It helps you estimate how many years your accumulated savings will last, given a specific withdrawal rate and an assumed rate of return on your investments.
The Math Behind the Calculation
The calculation is based on an iterative process that simulates the growth and depletion of your savings year by year. It's an extension of the concept of perpetuity, but instead of an infinite duration, we're calculating a finite one.
Let:
S = Current Savings
W = Annual Withdrawal Amount
r = Annual Return Rate (as a decimal, e.g., 5% = 0.05)
Y = Number of Years the money will last
In each year, your savings are first subject to investment growth, and then the withdrawal is made. The calculation proceeds as follows:
Year 1: Remaining Savings = (S * (1 + r)) – W
Year 2: Remaining Savings = ((Year 1 Savings) * (1 + r)) – W
…and so on.
The calculator iterates this process until the remaining savings are less than or equal to zero. The total number of iterations represents the number of years the money will last.
Formulaic Approach (Approximation): While the year-by-year simulation is most accurate, a simplified approximation can be derived. If we assume no investment growth (r=0), then Y = S / W. When investment growth is considered, the duration can be extended. A more complex formula involving logarithms exists, but the iterative approach used by this calculator is generally preferred for its accuracy in reflecting real-world compounding.
When to Use This Calculator:
Retirement Planning: Estimate how long your retirement nest egg will last.
Financial Independence: Determine if you can support yourself on your savings before reaching traditional retirement age.
Lump Sum Investment: Calculate the withdrawal period for a specific investment made for a future need.
Scenario Analysis: Test different withdrawal rates or return assumptions to understand their impact on longevity.
Important Considerations:
Assumptions are Key: The accuracy of the result depends heavily on the assumed annual return rate and withdrawal amounts. Market volatility means returns are rarely consistent.
Inflation: This calculator does not inherently account for inflation. In reality, your withdrawal amount may need to increase each year to maintain purchasing power, which would shorten the duration. You can approximate this by increasing the "Annual Withdrawal Amount" in subsequent calculations.
Taxes: Investment gains and withdrawals may be subject to taxes, which are not factored into this basic calculation.
Lifespan Uncertainty: It's wise to plan for a longer duration than calculated to account for unexpected longevity.
Use this calculator as a guide to inform your financial strategy. It's recommended to consult with a qualified financial advisor for personalized advice.
function calculateDuration() {
var currentSavings = parseFloat(document.getElementById("currentSavings").value);
var annualWithdrawal = parseFloat(document.getElementById("annualWithdrawal").value);
var annualReturnRate = parseFloat(document.getElementById("annualReturnRate").value) / 100; // Convert percentage to decimal
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = "; // Clear previous results
resultDiv.className = "; // Reset class
// Input validation
if (isNaN(currentSavings) || isNaN(annualWithdrawal) || isNaN(annualReturnRate)) {
resultDiv.innerHTML = 'Please enter valid numbers for all fields.';
resultDiv.className = 'error';
return;
}
if (currentSavings <= 0) {
resultDiv.innerHTML = 'Current Savings must be greater than $0.';
resultDiv.className = 'error';
return;
}
if (annualWithdrawal currentSavings && annualReturnRate 0 && years < maxIterations) {
var growth = remainingSavings * annualReturnRate;
remainingSavings = remainingSavings + growth – annualWithdrawal;
years++;
// If after withdrawal, savings become negative but were positive before withdrawal this year
if (remainingSavings = maxIterations) {
resultDiv.innerHTML = 'Calculation exceeded maximum iterations. Check your inputs.';
resultDiv.className = 'error';
} else if (years === 0 && currentSavings > 0 && annualWithdrawal > 0) {
// This case handles if the first year's withdrawal depletes savings immediately or if withdrawal > initial savings * (1 + rate)
resultDiv.innerHTML = 'Your money will last less than 1 year.';
resultDiv.className = 'error';
}
else {
var durationText = years === 1 ? 'year' : 'years';
resultDiv.innerHTML = 'Your money is projected to last approximately ' + years + ' ' + durationText + '.';
}
}