Calculator Use
This how long will my money last calculator is designed to help retirees, investors, and savers determine the longevity of their capital when subjected to regular withdrawals. By accounting for investment returns and the erosive effects of inflation, you can estimate how many years and months your nest egg will provide financial support.
Planning for the future requires understanding the delicate balance between your principal balance, your spending needs, and market performance. This tool allows you to simulate various "what-if" scenarios to ensure your retirement strategy is sustainable.
- Current Savings Balance
- The total amount of money you currently have available to draw from (e.g., 401k, IRA, or brokerage account).
- Withdrawal Amount
- The amount you plan to take out of the account per period (monthly or annually).
- Annual Return Rate
- The expected average annual percentage growth of your investments.
- Annual Inflation Rate
- The rate at which you expect the cost of living to rise. This calculator increases your withdrawal amount by this percentage each period to maintain purchasing power.
How It Works
The calculator uses a chronological compounding method. Each period (month or year), the following logic is applied:
- Calculate Interest: The current balance is multiplied by the periodic interest rate.
- Add Growth: The interest is added to the principal balance.
- Subtract Withdrawal: The scheduled withdrawal amount is removed from the balance.
- Adjust for Inflation: The withdrawal amount for the next period is increased by the periodic inflation rate.
Ending Balance = (Beginning Balance × (1 + r)) – W
Where r = periodic return and W = inflation-adjusted withdrawal
Calculation Example
Example Scenario: A retiree has $500,000 saved. They want to withdraw $2,500 per month. They expect a 6% annual return and expect inflation to be 3% per year.
Step-by-step breakdown:
- Principal: $500,000
- Monthly Interest: 6% / 12 = 0.5% (or 0.005)
- Month 1: ($500,000 * 1.005) – $2,500 = $500,000
- Month 2: The withdrawal increases slightly due to inflation (approx. $2,506).
- Result: In this specific scenario, because the interest earned ($2,500) equals the initial withdrawal, the money lasts significantly longer, but inflation eventually causes the withdrawals to exceed the growth, depleting the fund in approximately 26 years.
Common Questions
What is a safe withdrawal rate?
Many financial planners point to the "4% Rule," which suggests that withdrawing 4% of your initial portfolio value in the first year of retirement, and adjusting that amount for inflation thereafter, gives you a high probability of your money lasting 30 years.
Why does inflation matter so much?
Inflation reduces your purchasing power. If you withdraw a flat $2,000 every month for 20 years, that $2,000 will buy significantly less in year 20 than it did in year 1. This how long will my money last calculator factors this in by increasing your withdrawals so your lifestyle stays the same.
What if my return rate is higher than my withdrawal rate?
If your investments grow faster than the amount you take out (even after inflation), your balance will theoretically grow forever. This is the foundation of "generational wealth." If the calculator detects this, it will inform you that your money will last more than 100 years.