Perpetual Withdrawal Rate Calculator

Perpetual Withdrawal Rate Calculator

Safe Perpetual Withdrawal Rate: –

Annual Income (Inflation-Adjusted): –

Monthly Income: –

function calculatePerpetualWithdrawal() { var portfolio = parseFloat(document.getElementById('portfolioValue').value); var returns = parseFloat(document.getElementById('returnRate').value) / 100; var inflation = parseFloat(document.getElementById('inflationRate').value) / 100; var fees = parseFloat(document.getElementById('fees').value) / 100; if (isNaN(portfolio) || isNaN(returns) || isNaN(inflation) || isNaN(fees)) { alert("Please enter valid numerical values."); return; } // The Perpetual Withdrawal Rate formula: PWR = Return – Inflation – Fees // This maintains the principal's purchasing power forever. var pwr = returns – inflation – fees; if (pwr <= 0) { document.getElementById('safeRateResult').innerHTML = "0.00% (Capital Erosion Likely)"; document.getElementById('annualIncomeResult').innerHTML = "$0.00"; document.getElementById('monthlyIncomeResult').innerHTML = "$0.00"; } else { var annualIncome = portfolio * pwr; var monthlyIncome = annualIncome / 12; document.getElementById('safeRateResult').innerHTML = (pwr * 100).toFixed(2) + "%"; document.getElementById('annualIncomeResult').innerHTML = "$" + annualIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('monthlyIncomeResult').innerHTML = "$" + monthlyIncome.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); } document.getElementById('pwr-results').style.display = 'block'; }

What is the Perpetual Withdrawal Rate (PWR)?

The Perpetual Withdrawal Rate (PWR) is the percentage of an investment portfolio that can be withdrawn annually while keeping the principal amount intact in real terms. Unlike the popular "4% Rule," which aims to make a portfolio last for 30 years, the PWR aims for the money to last indefinitely.

This calculation is critical for foundations, endowments, and retirees who wish to leave a legacy or live off interest alone without ever touching the "nest egg" itself. By accounting for inflation and fees, you ensure that the dollar amount you withdraw grows each year to match rising costs of living while the portfolio's purchasing power remain steady.

How the Perpetual Withdrawal Rate is Calculated

The math behind a sustainable, perpetual income stream is straightforward but requires honest estimates of market performance and economic conditions. The formula used in this calculator is:

PWR = Expected Annual Return – Annual Inflation Rate – Management Fees

Key Components of the Calculation

• Expected Annual Return: The average yield your portfolio generates through dividends, interest, and capital gains.
• Inflation Rate: Essential for maintaining purchasing power. If you don't reinvest a portion of your gains equal to inflation, your income will buy less every year.
• Management Fees: Often overlooked, expense ratios and advisor fees directly reduce your spendable income.

Perpetual vs. Safe Withdrawal Rate (SWR)

A Safe Withdrawal Rate (SWR) usually assumes you will slowly spend down your principal over a fixed period (like 30 years). A Perpetual Withdrawal Rate is more conservative because it treats the principal as "sacred." If your PWR is 3%, you are only spending the "excess" growth above inflation.

Example PWR Table

Return Rate	Inflation	Fees	Sustainable PWR
8.0% (Aggressive)	3.0%	0.5%	4.5%
6.0% (Moderate)	2.5%	0.2%	3.3%
4.0% (Conservative)	2.0%	0.1%	1.9%

Limitations to Consider

While the PWR math is solid, "Sequence of Returns Risk" is a factor. If the market drops significantly in your first year of retirement, withdrawing even a "perpetual" amount might damage the portfolio's ability to recover. Most experts recommend keeping a cash buffer of 1-2 years of expenses to avoid selling assets during a market downturn.