Retirement Safe Withdrawal Rate Calculator
Determine how long your nest egg will last based on your spending and market expectations.
How to Calculate Your Safe Withdrawal Rate
Planning for retirement requires more than just a savings goal; it requires a strategy for how you will spend that money over several decades. This calculator uses a year-by-year simulation to account for how your portfolio grows through investments while simultaneously being depleted by spending and eroded by inflation.
The 4% Rule Explained
The "4% Rule" is a common benchmark in retirement planning. It suggests that if you withdraw 4% of your portfolio in the first year of retirement and adjust that dollar amount for inflation every year thereafter, your money should last for at least 30 years. For example, on a $1,000,000 portfolio, you would withdraw $40,000 in year one.
If you have $500,000 saved and plan to spend $25,000 per year with a 6% return and 3% inflation:
– Your initial withdrawal rate is 5%.
– Your money is projected to last approximately 29 years.
– By year 20, you will need to withdraw roughly $45,150 just to maintain the same purchasing power you had on day one.
Key Factors in Retirement Longevity
- Sequence of Returns Risk: While we use a flat annual return rate here, the market fluctuates. Bad returns in the first few years of retirement can significantly shorten your portfolio's life.
- Inflation: This is the "silent killer" of retirement. Even a modest 3% inflation rate doubles the cost of living roughly every 24 years.
- Asset Allocation: A portfolio heavily weighted in stocks may offer higher returns but comes with higher volatility compared to bonds or cash.
How to Use This Calculator
To get the most accurate result, enter your total investable assets (excluding your primary home). For the withdrawal amount, include your expected annual expenses minus any guaranteed income like Social Security or pensions. If you expect a conservative market, use a lower return rate (e.g., 4-5%) to see a "worst-case" scenario.