An Investment Drawdown Calculator is a financial tool designed to help investors understand how long their investment portfolio might last when they begin withdrawing funds, considering regular withdrawals, investment growth, and inflation (though this simplified version focuses on growth and withdrawals). It's crucial for retirement planning, managing passive income streams, or any situation where you need to systematically reduce an investment's principal.
How it Works: The Math Behind Drawdowns
The calculator projects the future value of your investment over time, taking into account both the money you withdraw and the growth your remaining capital generates. The core principle is to simulate year by year how your portfolio's value changes.
The calculation for each year typically follows these steps:
Starting Balance: The value of the investment at the beginning of the year.
Investment Growth: The starting balance is increased by the average annual investment growth rate.
Growth Amount = Starting Balance * (Annual Investment Growth Rate / 100)
Balance After Growth: Balance After Growth = Starting Balance + Growth Amount
Withdrawal Amount: The predetermined amount withdrawn for the year.
Withdrawal Amount = Balance After Growth * (Annual Withdrawal Rate / 100)
Ending Balance: The remaining value after withdrawal.
Ending Balance = Balance After Growth - Withdrawal Amount
This process is repeated for the specified number of years. The calculator's output often shows the portfolio's remaining value after the specified period, or it can be adapted to show how many years the portfolio can sustain withdrawals before depletion.
Key Inputs Explained:
Initial Investment Amount: The total capital you have at the start of the drawdown period.
Annual Withdrawal Rate: The percentage of the *initial* investment amount you plan to withdraw each year. Some calculators might use a fixed annual withdrawal amount, but a rate helps adjust for the initial size of the portfolio. For simplicity and common usage, this calculator uses a fixed *percentage of the initial investment* as the annual withdrawal amount.
Average Annual Investment Growth Rate: The expected average rate of return your investments will generate each year. This is a crucial assumption and should be realistic, considering market volatility.
Number of Years for Drawdown: The planned duration over which you intend to draw funds from your investment.
Use Cases:
Retirement Planning: Estimating how long retirement savings will last.
Financial Independence: Projecting the sustainability of income from an investment portfolio.
Lump Sum Management: Determining the longevity of a large sum intended for gradual use.
Scenario Analysis: Testing the impact of different withdrawal rates or growth assumptions on portfolio longevity.
Disclaimer: This calculator provides an estimate for informational purposes only. It does not account for taxes, fees, inflation, or unexpected market fluctuations. Consult with a qualified financial advisor before making any investment decisions.
function calculateDrawdown() {
var initialInvestment = parseFloat(document.getElementById("initialInvestment").value);
var annualWithdrawalRate = parseFloat(document.getElementById("annualWithdrawalRate").value);
var annualInvestmentGrowth = parseFloat(document.getElementById("annualInvestmentGrowth").value);
var withdrawalPeriod = parseInt(document.getElementById("withdrawalPeriod").value);
var resultDiv = document.getElementById("result");
// Input validation
if (isNaN(initialInvestment) || initialInvestment <= 0) {
resultDiv.innerHTML = "Please enter a valid initial investment amount greater than 0.";
return;
}
if (isNaN(annualWithdrawalRate) || annualWithdrawalRate < 0) {
resultDiv.innerHTML = "Please enter a valid annual withdrawal rate (0% or higher).";
return;
}
if (isNaN(annualInvestmentGrowth) || annualInvestmentGrowth < -100) {
resultDiv.innerHTML = "Please enter a valid average annual investment growth rate.";
return;
}
if (isNaN(withdrawalPeriod) || withdrawalPeriod <= 0) {
resultDiv.innerHTML = "Please enter a valid number of years for the drawdown period (greater than 0).";
return;
}
var currentBalance = initialInvestment;
var withdrawalAmount = initialInvestment * (annualWithdrawalRate / 100); // Calculate fixed annual withdrawal amount based on initial investment
if (withdrawalAmount <= 0) {
resultDiv.innerHTML = "Annual withdrawal amount is zero or negative. No drawdown possible.";
return;
}
for (var year = 1; year <= withdrawalPeriod; year++) {
// Growth phase
currentBalance = currentBalance * (1 + (annualInvestmentGrowth / 100));
// Withdrawal phase
currentBalance = currentBalance – withdrawalAmount;
// Check if portfolio is depleted
if (currentBalance < 0) {
currentBalance = 0; // Portfolio is depleted
resultDiv.innerHTML = "Portfolio depleted before " + year + " years.";
resultDiv.innerHTML += "Remaining balance after " + (year – 1) + " years: $" + (initialInvestment * (1 + (annualInvestmentGrowth / 100)) * (year – 1) – withdrawalAmount * (year – 1)).toFixed(2) + " (approximate)";
return;
}
}
resultDiv.innerHTML = "$" + currentBalance.toFixed(2) + " Remaining after " + withdrawalPeriod + " years";
}