Retirement Withdrawal Rate Calculator
Determine the sustainability of your annual retirement spending.
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What is the Retirement Withdrawal Rate?
The retirement withdrawal rate is the percentage of your total nest egg that you take out each year to cover living expenses. It is one of the most critical factors in determining how long your money will last. If you withdraw too much, you risk running out of funds; if you withdraw too little, you may unnecessarily limit your lifestyle.
The 4% Rule Explained
The "4% Rule" is a popular benchmark in retirement planning. Originating from the Trinity Study, it suggests that a retiree can withdraw 4% of their initial portfolio value in the first year and adjust that amount for inflation every year thereafter, with a high probability that the money will last for at least 30 years.
Calculation Example:
If you have $1,200,000 in retirement savings and you plan to spend $48,000 per year:
Formula: ($48,000 / $1,200,000) x 100 = 4.0%
This is generally considered a "Safe" withdrawal rate according to historical standards.
If you have $1,200,000 in retirement savings and you plan to spend $48,000 per year:
Formula: ($48,000 / $1,200,000) x 100 = 4.0%
This is generally considered a "Safe" withdrawal rate according to historical standards.
Interpreting Your Results
- Under 3.5%: Conservative. Highly likely that your portfolio will grow over time or withstand significant market downturns.
- 3.5% to 4.5%: Standard/Moderate. This aligns with the "Safe Withdrawal Rate" theory for a balanced portfolio of stocks and bonds.
- 4.5% to 5.5%: Aggressive. You may need to adjust spending if the market performs poorly for several years.
- Over 5.5%: High Risk. There is a significant chance of depleting your principal balance prematurely, especially during long retirement periods.
Key Factors Influencing Your Rate
Your ideal rate depends on several variables that this simple calculator doesn't see:
- Asset Allocation: A portfolio heavy in stocks may support a higher rate but with more volatility.
- Inflation: High inflation requires increasing your dollar withdrawal amount just to maintain the same purchasing power.
- Longevity: If you retire at 40 (FIRE movement), you likely need a lower withdrawal rate (3% or less) than someone retiring at 70.
- Flexibility: If you can reduce spending during "bad" market years, you can safely start with a slightly higher initial rate.