The Savings Drawdown Calculator is a crucial tool for financial planning, particularly for individuals in or approaching retirement. It helps estimate how long your savings will last given a series of regular withdrawals, an expected investment growth rate, and the impact of inflation. This calculator assists in understanding the sustainability of your financial strategy and making informed decisions about your spending and investment approach.
How it Works: The Math Behind the Calculation
This calculator models the future value of your savings, accounting for both investment growth and the depletion caused by withdrawals. It iteratively simulates each withdrawal period (year, half-year, quarter, or month) to determine when the savings balance reaches zero or below.
The core logic involves adjusting the savings balance at each interval. Let's define:
`S_0`: Initial Savings Amount
`W`: Annual Withdrawal Amount
`r`: Expected Annual Investment Return Rate (as a decimal)
`i`: Expected Annual Inflation Rate (as a decimal)
`n`: Number of withdrawal periods per year (based on frequency)
At each withdrawal period, the calculation involves:
Calculate the withdrawal for the period: This is the annual withdrawal divided by the number of periods per year (`W / n`).
Calculate the inflation-adjusted withdrawal for the period: Since withdrawals are usually assumed to increase with inflation each year, the withdrawal amount for each subsequent period needs adjustment. However, for simplicity in this iterative model, we calculate the effective period withdrawal considering inflation and growth.
Calculate the effective return for the period: The growth rate per period is `(1 + r)^(1/n) – 1`.
Calculate the inflation adjustment for the period: The inflation rate per period is `(1 + i)^(1/n) – 1`.
Update the Savings Balance: The balance at the end of a period (`S_t+1`) is calculated from the balance at the start of the period (`S_t`) as follows:
A more precise way to model inflation is to increase the *annual* withdrawal amount each year. The calculator uses a simplified iterative approach that approximates this effect within each period.
The calculator continues this process, incrementing the year count until the savings balance (`S_t`) is no longer sufficient to cover the next withdrawal period's amount. The result is the total number of full years the savings are projected to last.
Use Cases
Retirement Planning: Estimate how long retirement savings will sustain your lifestyle.
Financial Goal Setting: Determine if your current savings are adequate for future financial needs.
Investment Strategy Evaluation: Understand how different return rates impact the longevity of your portfolio.
Withdrawal Strategy Optimization: Test the effect of varying withdrawal amounts or frequencies on your savings' lifespan.
Scenario Planning: Simulate outcomes under different economic conditions (e.g., varying inflation or return rates).
Important Considerations
Assumptions: The accuracy of the projection heavily relies on the accuracy of the input assumptions (return rates, inflation, withdrawal amounts). These are estimates and actual market performance can vary significantly.
Taxes and Fees: This calculator does not account for taxes on investment gains or withdrawal fees, which can reduce the actual amount available and shorten the savings' lifespan.
Variable Expenses: Actual living expenses can fluctuate and may not perfectly align with the assumed constant inflation rate.
Longevity Risk: It's prudent to plan for living longer than the projected duration by maintaining a buffer or a flexible financial plan.
function calculateDrawdown() {
var initialSavings = parseFloat(document.getElementById("initialSavings").value);
var annualWithdrawal = parseFloat(document.getElementById("annualWithdrawal").value);
var annualReturnRate = parseFloat(document.getElementById("annualReturnRate").value) / 100; // Convert to decimal
var inflationRate = parseFloat(document.getElementById("inflationRate").value) / 100; // Convert to decimal
var drawdownFrequency = parseInt(document.getElementById("drawdownFrequency").value);
// Validate inputs
if (isNaN(initialSavings) || initialSavings <= 0 ||
isNaN(annualWithdrawal) || annualWithdrawal <= 0 ||
isNaN(annualReturnRate) || annualReturnRate < -1 || // Allow negative returns up to -100%
isNaN(inflationRate) || inflationRate < -1 || // Allow negative inflation
isNaN(drawdownFrequency) || drawdownFrequency currentSavings * (1 + periodReturnRate)) {
document.getElementById("longevityResult").textContent = "Savings depleted immediately";
return;
}
while (currentSavings > 0) {
var totalWithdrawalThisPeriod = 0;
var adjustedWithdrawal = periodWithdrawal; // Start with the base withdrawal for the first period
for (var i = 0; i < drawdownFrequency; i++) {
// Calculate the effective withdrawal for this specific period, considering inflation from the start of the year
var currentPeriodWithdrawal = periodWithdrawal * Math.pow(1 + inflationRate, years + i/drawdownFrequency);
if (currentSavings <= currentPeriodWithdrawal) {
currentSavings = 0;
break; // Savings are depleted mid-year
}
currentSavings -= currentPeriodWithdrawal;
currentSavings *= (1 + periodReturnRate);
}
if (currentSavings 500) {
document.getElementById("longevityResult").textContent = "Calculation limit reached";
return;
}
}
document.getElementById("longevityResult").textContent = years + " years";
}