This is the estimated number of years until your savings are depleted, factoring in both investment returns and inflation-adjusted withdrawals.
Understanding the Savings Drawdown Calculator
The Savings Drawdown Calculator is an essential tool for anyone planning to rely on their savings during retirement or for any extended period. It helps you estimate how long your invested capital will last, considering regular withdrawals, investment growth, and the erosive effect of inflation.
Key Inputs and Their Importance:
Initial Savings Amount: This is the total sum of money you have available to draw from at the start of your drawdown period.
Desired Annual Withdrawal: The amount you plan to withdraw from your savings each year. This is often based on your estimated living expenses.
Assumed Annual Return Rate (%): This represents the average annual percentage return you expect your investments to generate. It's crucial to use a realistic and conservative estimate.
Assumed Annual Inflation Rate (%): Inflation reduces the purchasing power of money over time. This input accounts for how the cost of living is expected to increase, necessitating higher withdrawals in the future.
How the Calculation Works:
The calculator performs a year-by-year simulation to estimate the longevity of your savings. Here's a simplified overview:
Initial Setup: The calculator starts with your Initial Savings Amount.
Year 1 Calculation:
The savings grow by the Assumed Annual Return Rate.
The Desired Annual Withdrawal is taken out.
The remaining amount is the starting balance for Year 2.
Subsequent Years (Considering Inflation): For each subsequent year, the calculator does the following:
Calculate Adjusted Withdrawal: The previous year's withdrawal is increased by the Assumed Annual Inflation Rate. This ensures your withdrawal maintains its purchasing power. The formula is:
Adjusted Withdrawal = Previous Year's Withdrawal * (1 + Inflation Rate / 100)
Apply Return: The current savings balance grows by the Assumed Annual Return Rate.
Balance After Return = Current Balance * (1 + Return Rate / 100)
Subtract Adjusted Withdrawal: The calculated adjusted withdrawal is subtracted from the balance.
New Balance = Balance After Return - Adjusted Withdrawal
Check for Depletion: If the New Balance becomes zero or negative, the savings are considered depleted. The number of years this process took is the result.
Retirement Planning: Crucial for estimating how long retirement funds will last.
Financial Independence: Helps assess sustainability for those living off investments.
Scenario Planning: Allows you to test different withdrawal amounts, return rates, or inflation assumptions to understand potential outcomes.
Investment Strategy: Informs decisions about portfolio risk and asset allocation based on required returns.
Disclaimer: This calculator provides an estimate based on the inputs provided. Actual investment returns and inflation rates can vary significantly. It is recommended to consult with a qualified financial advisor for personalized financial planning.
function calculateDrawdown() {
var initialSavings = parseFloat(document.getElementById("initialSavings").value);
var annualWithdrawal = parseFloat(document.getElementById("annualWithdrawal").value);
var annualReturnRate = parseFloat(document.getElementById("annualReturnRate").value) / 100;
var inflationRate = parseFloat(document.getElementById("inflationRate").value) / 100;
// Input validation
if (isNaN(initialSavings) || initialSavings <= 0 ||
isNaN(annualWithdrawal) || annualWithdrawal initialSavings && annualReturnRate 0) {
// Calculate growth
currentBalance = currentBalance * (1 + annualReturnRate);
// Calculate adjusted withdrawal for the current year
// For the first year, it's the desired withdrawal. For subsequent years, it's inflated.
if (years === 0) {
tempAdjustedWithdrawal = annualWithdrawal;
} else {
tempAdjustedWithdrawal = tempAdjustedWithdrawal * (1 + inflationRate);
}
// Check if withdrawal exceeds balance, even with growth
if (tempAdjustedWithdrawal > currentBalance) {
// Savings will be depleted this year
currentBalance = 0; // Mark as depleted
years++; // Count this year
break;
}
// Subtract withdrawal
currentBalance = currentBalance – tempAdjustedWithdrawal;
years++;
// Safety break to prevent infinite loops in edge cases
if (years > 500) {
document.getElementById("drawdownResult").innerText = "Calculation exceeded limit";
document.getElementById("adjustedWithdrawalResult").innerText = "N/A";
document.getElementById("yearsResult").innerText = "N/A";
return;
}
}
// Display results
// The calculation above finds the number of years until depletion.
// For drawdownResult, we display the last ACTUAL withdrawal amount.
// For yearsResult, we display the total number of years calculated.
document.getElementById("drawdownResult").innerText = "$" + annualWithdrawal.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("adjustedWithdrawalResult").innerText = "$" + tempAdjustedWithdrawal.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById("yearsResult").innerText = years.toString();
}