Understanding the Withdrawal Calculator
A withdrawal calculator helps retirees and savers figure out how long a nest egg will last, or how much they can safely take out each year without running out of money. It balances your starting balance, expected return, inflation, and withdrawal amount to project the lifespan of your savings.
The 4% rule and its limits
A widely cited guideline suggests withdrawing about 4% of your portfolio in the first year of retirement, then adjusting that amount for inflation each year, as a starting point for a 30-year retirement. It is a rule of thumb, not a guarantee — market downturns early in retirement, longer lifespans, and changing spending needs can all require adjustments.
Sequence of returns risk
When you are withdrawing rather than contributing, the order of investment returns matters enormously. A few bad years right after you retire can permanently shrink your portfolio because you are selling assets while they are down. Keeping a cash buffer and staying flexible with withdrawals in weak years helps protect against this risk.
Tips & things to know
- •Treat any withdrawal rate as a starting point, then adjust to real conditions.
- •Keep one to two years of expenses in cash to avoid selling in a downturn.
- •Revisit your plan annually as markets and spending change.