Retirement Withdrawal Calculator
Plan your retirement income by calculating a sustainable withdrawal rate from your savings. Explore strategies like the 4% rule.
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Strategizing Your Retirement Withdrawals
One of the most critical questions in retirement planning is: "How much can I safely withdraw from my savings each year?" A withdrawal strategy aims to provide you with a steady income stream throughout your retirement without depleting your funds too early. This calculator helps you explore how different withdrawal rates might affect the longevity of your nest egg.
The "4% Rule" and Withdrawal Strategies
A well-known guideline in retirement planning is the "4% Rule." This rule suggests that you can safely withdraw 4% of your initial retirement portfolio in your first year of retirement, and then adjust that amount for inflation each subsequent year. For example, if you retire with $1,000,000, your first-year withdrawal would be $40,000. If inflation is 3% the next year, your second-year withdrawal would be $41,200 ($40,000 * 1.03).
The 4% rule was based on historical market data and was intended to give a portfolio a high probability of lasting for at least 30 years. Our calculator uses a similar principle to project your portfolio's longevity.
How the Calculation Works
This calculator runs a year-by-year simulation to see how your savings might last:
- Initial Withdrawal: It calculates your first year's withdrawal amount based on your total savings and chosen withdrawal rate.
- Annual Cycle: For each year of your planned retirement, it does the following:
- Subtracts the inflation-adjusted withdrawal amount from your balance.
- If the balance is depleted, the simulation stops.
- If funds remain, it applies a simulated annual investment return to the remaining balance.
- It increases the next year's withdrawal amount to account for inflation.
- Result: The calculator reports whether your funds are projected to last for the entire retirement duration based on these assumptions.
Disclaimer: This is a simplified model. It assumes constant rates for investment returns and inflation, which in reality, fluctuate year to year. It is an educational tool, not a guarantee of future outcomes.
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