How to use the withdrawal calculator
The Withdrawal plan tool tests a plan at one steady return:
- Starting balance and years in retirement, typically 30 for someone retiring in their mid-60s, longer for early retirees.
- Withdrawal method. Fixed % + inflation takes a percentage of the starting balance in year 1 and then raises that dollar amount with inflation: the 4% rule. % of current balance takes the percentage from whatever the balance is each year. Fixed dollar amount takes the same number of dollars every year.
- Rate or amount, the expected return after fees, and inflation.
The Sequence risk tool takes a list of yearly returns, runs the inflation-adjusted plan through them in the order entered and in reverse, and compares the results. The example list has a crash in its first two years. Paste any sequence you want to test, such as returns from a historical period.
How the calculation works
Each year the withdrawal comes out at the start of the year, and the rest earns that year’s return:
Fixed % + inflation: Wt = w × B0 × (1 + π)t
% of current balance: Wt = w × Balancet
Fixed dollar: Wt = AB0 is the starting balance, w the withdrawal rate, π inflation, A the fixed amount and rt the return in year t (t = 0 in the first year). The plan fails in the first year the balance cannot cover the full withdrawal.
The highest withdrawal that lasts exactly the chosen number of years, at a steady return r, sets the present value of all withdrawals equal to the balance:
A worked example
You retire with $1,000,000 and follow the 4% rule: a first withdrawal of $40,000, raised by 2.5% a year. The portfolio earns a steady 6%.
The money lasts all 30 years. By the final year the withdrawal has grown to $81,856, which buys the same as $40,000 today. You take out $1,756,108 in total and still have $1,326,715 at the end, worth $632,502 in today’s dollars. At this steady return, you could have started as high as $52,015 (5.20%) and still lasted 30 years.
Sequence risk. Now feed the same plan the 30 returns in the example list, which average 7.33%. In the order entered, with the crash first, the money runs out in year 26. Reversed, with the crash at the end, it finishes with $3,729,929. Without withdrawals, both orders would end at exactly $7,589,303.
Comparing the three methods
At the same 4% starting rate and 6% return:
| Method | Final balance | Last withdrawal (today’s $) | Smallest withdrawal (today’s $) |
|---|---|---|---|
| Fixed % + inflation | $1,326,715 | $40,000 | $40,000 |
| % of current balance | $1,687,769 | $32,419 | $32,419 |
| Fixed dollar amount | $2,391,424 | $19,546 | $19,546 |
The inflation-adjusted method keeps your spending power constant, which is what most retirees want, but it is the only one of the three that can fail outright when returns disappoint. The percentage method can never empty the account, because it always takes a share of what is left; the price is income that falls with the market, and with a return only modestly above the withdrawal rate it shrinks in real terms over time. The fixed-dollar method feels steady but quietly cuts your real income every year.
How much the starting rate matters
| First-year rate | Money lasts? | Final balance |
|---|---|---|
| 3% | Yes, all 30 years | $2,430,909 |
| 4% | Yes, all 30 years | $1,326,715 |
| 5% | Yes, all 30 years | $222,521 |
| 6% | No, runs out in year 24 | $0 |
With a steady return every year the arithmetic is forgiving. A lower return changes the picture: at 4%, the 4% plan only just lasts the full 30 years, ending with $65,629. Real portfolios do not earn a steady return, which is where sequence risk comes in.
Sequence-of-returns risk
When you are saving, the order of returns does not change where you end up: multiplication gives the same product in any order. When you are withdrawing, it does. Each withdrawal after a loss sells more of the portfolio at a low price, and the money sold is no longer there when markets recover. A crash in year 2 does far more damage than the same crash in year 28, when the balance is smaller and most withdrawals are already behind you.
The example shows the effect at different withdrawal rates. At 3%, the crash-first order ends with $1,536,160 against $4,694,772 for the reverse. At 5%, the crash-first order runs out in year 17. The average return is the same in every case; only the timing changes.
This is why the first five to ten years of retirement carry most of the risk, and why research on safe withdrawal rates focuses on the worst starting years rather than on average returns. Bengen’s 1994 work built the 4% guideline around the retirees who started just before poor markets. The Trinity study, published in 1998 by three professors at Trinity University, ran similar historical tests across different withdrawal rates, stock and bond mixes and retirement lengths. Both used past US returns; the future may be kinder or harsher. To test many possible sequences at once, use the retirement Monte Carlo calculator.
What this calculator does not include
- Taxes and fees. Withdrawals from traditional accounts are taxable in the US. Use a return after fees, and include tax in the amount you withdraw.
- Required minimum distributions, which may force larger withdrawals from traditional accounts from your 70s. The RMD calculator works them out.
- Flexible rules. Many retirees cut spending after bad years or use guardrails that adjust withdrawals. Those rules reduce sequence risk but are not modeled here.
- Other income. Social Security and pensions reduce what the portfolio must supply. For a simple month-by-month drawdown, use the how long will my money last calculator.