Take a nest egg, withdraw a percentage each year, raise that withdrawal with inflation, and find out whether the money outlives you. This is the classic 4% rule, stress-tested against your own assumptions.
It takes a starting balance, a withdrawal rate, an expected return, an inflation rate, and a horizon, then asks one question: does the money last. The withdrawal starts at a fixed percentage of the original balance and rises with inflation every year, which is how most retirees actually spend. The portfolio grows at a constant nominal return.
On the defaults, $500,000 at a 4% withdrawal rate pays $20,000 in year one, or $1,667 a month. After thirty years of 2.5% inflation the withdrawal reaches $40,928, and the balance is still $381,471. The plan holds, and the withdrawal has more than doubled.
The withdrawal rate is applied once, to the starting balance, and then indexed to inflation. It is not recalculated each year on the remaining balance, which is the difference between a sustainable plan and a plan that quietly spends the principal down. The real return on the defaults is 2.44%, since 1.05 divided by 1.025 is 1.0244.
The balance rises. Year one ends at $505,000, year five at $522,242, and the peak arrives in year twelve at $537,154. That is not an error. In the early years the 5% return exceeds the withdrawal, so the portfolio grows even while paying out. The withdrawal, however, is rising at 2.5% a year against a fixed 5% return, so it eventually consumes the growth.
From year thirteen the balance declines, slowly at first and then faster. By year thirty it is $381,471, which is $118,529 below where it started after paying out a cumulative $878,054. The portfolio did its job and it shrank while doing it, which is what a successful plan looks like.
| Withdrawal rate | Year-one income | Outcome after 30 years |
|---|---|---|
| 3% | $15,000 | Holds, balance $826,346 |
| 4% | $20,000 | Holds, balance $381,471 |
| 5% | $25,000 | Depleted in year 29 |
| 6% | $30,000 | Depleted in year 23 |
One percentage point separates a comfortable ending from running out in the twenty-ninth year. That is the entire argument for treating the withdrawal rate as the most consequential number in retirement planning, and for choosing it before choosing a portfolio rather than after.
The 3% case leaves $826,346, which is more than the starting balance. That outcome is not a failure, and it does mean the household could have spent more or worked less. Retirees who die with a large portfolio usually optimized for the wrong risk.
| Change from default | Outcome after 30 years |
|---|---|
| Return 3% instead of 5% | Depleted in year 28 |
| Return 5% (default) | Holds, $381,471 |
| Return 7% instead of 5% | Holds, $1,355,155 |
| Inflation 3.5% instead of 2.5% | Holds, $140,773 |
| Inflation 0% instead of 2.5% | Holds, $832,194 |
Two points of return are worth $973,684 at the end of thirty years on a half-million starting balance. Two points of inflation are worth $240,698. The two do not cancel: what matters is the gap between them, and the calculator's real return of 2.44% is the number to watch. Every point of fees, every point of inflation, and every point of return all move that single figure.
There is a clean result hidden in this arithmetic. If the return is 5% and inflation is 2.5%, the only withdrawal rate that preserves the real value of the portfolio forever is 2.5%, because the portfolio must grow at the same rate as the withdrawal to stand still. Anything above that consumes capital, which is fine over a defined horizon and fatal over an indefinite one.
The default thirty-year horizon is the one the 4% rule was built for. Stretch it to fifty years with the same 4% withdrawal and the money runs out in year 41. Retire at 45 and fifty years is the relevant number, not thirty. This is the single calculation that early retirees most often skip, and it is the reason the retirement community converged on 3.5% or lower for long horizons.
The same logic runs in reverse for a shorter horizon. A household planning to bridge five years to Social Security at age 67 can withdraw far more than 4% from the bridge account, because the account is not meant to last forever. The right withdrawal rate is a function of the horizon, and there is no universal number.
This model applies 5% every single year. Markets do not. Two retirees with identical average returns can have opposite outcomes depending on the order the returns arrive, and the one who hits a severe decline in the first three years of withdrawals is the one who runs out. A portfolio that loses 25% in year one while paying out 4% has to earn 40.8% just to get back to where it started.
The defenses are structural rather than predictive. Hold one to three years of withdrawals in cash or short Treasuries so a bad market never forces a sale at the bottom. Cut discretionary spending after a bad year, which is what the guardrail rules formalize: a 10% spending cut after a portfolio decline extends a plan by years. And keep the fixed costs, housing and health insurance, low enough that the discretionary cuts remain available.
Taxes. A $20,000 withdrawal from a traditional 401(k) is $20,000 of gross income, and at a 12% effective rate it funds $17,600 of spending. Roth withdrawals are tax-free, which is why the Roth conversion calculator belongs in the same plan. A blended strategy, spending taxable accounts first and doing conversions in low-income years, changes the sustainable withdrawal rate by a full point in many cases.
Required minimum distributions. From age 73 the tax code forces withdrawals whether you need them or not, and the percentage rises each year. A large traditional balance can push a household into a higher bracket than it ever faced while working. The RMD calculator shows the forced amount for each age.
Social Security. Most retirees have a inflation-indexed income floor that this model does not include. Enter the portfolio withdrawal net of Social Security and the same balance supports a much higher spending level. The Social Security estimator produces the benefit figure, and the claiming decision is often worth more than a year of portfolio returns.
Run it at 4% and see whether the plan survives to the end of the horizon. Then run it at 5% and see when it fails. If the failure year is comfortably beyond your life expectancy, you are leaving spending on the table. If it is inside the horizon, the fix is a lower withdrawal rate, a longer working period, or lower fixed costs, and the order of those three should follow what you can actually change.
Then run it once at a return two points lower than you expect. A plan that only works at the optimistic number is not a plan. The FIRE calculator answers the accumulation side of the same question, and the savings goal calculator handles the intermediate goals that compete with retirement savings for the same dollars.
Withdrawal is where accumulation becomes spending, and it has more moving parts than the accumulation phase ever did. The RMD calculator covers the withdrawals you do not choose. The Roth conversion calculator handles the tax side of moving money between account types. And the annuity calculator prices the alternative to managing a portfolio at all, which is trading a lump sum for a guaranteed income.
For a thirty-year horizon funded from a diversified portfolio, 4% remains a reasonable planning figure, and it comes from US market history that included several severe bear markets. For longer horizons the number falls to 3.5% or lower. The deeper point is that 4% is a probability statement, not a guarantee, and the failure cases cluster around retirements that begin with expensive valuations.
Because the return exceeds the withdrawal at first. On the defaults the portfolio earns 5% while paying out 4%, so it grows, and the withdrawal is still small in dollar terms because it started from a percentage of the original balance. The peak arrives in year twelve and the decline begins after that, once the inflation-indexed withdrawal has grown large enough to consume the return.
Yes, in the sense that the withdrawal has to cover both spending and the tax on that withdrawal. A household needing $60,000 after tax with an effective 15% rate needs to withdraw about $70,600. Ignoring this overstates the sustainable spending level by 15% to 25%, depending on the account mix and the state.
That is sequence risk, and it is the most common way a plan that looks fine on average fails in practice. The practical defenses are a cash buffer covering one to three years of withdrawals, flexibility to reduce discretionary spending, and a willingness to work part time in the first few years. None of these require knowing what the market will do.
It reduces the amount the portfolio has to supply. A household spending $60,000 with $25,000 of Social Security needs $35,000 from the portfolio, which at 4% requires $875,000 instead of $1,500,000. Because Social Security is inflation-indexed and lasts for life, it is worth considerably more than an equivalent portfolio balance, and delaying a claim is often the highest-return decision available.
Because beyond fifty years the distinction between a defined horizon and a perpetual plan stops mattering for practical decisions, and a longer run mostly amplifies rounding. A retiree at 40 planning to 95 is inside the range. Anyone planning for a perpetual endowment should use a withdrawal rate at or below the real return instead, which is the condition for preserving capital indefinitely.
All calculation logic on this page is implemented from the primary documents below. Each one is listed with the figure it supplies, so any rate or threshold in the result can be traced back to its published source.
Benefit rules and cost assumptions stated on the page, not implied.