Withdrawal Rate Calculator

Understanding Withdrawal Rates

The withdrawal rate from your retirement portfolio is a critical factor in determining how long your savings will last. Understanding withdrawal strategies can help you plan for a secure retirement.

Key Concepts

• Safe Withdrawal Rate: The percentage of your portfolio you can withdraw annually with a high probability of not depleting your savings over a 30-year retirement.
• 4% Rule: A widely used guideline suggesting you can withdraw 4% of your initial portfolio value in the first year of retirement, then adjust for inflation in subsequent years.
• Sequence of Returns Risk: The risk that poor investment returns early in retirement will significantly reduce the longevity of your portfolio.
• Inflation Adjustment: Increasing your withdrawal amount each year to maintain purchasing power as prices rise.

Withdrawal Strategies

• Fixed Percentage: Withdrawing a constant percentage of your portfolio each year, which varies with market performance.
• Fixed Dollar Amount: Withdrawing a set dollar amount that increases with inflation, regardless of portfolio performance.
• Guardrail Approach: Adjusting withdrawals based on portfolio performance, reducing spending during market downturns.
• Required Minimum Distributions (RMDs): Following IRS rules for withdrawing from tax-deferred accounts after age 72.
• Bucket Strategy: Dividing your portfolio into different "buckets" with different time horizons and risk levels.

Factors Affecting Withdrawal Rates

• Investment Returns: Higher expected returns may allow for higher withdrawal rates.
• Inflation: Higher inflation requires higher withdrawals to maintain purchasing power.
• Life Expectancy: Longer life expectancy may require more conservative withdrawal rates.
• Other Income Sources: Social Security, pensions, and other income can allow for higher portfolio withdrawals.
• Tax Considerations: Tax-efficient withdrawal strategies can maximize after-tax income.