Safe Withdrawal Rate Calculator
Safe Withdrawal Rate Calculator
Your first year’s withdrawal from a corpus at a chosen withdrawal rate, and how long the money lasts if each year’s withdrawal rises with inflation and the rest earns a steady return.
Safe withdrawal rate
$1,50,00,000 at a 4% withdrawal rate, 8% return, withdrawals rising 4% a year
How long a corpus lasts with withdrawals rising by inflation
- C, W1
- the corpus and the first year’s withdrawal, C × the withdrawal rate
- a, g
- 1 + the yearly return and 1 + inflation, as decimals. Year k’s withdrawal is W1 × gk − 1, taken at the start of the year
- N
- the number of full withdrawals. If a > g and X ≤ 0 the corpus never runs out; if a = g, N = C ÷ W1 rounded down
- rate that lasts H years
- (a − g) × aH − 1 ÷ (aH − gH) as a fraction of the corpus
Worked example
$1,50,00,000 at a 4% withdrawal rate, 8% return, withdrawals rising 4% a year
First-year withdrawal: 1,50,00,000 × 4% = $6,00,000, about $50,000 a month
a = 1.08, g = 1.04; X = (6,00,000 × 1.08 − 1,50,00,000 × 0.04) ÷ (6,00,000 × 1.04) = 0.0769
N = ⌊ln 0.0769 ÷ ln(1.04 ÷ 1.08)⌋ + 1 = 68 full years, and part of the next: 69.0 years in all
After 30 years $4,04,67,851 is left, $1,24,76,994 in today's money
Years a corpus covers, by withdrawal rate and inflation, at an 8% return
| Withdrawal rate | 6% inflation | 5% inflation | 4% inflation | 2% inflation |
|---|---|---|---|---|
| 3% | 51 years | 92 years | Never runs out | Never runs out |
| 3.5% | 40 years | 56 years | Never runs out | Never runs out |
| 4% | 33 years | 42 years | 69 years | Never runs out |
| 5% | 25 years | 29 years | 36 years | Never runs out |
| 6% | 20 years | 22 years | 25 years | 46 years |
Where the 4% rule comes from, and why it may not be yours
In 1994 the financial planner William Bengen tested withdrawal rates against US stock and bond returns going back to 1926. A retiree who took 4% of the portfolio in the first year, and then the same amount raised by inflation each year, would have had money left after at least 30 years in every historical period he tested, including retirements that began just before the worst markets. In 1998 three professors at Trinity University in Texas ran a similar test on more mixes of stocks and bonds and reported the share of periods in which each rate lasted; that paper is the “Trinity study”.
Both results rest on three things that may not apply to you. They use US returns, from one of the most successful markets of the century. They cover 30 years, so someone retiring at 45 needs money to last much longer. And they assume US inflation. In India, inflation has usually been higher than in the US, and interest rates higher too; what matters is the return after inflation, which you set above.
This page does the arithmetic with a steady return. On the example, $1,50,00,000 at 4% gives $6,00,000 in the first year. At an 8% return and 4% inflation (a real return of about 3.85% a year) the money lasts 69 years. At a 6% return it lasts 34, and a 5% withdrawal rate at 6% return and 6% inflation lasts only 20 years. A steady return is a simplification. Real portfolios fall as well as rise. A fall in the first years of retirement does the most harm, because units are sold low to pay for living costs. This is sequence-of-returns risk, and it is the reason the historical studies found safe rates well below the average return.
Use the “withdrawal rate that lasts exactly the plan” figure as an upper limit, not a target, and leave a margin. To work out how large a corpus you need, use the FIRE calculator or the retirement corpus calculator; to model monthly withdrawals from a fund, use the SWP calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
What is the 4% rule?
Withdraw 4% of your portfolio in the first year of retirement, then the same amount raised by inflation each year. Bengen (1994) found that in US history this lasted at least 30 years in every period he tested.
Is 4% safe in India?
Nobody can say for certain. The rule comes from US returns and US inflation over 30-year retirements. Indian inflation has usually been higher, and an early retiree needs money for longer than 30 years. Test lower rates and cautious returns on this page and keep a margin.
How long will my retirement corpus last?
It depends on the withdrawal rate and the return after inflation. $1,50,00,000 at 4% with an 8% return and 4% inflation lasts about 69 years at steady returns; at a 6% return, about 34 years.
Why do withdrawals rise with inflation?
To keep what you can buy the same each year. A flat withdrawal makes the corpus look as if it lasts longer, but each year it buys less.
Related calculators
References
- Bengen WP. Determining Withdrawal Rates Using Historical Data. Journal of Financial Planning. 1994;7(4):171–180.
- Cooley PL, Hubbard CM, Walz DT. Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable. AAII Journal. 1998;20(2):16–21 (the “Trinity study”).
- Bodie Z, Kane A, Marcus AJ. Investments. McGraw-Hill. Risk and return, and the time value of money.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. Present and future values, annuities and growing annuities.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.