Safe Withdrawal Rate Calculator (4% Rule)

Understanding the Safe Withdrawal Rate Calculator

One of the most important questions in retirement planning is, "How much can I afford to spend each year without running out of money?" The Safe Withdrawal Rate (SWR) is a guideline used to answer this question. This calculator helps you determine a sustainable income stream from your retirement portfolio.

How It Works

The calculator is based on a simple but powerful concept, most famously articulated in the "4% Rule" derived from the Trinity Study.

• Total Retirement Portfolio Value: This is the total value of all your investment accounts that you will be drawing from in retirement.
• Withdrawal Rate: This is the percentage of your initial portfolio value you plan to withdraw in your first year of retirement. The 4% rule is a common starting point, but you can adjust this to be more aggressive or conservative.

The Formula and Its Implications

The calculation is straightforward:

Annual Withdrawal = Portfolio Value * (Withdrawal Rate / 100)

The calculator then shows you the monthly income this annual amount provides. The theory behind the SWR is that if you withdraw a reasonable percentage, your portfolio's investment returns should be sufficient to replenish the withdrawn amount, allowing the principal to last for a long retirement (typically 30 years or more). By experimenting with different withdrawal rates, you can see the direct trade-off between having more income each year and increasing the risk of depleting your portfolio too soon.

Frequently Asked Questions