How the Safe Withdrawal Rate formula works

The withdrawal rate is simply the percentage of your portfolio you plan to spend each year: SWR = annual spending ÷ portfolio value. If you have $1,000,000 invested and you plan to spend $40,000 per year, your withdrawal rate is 40,000 ÷ 1,000,000 = 0.04 = 4%.

The calculator also flips the same relationship to answer two other planning questions: (1) How big does my portfolio need to be? and (2) How much can I safely spend? If you choose a target rate (say 4%), then:

• Portfolio needed = spending ÷ (target rate).
• Safe spending = portfolio × (target rate).

Note: “Safe” here means “consistent with your chosen withdrawal rate,” not a guarantee. Safety depends heavily on market behavior and your willingness to adjust spending when markets fall.

The stress test (returns + inflation)

Basic SWR math is a great starting point, but retirement is a multi-decade journey. Two forces matter a lot: investment returns (how your portfolio grows) and inflation (how spending rises). A simple yearly model works like this:

• Start with your portfolio.
• Each year, grow it by your expected return.
• Withdraw your spending for the year.
• Increase next year’s spending by the inflation rate.
• Repeat until you hit your retirement length — or the portfolio runs out.

This isn’t a full Monte Carlo simulation. Instead, it’s a transparent “back-of-the-envelope” stress test that helps you understand directionally what happens if returns are lower or inflation is higher than expected.

Examples (so it actually clicks)

Example 1: The classic 4% rule snapshot.
Portfolio = $1,000,000. Spending = $40,000. Implied withdrawal rate = 4%. If your target is also 4%, your portfolio “needed” is $40,000 ÷ 0.04 = $1,000,000. You’re right on target.

Example 2: You want $60k/year.
If you want $60,000 per year and you want a 3.5% withdrawal rate, portfolio needed is $60,000 ÷ 0.035 = $1,714,285.71. If you currently have $1.2M, you may need more savings, a later retirement date, or reduced spending.

Example 3: The “inflation punch.”
Spending starts at $50,000 and inflation is 3%. After 10 years, that spending is roughly $50,000 × (1.03)¹⁰ ≈ $67,196. That’s why many retirees plan withdrawals that rise with inflation.

What “safe” really means (and what it doesn’t)

SWR is not a magic number. It’s a planning rule that tries to balance lifestyle and longevity risk. In the real world, safety changes based on:

• Sequence of returns (bad markets early in retirement can hurt more).
• Fees and taxes (they reduce the returns you actually keep).
• Asset mix (stocks vs bonds vs cash changes volatility).
• Spending flexibility (cutting spending during downturns often improves outcomes).
• Time horizon (25 years vs 45 years is a different problem).

This calculator is best used for quick “what-if” planning — then you can refine with deeper tools or professional advice.

FAQ

• Is the 4% rule always safe? Not always. It’s a popular rule of thumb based on historical backtests, but outcomes can vary. Longer retirements, higher fees, higher inflation, or poor early market returns can increase risk.
• Should I use “nominal” or “real” returns? This calculator asks for nominal return and inflation separately, then effectively creates a real-return relationship through the simulation. If you prefer thinking in real terms, you can set inflation to 0% and enter your expected real return.
• What if I have other income (Social Security, pension, rent)? Subtract that from your spending need. For example, if you need $60k/year and you expect $20k/year in other income, use $40k as your portfolio-funded spending.
• Do I withdraw a fixed dollar amount or a percentage? Many people start with a dollar amount and increase it with inflation. Some use dynamic rules that adjust with markets. A fixed percentage is simpler but can create big spending swings.
• Does this tool include taxes and investment fees? No. A simple way to approximate fees is to reduce your expected return. Taxes are personal; you can also reduce return or increase spending to be conservative.
• How can I lower my withdrawal rate? Increase your portfolio (save/invest more), reduce planned spending, delay retirement, or plan partial work income. Even a small change can matter a lot over 30+ years.

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Tip: Add this page to your bookmarks. Then revisit yearly to update your spending assumptions and rate.