The retirement math nobody escapes
Accumulation gets all the attention, but decumulation is the harder problem: you're spending from a pot that must survive an unknown number of years through unknowable markets. The core tension is simple — withdraw too much and you outlive the money; withdraw too little and you needlessly lived poorer than you could have.
This calculator models the standard approach: withdrawals start at your chosen amount and rise with inflation to hold purchasing power steady, while the remaining balance keeps earning returns.
Reading your withdrawal rate
Your initial withdrawal rate — first-year withdrawals ÷ starting balance — is the single best predictor of survival:
| Initial rate | Historical 30-year outcome (balanced portfolio) |
|---|---|
| 3.0–3.5% | Survived essentially every historical period; often leaves a large surplus. |
| 4.0% | The classic benchmark — survived all historical 30-year periods in the original research. |
| 5.0% | Failed in roughly 20–25% of historical periods; needs flexibility to be safe. |
| 6%+ | High odds of depletion within 30 years unless returns are exceptional or spending can drop. |
The inverse of the rule is the accumulation target: sustainable spending of $X per year requires roughly 25 × X saved. Working backwards from spending to a savings goal is exactly what the 401(k) calculator and compound interest calculator are for.
Why the average return isn't enough: sequence risk
A constant 5.5% return and a volatile sequence averaging 5.5% are very different retirements. When markets fall early while you're selling shares to eat, the portfolio takes permanent damage no later recovery fully repairs. Three practical defenses:
- Cash buffer: 1–3 years of spending in cash or short-term bonds, refilled in good years, so crashes never force selling equities at the bottom.
- Guardrails: pre-agreed rules like "skip the inflation raise after a down year" or "cut spending 10% if the withdrawal rate drifts above 5.5%." Small, early cuts have outsized survival effects.
- Flooring: cover non-negotiable expenses with guaranteed income (Social Security, pensions, possibly an annuity), so market risk only touches discretionary spending.
Don't forget the tax layer
Withdrawals from traditional 401(k)s and IRAs are ordinary income; Roth withdrawals are tax-free; taxable-account sales incur capital gains. A common sequencing strategy — taxable first, traditional next, Roth last — often stretches portfolio life by a year or more, and required minimum distributions from age 73 put a floor under traditional-account withdrawals whether you need the money or not. Model your gross needs here, then plan the tax layer with a professional.