How long might it last?
Withdrawal rate explorer
Take a share of a portfolio in the first year, raise it with inflation every year after, and see how long the money lasts. Then see why the same returns in a different order can change the answer completely.
The outlook
Withdrawing 4% ($40,000 in the first year, then raised with inflation) from $1,000,000 would last about 33.6 years if returns were a steady 5% and inflation 3% every year.
That is a real return of 1.94% a year. Real markets never deliver the same return twice; the next section shows why the order of returns matters.
| Rate | First-year withdrawal | Lasts | Bar, up to 50 years |
|---|---|---|---|
| 3% | $30,000 | 50+ years | |
| 3.5% | $35,000 | 40.9 years | |
| 4% (yours) | $40,000 | 33.6 years | |
| 4.5% | $45,000 | 28.6 years | |
| 5% | $50,000 | 24.9 years | |
| 6% | $60,000 | 19.9 years | |
| 7% | $70,000 | 16.5 years |
Same returns, opposite order
Both portfolios get exactly the same 30 yearly returns, averaging 5%. Left alone, both would grow to the same $4,029,398. With 4% withdrawals rising with inflation, the one with the best years first still holds $1,810,377 after 30 years; the one with the worst years first runs out in year 16.
Balance over 30 years
- Best years first
- Worst years first
Point at the chart, or focus it and use the arrow keys, to compare any year.
What this does, and what it cannot tell you
Each year starts with a withdrawal: the chosen percentage of the starting portfolio in year one, then the same amount raised by inflation. What remains grows by that year's return. The table counts how many years of withdrawals the portfolio pays before it runs out, up to 50.
Two well-known studies tested this method on history. William Bengen (1994) found that with a first-year withdrawal of 4%, raised for inflation, no portfolio of US stocks and bonds he tested since 1926 ran out in under 33 years; at 4.25% one could run out in 28. Cooley, Hubbard and Walz (1998), the "Trinity study", used stock and bond returns from 1926 to 1995 and reported how often each rate lasted 15 to 30 years. Neither study says any rate is safe for your future, and none of the rates here is presented as safe for you.
Sequence of returns: without withdrawals, the order of returns does not matter; multiplying the same yearly growth in any order gives the same total. With withdrawals it matters a great deal. Losses early on force you to sell more of a shrunken portfolio to fund spending, and the money taken out never recovers. The two retirees below get identical returns with the same average, yet with the example figures one runs out after about 15 years while the other ends with more than it started with.
Sources
- William P. Bengen, “Determining Withdrawal Rates Using Historical Data”, Journal of Financial Planning, October 1994 (reprinted by the Financial Planning Association, 2004).
- Philip L. Cooley, Carl M. Hubbard and Daniel T. Walz, “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable”, AAII Journal, February 1998 (the “Trinity study”).
Questions
Why steady returns, if markets are not steady?
Steady returns keep the arithmetic easy to follow and show the effect of the rate itself. The sequence illustration then shows what steady returns hide: the order of good and bad years. Neither is a forecast.
So is 4% safe?
Not as a promise. The historical studies found that 4% survived the periods and portfolios they tested, for about 30 years. Longer retirements, different investments, fees, taxes and future markets can all change that, which is why this page explores rates rather than recommending one.
What can reduce sequence risk?
This site gives no advice, but the illustration shows the mechanism: what matters most is what happens in the first years of withdrawals. Spending flexibility in bad years is one lever people often discuss; a qualified adviser can go through the options for you.