Retirement Drawdown Calculator

You've saved a pot for retirement. Now what? This calculator answers the two questions every retiree faces: how long will my money last at the rate I want to spend? and what's the highest amount I can safely withdraw to last N years?

The 4% rule, explained honestly

The single most-cited rule in retirement planning came from a 1998 paper by three Trinity University professors. They tested whether a portfolio of US stocks and bonds, with the retiree withdrawing 4% in year one and increasing that amount for inflation each subsequent year, would have lasted 30 years across every rolling historical period back to 1926. Their answer: yes, in roughly 95-98% of cases for a balanced (50/50 to 75/25) portfolio.

That's where the 4% rule came from. It is widely misunderstood:

• It's not a fixed percentage. You withdraw 4% in year one, then increase that pound amount for inflation. The percentage of remaining balance you withdraw changes year to year — it can rise or fall sharply.
• It's not a guarantee. 95% historical success means 5% historical failure. And future returns may differ from the 1926-1995 sample the study used.
• It assumes a 30-year horizon. Retire at 55, plan for 40-45 years, and 4% is too aggressive. 3-3.5% is the modern equivalent.
• It assumes a balanced portfolio. 100% bonds at current real yields, the rule breaks. 100% stocks, you'd have to tolerate dramatic year-to-year volatility.
• It's a US-data rule. Pfau, Karsten and others have shown that countries with different return histories (Japan, parts of Europe) would have produced lower safe rates — 3-3.5% is more defensible globally.

Worked example

£750,000 pot, 5% nominal return, 3% inflation, target 30-year drawdown. 4% initial withdrawal = £30,000/year. After year 1, the £30,000 grows by 3% inflation to £30,900; year 2 to £31,827, and so on. By year 30, the inflation-adjusted withdrawal is about £73,000 — but its purchasing power is still the same £30,000 in today's pounds.

At a 5% nominal return and 3% inflation, the real return is roughly 2%, and the pot under these inputs lasts comfortably to 30 years with a balance still remaining. Increase the withdrawal to 5% initial (£37,500) and the pot depletes around year 28 — uncomfortably close. At 6% initial, you run out in year 24.

Sequence-of-returns risk

This calculator uses a constant return rate. Real markets don't work that way. A retiree who experiences a major bear market in their first 5 years runs out of money far faster than the average-return assumption predicts — even if the long-run average is identical. This is sequence-of-returns risk, and it's the single biggest hidden danger in retirement planning.

Two retirees with the same starting balance, the same average return over 30 years, and the same withdrawal pattern can end up with wildly different outcomes depending on when the bad years happen. Bad early years are catastrophic; bad late years are merely unfortunate. Common mitigations:

• Bond ladder covering 2-5 years of expenses, so you don't sell stocks during downturns.
• Cash buffer of 1-2 years of expenses for the same reason.
• Variable withdrawals (Guyton-Klinger rules, dynamic spending) that cut withdrawals after bad years.
• Glide-path annuity purchases later in retirement to convert sequence risk into longevity insurance.
• Lower initial withdrawal in the first decade — start at 3-3.5% and ratchet up only after the portfolio has recovered.

Why “real” returns are what matter

Nominal returns are what your statements show. Real returns are what your pot can actually buy. For drawdown planning, only real returns matter — because your withdrawals must grow with inflation to maintain your lifestyle.

Approximate long-run real returns:

• US stocks (S&P 500): ~7% real, 1900-present.
• Global stocks (MSCI World): ~5-6% real.
• UK stocks (FTSE All-Share): ~5% real.
• Government bonds (developed-world): 1-2% real (much lower in recent decades).
• Cash: roughly zero real over long periods.

A 60/40 stock/bond portfolio has produced approximately 4-5% real long-run, which is where the 4% rule's modern defensibility comes from. Plug a higher number into a drawdown calculator at your peril.

Tax: the other half of the problem

This calculator works in gross withdrawal amounts. The take-home portion depends on your country, account type, and how you sequence withdrawals across taxable, tax-deferred, and tax-free accounts. UK example: 25% of a pension can usually be taken tax-free; the remaining 75% is taxed at marginal income rates. US example: Roth withdrawals are tax-free; traditional 401(k)/IRA withdrawals are fully taxable. Plan tax sequencing carefully — it can swing your sustainable real spending by 10-20%.

What this calculator does NOT model

• Variable returns. Real-world returns are not constant. Use a Monte Carlo tool for sequence-risk modelling.
• Annuity purchases. Buying a guaranteed income stream changes the math fundamentally.
• State pension / Social Security. Your sustainable private withdrawal is much higher once these are included.
• Long-term care or end-of-life costs. Major lumpy expenses in later years.
• Tax. Gross withdrawals only — see above.
• Bequest / inheritance goals. Withdrawal rates that leave a target balance are lower than rates that aim for exhaustion.

Disclaimer

Educational only. Retirement drawdown is one of the most consequential decisions in personal finance and depends heavily on individual circumstances. A regulated financial planner is genuinely worth the fee here.