Retirement Withdrawal Calculator

Your FIRE number: annual spending times 25

The first figure on the page is the size of the pot you are aiming for. It is your monthly spending in retirement, multiplied by twelve to make a year, and then by twenty-five. With the starting example of $4,000 a month, that is $48,000 a year and a target of $1,200,000. People who plan for financial independence often call this the FIRE number, and the multiplier of twenty-five is the same idea as the familiar four percent rule turned around: if you take four percent of a pot in the first year, the pot is twenty-five times what you take.

The rule of thumb comes from two pieces of research on historical United States markets. William Bengen published the first in 1994, and the second, often called the Trinity study, followed in 1998 from Cooley, Hubbard and Walz. Both asked how large a first-year withdrawal, raised each year with inflation, would have lasted through every thirty-year stretch in the record, including the worst ones. Around four percent of the starting balance was the answer for a mix of shares and bonds. That makes twenty-five times spending a reasonable, round target for a thirty-year retirement. It is not a law of nature. A retirement that may last longer than thirty years, a portfolio that is mostly cash, or a future that turns out worse than the past would all argue for a larger multiple.

The target is in today's money. Spending is entered as what you would spend now, and the calculator works in real terms throughout, so the figure does not need to be inflated to the year you retire. If you expect your spending to fall once a mortgage is paid off, or to rise because of travel or care, enter the amount you expect to spend in retirement rather than what you spend today. The target moves one for one with that input, which is why it is worth a few minutes of honest thought before you look at anything else on the page.

How long until you get there, and why the real return matters

The second figure is the time it takes for your current assets, plus your monthly saving, to reach the target. The calculator follows the balance one month at a time: it grows the balance by one month of real return, adds your saving, and stops in the first month the balance is at or above the target. If you are already there, it says so. If the balance would still be short after sixty years, it says that too, rather than printing a number nobody could plan around.

The growth used here is the real return, not the headline one. The calculator divides one plus your annual return by one plus inflation, takes the twelfth root to make it monthly, and subtracts one. With a six percent return and two and a half percent inflation, that is a little under three and a half percent a year in real terms. Working in real terms is what lets the target stay in today's money, and it is also why changing the inflation setting moves the timeline even though your spending does not change. Your monthly saving is treated the same way: it is assumed to rise with inflation, so it buys the same amount every year.

The chart draws the path with the target as a horizontal line and marks the year the balance first crosses it. The table below it lists the balance and your total contributions at the end of every year, and the financial independence year is highlighted.

Sustainable withdrawal versus preserving capital

The two smaller cards answer a different question: with the money you have, or will have when withdrawals start, how much could you take each month? The first is the sustainable withdrawal. It is the level monthly amount, in today's money and rising with inflation, that spends the balance down to zero over the withdrawal horizon you choose in the advanced settings. It comes from the standard annuity formula shown under the sensitivity cells, with the real monthly rate as the interest rate and the number of months in the horizon as the term. When the real return is exactly zero, the formula reduces to the balance divided by the number of months.

The second card is the capital-preserving alternative. It takes only the real return each month and never touches the principal, so the balance keeps its buying power indefinitely. It is always smaller than the sustainable withdrawal for any finite horizon, and the gap between the two cards is the price of leaving the capital intact. If the real return is zero or below, there is nothing to take without spending principal, and the card says so.

By default withdrawals start now, so both cards describe what your current assets could pay today. If you set a number of years until withdrawals start, the calculator keeps adding your monthly saving and growing the balance until then, and both cards describe that later starting balance instead.

Reading the return sensitivity

Five small cells sit under the withdrawal cards. Each one reruns the time-to-target calculation with your return two points lower, one point lower, unchanged, one point higher and two points higher, keeping your assets, saving, spending and inflation the same. The middle cell is highlighted and matches the figure above it. A return below zero is not tried, so at a very low return the lowest cells repeat the zero case.

The point of the cells is not to pick the most attractive one. It is to see how much of your timeline depends on an assumption nobody controls. If one point less return adds several years, the plan leans heavily on markets, and a higher saving rate is the more dependable lever. If the cells sit close together, your saving is doing most of the work and the plan is less sensitive to what markets do. In either case, planning on the middle cell and treating the lower ones as a realistic bad case is a more honest reading than planning on the best one.

What this calculator assumes, and what it leaves out

Every figure on the page rests on a short list of assumptions. The real return is the same every month, so there is no market volatility and no sequence-of-returns risk, the danger that a fall early in retirement does lasting damage. Saving and spending rise exactly with inflation. Everything is before tax and before investment fees. Withdrawals are level in real terms rather than adjusted to how markets did.

Some things are left out on purpose. Government and workplace pensions such as Social Security, the Canada Pension Plan or a defined-benefit pension are not included, so if you expect one, reduce the monthly spending you enter by the amount it will cover. Taxes depend on the account and where you live, and no tax rate is applied here. Fees reduce the return you keep, so lowering the return by your yearly costs gives a more realistic picture. The result is an estimate to plan with, not financial advice.