How this number is made
A drawdown asks how many months a balance survives a monthly withdrawal. Interest or investment return replaces some of what you take. If the withdrawal also rises with the cost of living, the pot dies sooner than a fixed withdrawal suggests.
- Use money you can actually spend. A house you live in does not pay the withdrawal.
- Pick a return you can defend for cash or for the mix you hold. A stock assumption on a cash account is a fiction.
- Set the yearly rise to your inflation guess if the spending has to keep its buying power. Zero means the same cash amount every month.
Formula
Each month the balance grows by annual return ÷ 12, then the withdrawal is subtracted. The withdrawal compounds upward by the yearly rise, spread monthly. The count stops when the balance is gone, or at 100 years.
Worked example
$250,000, withdrawing $1,500 a month, earning 4%, with the withdrawal rising 2% a year, lasts 16 years and 4 months. The dollars paid out over that stretch are about $346,830, because later withdrawals are larger.
Questions
Is 4% a year the same as the 4% rule?
No. The 4% rule is a starting withdrawal of 4% of the portfolio in year one, then adjusted for inflation, from a mixed portfolio. This page spends a cash amount you choose. The retirement page is the 4% sketch.
What if returns are negative for the first few years?
This page cannot show that. It uses one rate the whole way. Taking the same withdrawal after a drop is the failure case. A lower rate is the honest way to stress it here.