Retirement Income Calculator

At a 4% annual withdrawal rate, $1 million supports $40,000 per year or $3,333 per month and has historically lasted 30 years with high probability. At a 5% rate ($50,000 per year), the same $1 million lasts approximately 20 to 25 years depending on investment returns. At a 3% rate ($30,000 per year), it lasts indefinitely in most historical scenarios. With a Social Security benefit of $2,000 per month on top, a $1 million portfolio at 4% withdrawal generates $5,333 per month in total retirement income — sufficient for many retirees to live comfortably without depleting their savings.

Sequence of returns risk is the danger of experiencing poor investment returns in the early years of retirement. Even if average long-term returns are positive, a major market decline in years one through five of retirement can permanently impair your portfolio's ability to sustain withdrawals. If you withdraw 4% of $1 million ($40,000) in year one and the market falls 30%, your portfolio drops to $660,000 — you have already taken out $40,000. At that reduced balance, the same dollar withdrawal now represents a 6% withdrawal rate that is much harder to sustain. This is why maintaining a cash reserve of one to two years of expenses in retirement is widely recommended.

The 4% rule was derived from historical stock and bond return data and provides a high probability of portfolio survival over 30 years. It remains a widely accepted starting point. Use a lower rate — 3% to 3.5% — if you retire before age 60 (longer retirement period), have a conservative portfolio, or want maximum security. Use a higher rate — 4.5% to 5% — if you have significant other income (pension, Social Security, rental income) that reduces portfolio dependency, or if you are willing to adjust spending if markets underperform. The retirement income calculator above lets you model any withdrawal rate and see the impact on your projected runout age.

At 3% annual inflation, purchasing power is cut in half in approximately 24 years. A $5,000 monthly retirement income in 2026 will have the purchasing power of only $2,500 in 2050. This is why fixed withdrawal amounts — not adjusted for inflation — leave retirees increasingly short over time. The 4% rule accounts for inflation by increasing the annual withdrawal by inflation each year. Social Security benefits are also adjusted annually by the Social Security COLA — providing a built-in inflation hedge for that portion of income.

The bucket strategy divides retirement assets into three buckets based on time horizon. Bucket 1 holds one to two years of living expenses in cash or very short-term instruments — providing stability and covering immediate needs without selling investments. Bucket 2 holds three to ten years of income needs in bonds, dividend stocks, and other moderate-return assets. Bucket 3 holds long-term growth assets — equities — that can withstand market volatility because they won't be needed for a decade or more. When Bucket 1 is depleted, it is refilled by selling assets from Bucket 2. This structure reduces sequence-of-returns risk by preventing forced selling of equities during market downturns.