Model sustainable withdrawal rates from retirement portfolios using the 4% rule, dynamic spending, and Monte Carlo simulations.
This calculator turns a retirement nest egg into a withdrawal plan: it applies the 4% rule (4% of the balance in year one, then the same dollar amount raised with inflation each year), and it can stress-test the plan with Monte Carlo simulation, which runs thousands of random return sequences to estimate the probability your money outlives you. It also models dynamic spending strategies that cut or raise withdrawals as the market moves. The thing people most often get wrong: a 4% withdrawal does not mean 4% of the current balance every year.
A concrete input and expected output from the current implementation.
Input
Portfolio: $1,000,000. Method: 4% rule. Inflation: 3% per year.
Expected output
Year 1: $40,000 ($3,333 per month). Year 2: $41,200. Year 3: $42,436. The withdrawal dollar amount is set in year 1 and then rises only with inflation.
The 4% rule fixes year-one withdrawals at 4% of the starting balance ($1,000,000 x 0.04 = $40,000), then escalates that fixed dollar amount by 3% inflation each year ($40,000 x 1.03 = $41,200, then x 1.03 again = $42,436). It never re-derives a percentage from the current balance.
The rule, from the 1998 Trinity Study, sets year-one withdrawals at 4% of the initial balance, then increases that dollar amount annually by inflation. It was built for 30-year retirements from a stock-heavy portfolio of stocks and bonds; historically about 95% of 30-year periods supported it. The tool applies this math directly when you choose the 4% rule.
Instead of one historical path, Monte Carlo simulation generates thousands of random return sequences from the return and volatility assumptions you enter, and counts what fraction keep the balance above zero for the horizon - that is the success probability. Dynamic spending rules instead modify withdrawals along the way, such as cutting them 10% when the rate drifts too far above its target, trading lower worst-case income for higher success odds.
No. The Trinity Study found that a 4% inflation-adjusted withdrawal from a stock-heavy portfolio lasted 30 years in about 95% of historical periods - historically robust, but not a guarantee, and it failed in roughly one in twenty of those windows. A Monte Carlo success probability is a model estimate, not a promise.
There is no objectively correct target; 80% to 95% are common choices, and a higher target usually means withdrawing less, holding more stocks, or accepting variable income through dynamic spending. Remember the probability inherits your assumptions - entering optimistic returns inflates it, so test how sensitive the number is before you rely on it.
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