The formula
How to calculate safe withdrawal rate
A safe withdrawal rate is the share of a portfolio you can take each year without running out. This computes it directly from your horizon and expected real return rather than relying on the 4% rule of thumb.
The formula assumes a steady real return and a balance that ends at exactly zero. That is deliberately less conservative than the historical simulations behind the 4% rule, which are built to survive the worst sequence on record rather than the average one.
The inputs, one by one:
- Portfolio value
- Years the money must last (years)
- Real return (%)
The result updates on every keystroke. The URL updates too, which makes the filled-in version easy to bookmark or send to someone else.
Worked example
Here is the calculation with the starting values:
- Portfolio value: 800,000
- Years the money must last: 40 years
- Real return: 4 %
That gives:
- Sustainable withdrawal rate: 5.052 %
- Annual withdrawal it supports: 40,418.791
- Annual withdrawal under the 4% rule: 32,000
Reading the result
Compare the two outputs. Where this figure sits above 4%, the difference is the cushion the 4% rule keeps back for bad market sequences. Where it sits below, your horizon or your return assumption is telling you that 4% is too aggressive.
Where this goes wrong. Treating a smooth return as equivalent to a real one. Two portfolios with identical average returns can end very differently depending on when the bad years arrive — that is sequence risk, and this formula cannot see it.
As a starting point, yes, with caveats. It came from US data over 30-year periods with a 50–75% equity allocation. Longer retirements, higher fees and non-US markets all argue for something closer to 3.5%.
A lot. Plans that cut spending 10% after a bad year, or skip the inflation increase, sustain rates around half a percentage point higher than rigid ones. Adaptability is worth more than precision in the initial rate.
The headline figure is sustainable withdrawal rate. With 800,000 portfolio value, 40 years years the money must last and 4 % real return, that comes to 5.052 %. Change any field and the figure moves with it.