Pension Withdrawal Calculator Tutorial

1. Understanding Withdrawal Strategies

The biggest risk in retirement is outliving your money. This calculator helps you find a withdrawal strategy that balances your income needs with portfolio longevity.

Key Withdrawal Methods

4% Rule: Withdraw 4% of initial portfolio, adjusted for inflation annually
Fixed Percentage: Withdraw a fixed percentage of remaining portfolio each year
Fixed Amount: Withdraw the same dollar amount regardless of portfolio performance
Dynamic Withdrawal: Adjust withdrawals based on portfolio performance and market conditions

2. Input Fields Explained

Total Pension Pot

Your total retirement savings at the start of retirement. Include all accounts: 401k, IRA, pension funds, and other investments.

Annual Withdrawal

The amount you plan to withdraw each year. This should cover your living expenses after accounting for other income sources.

Withdrawal Rate

The percentage of your portfolio you withdraw annually. The famous "4% rule" suggests this is a safe starting point.

Investment Return

Expected average annual return on your remaining investments during retirement. 4-6% is typical for conservative portfolios.

3. The 4% Rule Explained

What is the 4% Rule?

The 4% rule comes from the Trinity Study, which found that withdrawing 4% of your initial retirement portfolio annually (adjusted for inflation) had a high probability of lasting 30 years.

Example: With a $1,000,000 portfolio, you could withdraw $40,000 in year one, then adjust that amount for inflation each subsequent year.

When 4% Works Best

• 60/40 stock/bond portfolio
• 30-year retirement timeframe
• Willing to adjust spending if needed
• Some flexibility in expenses

When to Be More Conservative

• Longer retirement (40+ years)
• Market valuations are high
• More conservative portfolio
• Less flexibility in spending

4. Inflation Adjustment

To Adjust or Not Adjust?

The inflation adjustment option determines whether your withdrawals increase each year to maintain purchasing power.

With Inflation Adjustment

Your withdrawal amount increases each year with inflation. This maintains your standard of living but may deplete your portfolio faster.

Without Inflation Adjustment

You withdraw the same dollar amount each year. Your purchasing power decreases over time, but your portfolio may last longer.

Real-World Strategy

Many retirees use a hybrid approach: take the higher of (previous year's withdrawal adjusted for inflation) or (fixed percentage of current portfolio). This provides some inflation protection while being responsive to market conditions.

5. Interpreting Your Results

Sustainable Strategy (Green)

Your money should last 30+ years. This is the goal for most retirees retiring at 65.

Borderline Strategy (Yellow)

Your money lasts 20-29 years. Consider small adjustments to improve longevity.

Risky Strategy (Red)

Your money lasts less than 20 years. Significant changes are needed to avoid running out of money.

Key Metrics to Watch

Years Until Depleted: Aim for at least 30 years if retiring at 65
Remaining at Age 90: Having money left at 90 provides safety margin
4% Rule Comparison: See how your strategy compares to the classic safe withdrawal rate

6. Improving Your Withdrawal Strategy

If Your Strategy is Risky

• Reduce withdrawal rate by 0.5-1%
• Work part-time for 2-5 more years
• Delay Social Security until age 70
• Reduce discretionary spending

Portfolio Optimization

• Maintain 40-60% in stocks for growth
• Keep 2-3 years of expenses in cash
• Consider dividend-paying investments
• Diversify across asset classes

Flexible Spending Rules

• Reduce withdrawals in market downturns
• Take only "needs" during bad years
• Use guardrail strategies
• Have a "floor" for essential expenses

Additional Income Sources

• Part-time work or consulting
• Rental income from property
• Reverse mortgage as backup
• Annuity for guaranteed income

Example: The Impact of Withdrawal Rate

Same $1,000,000 portfolio, different withdrawal rates:

4% Withdrawal

• $40,000 annual income
• Lasts 30+ years
• 95% success rate
• Sustainable

6% Withdrawal

• $60,000 annual income
• Lasts ~20 years
• 50% success rate
• Risky

8% Withdrawal

• $80,000 annual income
• Lasts ~12 years
• 10% success rate
• Very risky

Small changes in withdrawal rate have massive impacts on portfolio longevity!