Withdrawal plan: how long a portfolio lasts, and at what rate

A savings plan asks what a contribution becomes. A withdrawal plan asks the harder question in reverse: how much can come out each month without the money running out first. This guide runs four withdrawal rates on the same portfolio, shows exactly where each one ends up after thirty years, and explains why the arithmetic is only half the answer.

The question a withdrawal plan answers

Three quantities are locked together: the balance you start with, the amount you take out, and how long the money lasts. Fix any two and the third follows. Most people arrive with the first two fixed — a portfolio and a required income — and want to know the third.

The mechanics are the compound interest calculation with a negative cash flow. Each period the balance earns interest, then the withdrawal is subtracted. If the interest exceeds the withdrawal, the balance grows anyway. If the withdrawal exceeds the interest, the balance shrinks — slowly at first, then faster, because a smaller balance earns less.

Four withdrawal rates on the same portfolio

500,000 € to start, 5 % a year, thirty years, withdrawals every month and nothing paid in.

At 1,500 € a month the portfolio nearly doubles while paying out 540,000 €. At 2,500 € it survives thirty years with 68,147 € left — a plan with almost no margin. At 3,000 € it is empty in year 23, and the calculator keeps going into negative territory rather than stopping, so you can see how large the shortfall becomes.

Note how sharp the cliff is. Between 2,500 € and 3,000 € a month — a 20 % increase in income — the outcome changes from "lasted the full term" to "ran out seven years early". Withdrawal plans are far more sensitive to the withdrawal amount than savings plans are to the contribution.

Where the 4 % rule comes from, and what it assumes

The best-known rule of thumb says you may withdraw 4 % of the starting balance in the first year and adjust it for inflation thereafter, with a high probability of the money lasting thirty years. On 500,000 € that is 20,000 € a year, about 1,667 € a month.

• It comes from historical US market data over rolling thirty-year windows, in a portfolio mixing equities and bonds.
• It assumes the withdrawal rises with inflation, so the nominal amount grows every year — not the flat amount used in the table above.
• It assumes a thirty-year horizon. A longer retirement needs a lower rate.
• It is a survival probability, not a guarantee. In the worst historical windows the portfolio came close to failing.

Compare it with the table: a flat 1,500 € a month is a 3.6 % initial rate and grew the portfolio substantially. That gap is what inflation-adjusting the withdrawal costs. A rule of thumb that ignores your fees, your taxes and your asset mix should be treated as a starting point for the calculation, not as its result.

Why the order of the years matters now

During a savings phase, a bad decade early on is often helpful: the same contribution buys more. During a withdrawal phase the same decade is the main thing that breaks plans. This is sequence-of-returns risk.

The reason is arithmetic, not psychology. A withdrawal taken from a fallen portfolio removes a larger share of it, and that share never recovers. Two portfolios with identical average returns over thirty years can end up in completely different places depending on whether the bad years came first or last.

A constant-return projection cannot show this. What it can do is tell you how much slack you have: run the plan again at a rate two or three points lower and see whether it still survives. If it only works at the expected return, the expected return is doing too much work.

Modelling the savings phase and the withdrawal phase together

The two halves of a retirement plan interact, and looking at them separately hides the trade-off. In this calculator you can put both in one timeline: contributions over the working years, withdrawals after them, on the same horizon.

Two rules of the engine are worth knowing when you build these. Where periods overlap, the last stream defined wins — so a contribution period and a withdrawal period covering the same years will not net against each other. And if you shorten the horizon, the periods are pulled in with it, so nothing is left pointing past the end.

Adjusting the withdrawal for inflation

A flat 2,000 € a month for thirty years is not a flat standard of living. At 2 % inflation it buys roughly what 1,100 € buys today by the end. Any withdrawal plan stated in nominal terms quietly cuts your income over its lifetime.

There are two ways to handle this in a constant-return model. Either step the withdrawal up across periods, which the calculator supports with up to three withdrawal periods; or leave the withdrawal flat and lower the interest rate to a real rate, which keeps every figure in today's purchasing power. The second is simpler and harder to get wrong.

1. Decide on an inflation assumption and state it. Two percent is the usual anchor for the euro area.
2. Convert your nominal return to a real one: real = (1 + nominal) / (1 + inflation) − 1.
3. Run the plan with the real return and a flat withdrawal. Every euro in the result is then in today's money.
4. Re-run with the real return reduced by another point as a margin. If the plan still holds, you have room.

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