Home
Back
4% Drawdown Formula:
| From: | To: |
The 4% drawdown rule is a retirement planning guideline that suggests withdrawing 4% of your investment portfolio annually, adjusted for inflation. This strategy aims to provide sustainable income while preserving capital for future years.
The calculator uses the simple formula:
Where:
Explanation: This calculation provides the annual withdrawal amount based on the 4% rule of thumb for retirement planning.
Details: The 4% rule helps retirees plan sustainable withdrawals from their investment portfolios, balancing the need for current income with the preservation of capital for future years. It's based on historical market data and aims to prevent portfolio depletion over a 30-year retirement period.
Tips: Enter your total portfolio value in dollars. The calculator will compute 4% of that amount, which represents the suggested annual withdrawal under this retirement strategy.
Q1: Is the 4% rule still valid today?
A: While the 4% rule is a useful starting point, many financial advisors suggest adjusting it based on current market conditions, life expectancy, and individual circumstances.
Q2: Does the 4% rule account for inflation?
A: The traditional 4% rule includes annual inflation adjustments after the first year of withdrawals.
Q3: What types of portfolios work best with the 4% rule?
A: The rule was originally based on a balanced portfolio of 50-75% stocks and 25-50% bonds, but should be adapted to individual risk tolerance.
Q4: Are there limitations to the 4% rule?
A: Yes, it doesn't account for taxes, changing market conditions, unexpected expenses, or individual spending patterns.
Q5: Should I use the 4% rule for early retirement?
A: For early retirement, a more conservative withdrawal rate (3-3.5%) is often recommended due to the longer time horizon.