4 Percent Rule Calculator
Calculate first-year payouts and model the durability of your portfolio over time.
Calculator Variables
Calculation Overview
Test your retirement safety margin using the industry standard 4% Rule. Calculate first-year cash payouts and inflation-adjusted withdrawals.
Mathematical Model & Formula
Calculates the first-year payout by multiplying your initial portfolio size by your starting withdrawal percentage. In each subsequent year, the payout amount is increased by the rate of inflation, regardless of market performance, to preserve purchasing power.
- PortfolioSize: Total starting retirement portfolio balance
- InitialRate: Starting safe withdrawal percentage (commonly 4%)
- Inflation: Yearly rate of inflation (decimal)
- t: Current retirement year index
Worked Example Scenario
Scenario: A $1,000,000 portfolio at a 4% starting withdrawal rate and 3% average inflation.
- Year 1 Payout: $1,000,000 * 0.04 = $40,000
- Year 2 Payout (with 3% inflation): $40,000 * 1.03 = $41,200
- Year 3 Payout: $41,200 * 1.03 = $42,436
Result: You maintain equivalent purchasing power by adjusting payments upward each year.
Frequently Asked Questions
What is Sequence of Returns Risk?
The risk that market downturns occur in the early years of retirement. Withdrawing funds from a declining portfolio accelerates depletion, meaning actual outcomes can be worse than average market projections.
Academic & Regulatory References
- The Trinity Study Original Paper (1998) → Academic paper establishing safe withdrawal rate thresholds for retirement planning.