Retirement
Withdrawal rate: Definition, Formula and Example
A withdrawal rate expresses portfolio withdrawals relative to a specified portfolio balance; the denominator and adjustment rule must be stated.
Scope: General financial concept; examples are hypothetical.
Other names and related labels: Retirement withdrawal percentage; 4% starting withdrawal illustration.
How it works
A starting-balance rule takes a percentage of the initial balance and may raise that dollar amount with inflation later. A current-balance rule recalculates the percentage each year. A fixed-horizon depletion model is different from either approach and can assume the balance is spent by a chosen age.
Initial annual withdrawal = starting portfolio balance × initial withdrawal rate
Monthly amount = annual amount / 12 is a budgeting conversion, not a simulation of monthly returns or tax.
A 4% first-year withdrawal from $1 million
Assume a starting-balance rule, then a 3% inflation adjustment.
- First year: $1,000,000 × 4% = $40,000, or about $3,333.33 per month.
- Next year’s inflation-adjusted amount: $40,000 × 1.03 = $41,200.
The first-year amount is $40,000; the second-year illustration is $41,200 regardless of the new balance.
An illustration, not a recommended or guaranteed rate; taxes and fees excluded.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
4% is not a guaranteed safe rate or an RMD rule
Longevity, asset mix, fees, inflation and the sequence of market returns affect sustainability. Our retirement depletion model uses entered lifespan and constant returns; its output is not proof that a variable-return portfolio will last.
Explore with a calculator
- Retirement Calculator
Model income and savings with an explicit life expectancy.
- 401K Calculator
Compare its lifespan-based withdrawal model with the separate 4% illustration.
- Annuity Payout Calculator
Inspect fixed-term balance depletion under stated assumptions.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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