How do I calculate how long my savings will last?

To estimate how long your savings will last, divide your total savings by your expected monthly withdrawal, while factoring in compound interest and inflation. Our calculator automates this by performing a month-by-month projection, adding monthly interest to your balance and subtracting your adjusted withdrawal amount until the capital is depleted.

What is a safe withdrawal rate for retirement?

The 4% rule is a common guideline, suggesting you withdraw 4% of your portfolio in the first year of retirement and adjust that amount for inflation in subsequent years. However, a safe withdrawal rate can vary depending on market conditions, life expectancy, and your asset allocation.

How does inflation affect my retirement savings longevity?

Inflation reduces the purchasing power of your money over time. To maintain the same standard of living, you must increase your nominal withdrawal amounts over time. For example, at a 3% annual inflation rate, a $2,000 monthly withdrawal must increase to $2,689 in 10 years, which accelerates the rate of portfolio depletion.

How Long Will My Savings Last Calculator - Nest Egg Longevity

How Long Will My Savings Last? A Deep Mathematical Analysis of Capital Decumulation

Understanding capital erosion is essential for retirement planning. This guide analyzes the math behind compound interest, inflation adjustments, sequence of returns risk, and safe withdrawal rates to help you manage your savings.

Interest Offsetting

Generating compound yields helps offset distributions, extending your savings' lifespan compared to keeping cash in a non-interest-bearing account.

Inflation Risk

Adjusting withdrawals for inflation to preserve purchasing power accelerates capital depletion, requiring a larger starting principal.

The 4% Rule

Bengen's safe withdrawal rate suggests withdrawing 4% of your nest egg in year one, then adjusting for inflation, to sustain a portfolio for 30 years.

The Mathematics of Capital Depletion

The decumulation phase of financial planning involves a monthly calculation where the outstanding balance earns interest and is then reduced by distributions:

B_t = B_(t-1) * (1 + r) - W_t

Where:

B_t: The account balance at the end of month t.
B_(t-1): The balance from the previous month.
r: The monthly interest rate, calculated as (Annual Interest Rate / 12 / 100).
W_t: The withdrawal amount for month t.

If you adjust your withdrawals for inflation annually to maintain purchasing power, the monthly distribution increases each year:

W_t = W_0 × (1 + i)^{⌊ t/12 ⌋}

Where W_0 is the initial monthly withdrawal, i is the annual inflation rate, and ⌊ t/12 ⌋ represents the number of full years elapsed. This adjustment preserves purchasing power but increases the rate of capital depletion.

Safe Withdrawal Rates and the 4% Rule

First published by financial planner William Bengen in 1994, the **4% Rule** is a widely referenced guideline for retirement spending. Bengen analyzed historical market data to determine a safe initial withdrawal percentage that would sustain a balanced portfolio (50% stocks, 50% bonds) for at least 30 years.

The rule works as follows:

1. The First-Year Baseline

In your first year of retirement, you withdraw exactly 4% of your total initial savings. For example, with a $1,000,000 portfolio, your first-year distribution is $40,000 (or $3,333 per month).

2. Subsequent Inflation Adjustments

In year two and beyond, you do not recalculate 4% of the remaining balance. Instead, you adjust your previous withdrawal amount by the inflation rate. If inflation was 3%, your second-year withdrawal becomes $41,200 ($40,000 × 1.03), regardless of market performance.

While the 4% rule provides a helpful baseline, modern retirement planners often recommend dynamic strategies (such as adjusting spending during market downturns) to adapt to changing market conditions.

Understanding Sequence of Returns Risk

Sequence of returns risk refers to the risk that market downturns early in the distribution phase will permanently reduce the longevity of a portfolio. Because you are actively withdrawing capital, experiencing poor returns early on forces you to sell assets at lower prices, leaving fewer assets to participate in subsequent market recoveries.

Consider two retirees, both starting with $1,000,000 and withdrawing $50,000 annually (adjusted for inflation):

Retiree A experiences poor market returns in the first three years of retirement. To meet their withdrawal needs, they must sell a larger portion of their portfolio. Even if the market recovers later, the reduced asset base may cause the portfolio to deplete early.
Retiree B experiences strong market returns in their initial retirement years. The portfolio grows, providing a larger buffer that helps sustain the portfolio through later downturns.

This highlight why managing early-retirement returns is critical, even if the long-term average return of the portfolio remains positive.

Inflation and Your Nest Egg's Longevity

Inflation reduces the purchasing power of your money over time. The table below shows how a fixed nominal withdrawal of $2,000 per month must increase over time to maintain the same purchasing power at different inflation rates:

Year	2% Inflation	3% Inflation	4% Inflation
Year 1	$2,000 / month	$2,000 / month	$2,000 / month
Year 5	$2,165 / month	$2,251 / month	$2,339 / month
Year 10	$2,390 / month	$2,610 / month	$2,849 / month
Year 20	$2,912 / month	$3,512 / month	$4,217 / month

Strategies to Help Extend Your Savings

If your projections indicate your savings may deplete early, consider these strategies to extend their longevity:

1. Establish a Cash Buffer

Maintain 1 to 2 years of living expenses in cash or short-term certificates of deposit (CDs). During market downturns, you can draw from this cash buffer instead of selling equities at depressed prices, mitigating sequence of returns risk.

2. Implement Dynamic Spending Guardrails

Consider adjusting your withdrawals based on market performance. For example, you might reduce your withdrawal amount by 10% in years following negative market returns to preserve portfolio capital.

3. Optimize Asset Allocation

Structure your portfolio with a mix of growth assets (stocks) to outpace inflation and income assets (bonds, fixed income) to provide stable capital for short-term distributions.

4. Leverage Guaranteed Income Sources

Securing guaranteed income streams, such as annuities, pensions, or Social Security, helps establish a baseline income floor that reduces the need to draw from investment portfolios.

Savings Longevity Calculator