How long a pot lasts when you draw from it
This is the retirement calculation run backwards. Instead of asking what a balance grows to, it asks what level payment a balance can sustain for a fixed number of years before it is exhausted.
The remaining balance keeps earning while you withdraw, which is why the total paid out exceeds the sum you started with.
The formula
It is the mortgage formula. A loan and a drawdown are the same arithmetic seen from opposite sides of the table: one party holds a balance that earns interest and receives level payments until it reaches zero.
Worked example: $250,000 over 20 years at 5%
- Monthly payment: $1,649.89
- Total withdrawn: $395,973
- Interest earned along the way: $145,973
You take out 58% more than you put in, because the balance keeps working. In the first month, $1,042 of that payment is interest and only $608 comes out of capital.
What the term does to the payment
| Years | Monthly payment | Total withdrawn |
|---|---|---|
| 10 | $2,651 | $318,160 |
| 15 | $1,977 | $355,830 |
| 20 | $1,650 | $395,973 |
| 25 | $1,462 | $438,510 |
| 30 | $1,342 | $483,270 |
Doubling the term from 15 to 30 years cuts the monthly figure by a third, not by half, and raises the total taken by $127,000. Time in the market does the difference.
The assumption that breaks it
The formula requires a steady 5% every year. Real portfolios do not deliver that, and the order of returns matters enormously when you are withdrawing.
A bad first three years while you are taking $1,650 a month can exhaust the pot years early, even if the average over twenty years is exactly 5%. This is sequence-of-returns risk, and it is the reason many retirees hold two or three years of spending in cash — so a fall never forces a sale.
What this calculator leaves out
Inflation, which erodes a level payment by roughly a third over twenty years at 2%. Also tax on withdrawals, and the fact that it plans to leave nothing: if you outlive the term, the money is gone.
Buying a guaranteed income instead
The figure above is what you can pay yourself from your own invested pot. A commercial annuity replaces that with a contract: you hand an insurer the $250,000 and they pay a fixed amount for life, however long that is.
The quoted rate is usually below what self-managed drawdown would produce, and the difference is the price of removing two risks — that markets disappoint, and that you live longer than the plan. Whether that price is worth paying depends on how much other guaranteed income you already have, and on whether running out at 87 is a scenario you can tolerate.
Drawing a percentage instead of a fixed sum
An alternative to the level payment above is to withdraw a fixed percentage of whatever the pot is worth each year. Take 4% and the income moves with the portfolio: less after a bad year, more after a good one.
The pot can then never be fully exhausted, since each withdrawal is a share of what remains. The trade is that the income is no longer predictable, and in a poor decade it can fall materially below the $1,650 a month the fixed calculation promises.
Related calculators
- Retirement withdrawal calculator — the same question with a different framing
- Perpetuity calculator — what a pot pays if it must never run out
- Inflation calculator — what $1,650 buys in twenty years