Retirement Withdrawal / 4% Rule Simulator

How the 4% Rule Simulation Works

We compound monthly using your annual return and inflation. For the classic 4% rule, the first year’s withdrawal equals WR% × starting portfolio. At each anniversary, the withdrawal is increased by your inflation input (COLA). The Flat nominal mode keeps withdrawals fixed in £ terms (no COLA). The Custom % mode withdraws a percentage of the current portfolio each year, so spending self-adjusts to market performance.

• Monthly return: \( r_m = (1+r_y)^{1/12}-1 \)
• Monthly inflation: \( \pi_m = (1+\pi_y)^{1/12}-1 \)
• Real (today’s money): divide by \( (1+\pi_y)^t \) where \( t \) is years since start
• Depletion check: the tool stops at £0 and reports the month/year of depletion

Understanding the 4% Rule and Retirement Withdrawals

The “4% rule” is a simple rule of thumb for drawdowns in retirement. It says that in the first year you retire, you withdraw 4% of your starting portfolio. In later years, you raise that pound amount by the rate of inflation so your spending keeps the same purchasing power. For example, if you begin with £1,000,000, your first-year withdrawal is £40,000; if inflation is 3% the next year, you withdraw £41,200, and so on. Our simulator models this classic approach, along with alternatives like a flat nominal amount or a percentage of the current portfolio each year.

Why this rule exists

Retirement income planning faces two main uncertainties: market returns and longevity. The 4% guideline aims to strike a balance between spending enough to enjoy retirement and keeping a high probability that your portfolio lasts through a typical 25–30 year horizon. It’s not a guarantee or a law of nature—just a practical starting point for conversation and what-if analysis.

What the simulator shows

• Monthly compounding: Your chosen annual return and inflation are converted to monthly rates for a smoother path.
• Inflation adjustment (“today’s money”): Balances are shown in nominal terms and in inflation-adjusted pounds to reflect purchasing power.
• Annual COLA: Under the classic mode, withdrawals increase once per year by your inflation input.
• Depletion check: If the portfolio would run out, we flag the approximate year so you can adjust assumptions.

Key risks and trade-offs

• Sequence risk: Poor returns early in retirement can permanently dent sustainability even if long-run averages look fine.
• Inflation surprises: If actual inflation is higher than assumed, real (inflation-adjusted) spending power erodes unless COLA keeps up.
• Fees and taxes: Ongoing fees reduce net returns; taxes change your spendable cash. The simulator focuses on gross portfolio mechanics.
• Return realism: A high return minus inflation (“real return”) makes higher withdrawals safer; a small real return calls for caution.

Variations you can try

• Flat nominal: Keep the same £ amount each year. Simpler, but purchasing power may fall during higher inflation.
• Percentage of portfolio: Spend a fixed % (e.g., 4%) of the current balance each year. This self-adjusts to markets, reducing depletion risk but making spending more variable.
• Hybrid guardrails (idea): Some retirees raise or trim withdrawals if the portfolio rises or falls beyond set bands (not advice, but a useful experiment).

How to use the results

Treat outputs as estimates to guide discussion, not predictions. Run multiple scenarios: lower/higher returns, different inflation, and alternative withdrawal styles. Watch how early bad years or a tighter real-return gap (return − inflation) change sustainability. Consider coordinating with pensions, annuities, part-time work, and a cash buffer for near-term spending to reduce the pressure on the portfolio.

Educational content only—not financial advice. Your situation is unique; consider professional guidance for tax, fee, and investment specifics.