Financial Independence (FIRE) Safe Withdrawal Rate Analyzer
The most critical decision in retirement is determining your **Safe Withdrawal Rate (SWR)**. This calculator uses your current portfolio size, desired retirement duration, and expected market returns to project your maximum annual safe spending. It is the core math behind the popular **"4% Rule"** and the entire FIRE movement.
Portfolio & Time Metrics
Growth Assumptions (Inflation-Adjusted/Real)
Standard Annual Spending
The Core Math of Retirement: The Safe Withdrawal Rate
The Safe Withdrawal Rate (SWR) is arguably the single most important number for a retiree. It represents the maximum percentage of your initial portfolio you can spend each year, adjusted for inflation, such that the money lasts for the entire duration of your retirement. The most famous outcome of this research is the **4% Rule**, derived from the seminal **Trinity Study**.
Understanding the 4% Rule
The 4% Rule states that if you withdraw $4\%$ of your initial portfolio value in the first year of retirement, and then adjust that dollar amount for inflation every subsequent year, your money has a high probability (historically over $95\%$) of lasting $30$ years. This rule provides a simple calculation for the target nest egg size for Financial Independence:
$$\text{Target Nest Egg} = \text{Annual Expenses} \times 25$$ The multiplier of $25$ is simply the reciprocal of $4\%$ ($\frac{1}{0.04} = 25$). This rule relies on key assumptions, including a diversified portfolio of $50\%-75\%$ stocks and the remaining in bonds, and is based on historical US market data, which includes various economic cycles and high inflation periods.
The Custom SWR Formula (The Customizable Approach)
While the $4\%$ rule is a great starting point, a more personalized analysis uses the expected **Real Rate of Return** (Return after inflation) to estimate a more precise SWR. While this simplified formula does not account for sequence of returns risk (the risk of a market crash early in retirement), it provides a good theoretical maximum spending rate:
$$\text{Theoretical SWR} \approx \frac{1}{\text{Retirement Duration (Years)}} + \text{Real Rate of Return}$$
For our calculation, we use a slightly more conservative approach based on the perpetuity calculation (assuming a very long or infinite horizon) for the portfolio value required to support a spending stream that is adjusted for inflation: $$\text{Custom SWR} = \text{Expected Real Return Rate} - \text{Margin of Safety}$$ Our tool provides a theoretical SWR by simply taking your initial desired annual spending and dividing it by the portfolio value. We then use your expected real return to provide a long-term sustainability indicator.
Sequence of Returns Risk: The True Danger
The primary risk to any retirement portfolio is not a low average return, but the **Sequence of Returns Risk**. This happens when a severe market downturn occurs early in retirement. When early withdrawals coincide with portfolio losses, the recovery period is significantly longer, permanently impairing the portfolio's ability to compound and often leading to premature depletion. The $4\%$ rule's success is based on the fact that historically, even in the worst-case $30$-year periods, $4\%$ was sustainable.
**How to mitigate Sequence Risk:**
- **Dynamic Spending:** Adjusting spending down during poor market years (often called "guardrails").
- **Lower SWR:** Using a more conservative rate like $3.5\%$ for longer periods ($35+$ years).
- **Bond Tent:** Holding a higher cash/bond position in the first few years of retirement to avoid selling stocks during a downturn.
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