Retirement Tool

Retirement Income Calculator

Estimate your monthly retirement income from your nest egg. Compare the 4% rule against an annuity-style withdrawal over your expected retirement duration.

How this calculator works

This tool provides two income estimates from your retirement nest egg:

  • 4% Rule (constant purchasing power): Withdraws 4% of your initial balance in year one, then adjusts upward by inflation each year. Your portfolio continues to earn returns on the remaining balance. This method aims to preserve principal over long periods.
  • Annuity method (systematic depletion): Calculates a fixed monthly payment that depletes your savings exactly at the end of the withdrawal period, accounting for both investment returns and inflation erosion on purchasing power.

Neither method accounts for taxes, Social Security benefits, pension income, or changes in spending patterns during retirement. The methodology page describes how PlainRetire handles data more broadly. For pre-retirement growth projections, try the Retirement Savings Projector.

Key assumptions

  • Returns are compounded annually at a constant rate (no market volatility)
  • Withdrawals begin immediately (no deferral period)
  • For the annuity method, real return = nominal return minus inflation
  • No taxes on withdrawals, adjust for your actual tax bracket separately

Frequently asked questions

What is the 4% rule for retirement withdrawals?

The 4% rule, originating from William Bengen's 1994 research, suggests that withdrawing 4% of your portfolio in the first year of retirement and adjusting for inflation each subsequent year provides a high probability (approximately 90-95%) that your savings will last at least 30 years. For a $1 million portfolio, this translates to $40,000 in the first year ($3,333/month). However, the rule assumes a 50/75 stock/bond allocation and may need adjustment for longer retirements or unusual market conditions.

How does inflation affect retirement income?

Inflation erodes purchasing power over time. At 3% annual inflation, $1 today is worth approximately $0.74 in 10 years and $0.55 in 20 years. This means a fixed monthly income of $3,000 will buy significantly less goods and services later in retirement. Our calculator adjusts withdrawal amounts upward each year to maintain constant purchasing power, which reduces the number of years your portfolio will last compared to flat withdrawals.

Should I use the annuity method or the 4% rule?

The annuity method assumes your portfolio is fully depleted at the end of the withdrawal period, it provides a fixed monthly payment based on life expectancy. The 4% rule aims to preserve principal and potentially leave an inheritance. Most retirees use a hybrid approach: Social Security and pensions cover essential expenses, while portfolio withdrawals fund discretionary spending. The Retirement Savings Projector (at /tools/retirement-savings-projector/) can help you estimate how your balance grows before withdrawals begin.

Sources

The 4% rule originates from William Bengen's 1994 study published in the Journal of Financial Planning. Annuity calculations use standard present-value-of-an-annuity formulas. Inflation benchmarks from the Bureau of Labor Statistics Consumer Price Index. This tool provides estimates only and is not financial advice.