Understanding your retirement income estimate
The table shows the income a $1,000,000 balance generates at withdrawal rates commonly discussed in the research literature, and how each is generally characterized.
| Withdrawal rate | Annual income from $1M | How the literature characterizes it |
|---|---|---|
| 3% | $30,000 | Conservative — used for longer horizons or cautious return assumptions |
| 4% | $40,000 | The Bengen/Trinity historical convention for ~30-year retirements |
| 5% | $50,000 | Aggressive — historically higher failure rates over long horizons |
- The 4% convention is based on historical US returns for balanced portfolios over ~30-year horizons; it is a planning benchmark, not a guarantee, and Bengen himself and later researchers have revised and debated the figure.
- The classic rule adjusts the dollar withdrawal for inflation each year rather than taking a fixed percentage of the current balance; this calculator shows the initial-year income.
- Withdrawals from tax-deferred accounts are generally taxable income, so spendable income is lower than the gross figure shown.
- Sequence-of-returns risk — poor markets early in retirement — can deplete a portfolio faster than average-return arithmetic suggests. Educational estimate only, not financial or retirement advice.
What is a retirement withdrawal rate?
A withdrawal rate is the percentage of a retirement portfolio drawn as income in the first year of retirement, with the dollar amount typically adjusted for inflation in later years under the classic framework. William Bengen's 1994 study in the Journal of Financial Planning found that an initial rate of 4% from a balanced stock-bond portfolio had survived every historical 30-year US retirement period in his data — the origin of the widely quoted '4% rule'. The Trinity study (Cooley, Hubbard and Walz, 1998) reached broadly similar conclusions using portfolio success rates.
The 4% figure is a historical planning convention, not a guarantee: it derives from US historical market returns, assumes a roughly 30-year horizon and a substantial equity allocation, and later research has argued for both lower rates (in low-return environments or longer retirements) and more flexible spending rules. This calculator applies whatever rate you enter to the balance, so conservative and aggressive assumptions can be compared directly.
Total retirement income is rarely savings alone. Social Security, defined-benefit pensions, annuity payouts, and part-time earnings stack on top of portfolio withdrawals; the other-income input captures these so the result reflects the whole income picture.
How to use this retirement income calculator
- Enter your expected savings balance at retirement across retirement accounts and other investments.
- Enter the annual withdrawal rate to test — 4% is the classic convention; lower is more conservative, higher less so.
- Enter other annual income such as expected Social Security benefits or pension payments (zero if none).
- Read the total annual income, the monthly equivalent, and the portion coming from savings withdrawals.
- Worked example: a $1,000,000 balance at a 4% withdrawal rate yields $40,000 per year from savings — $3,333 per month — before adding any Social Security or pension income.
The formula behind the income estimate
Income from savings multiplies the balance by the withdrawal rate. Other income is added to produce the annual total, which is divided by twelve for the monthly figure. Under the Bengen/Trinity framework this describes the first year's withdrawal; subsequent years adjust the dollar amount for inflation rather than re-applying the percentage.
Common mistakes
- Treating the 4% convention as a guarantee rather than a historical US-market benchmark with specific assumptions (balanced portfolio, ~30 years, inflation-adjusted withdrawals).
- Forgetting taxes — withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income, reducing spendable income below the gross figure.
- Ignoring inflation: $40,000 of income buys far less 20 years into retirement unless withdrawals grow, which is exactly what the classic rule's inflation adjustment addresses.
- Omitting Social Security or pension income and concluding savings are insufficient — or the reverse, double-counting income sources.
- Applying a 30-year-based rate to a 45-year early retirement, where research suggests lower initial rates are safer.
Preguntas frecuentes
How much income does $1 million generate in retirement?
At the classic 4% initial withdrawal rate, $40,000 in the first year — $3,333 per month — before taxes and before adding Social Security or pension income. At a more conservative 3% the figure is $30,000; at 5% it is $50,000 with historically higher depletion risk. The right rate depends on horizon, portfolio mix, and flexibility to cut spending in bad markets.
What is the 4% rule?
A planning convention from William Bengen's 1994 research, corroborated by the 1998 Trinity study: withdraw 4% of the portfolio in the first retirement year, then adjust that dollar amount for inflation annually. In historical US data, this strategy survived every 30-year period tested with a balanced stock-bond portfolio. It is a benchmark drawn from past returns — cited here as a convention, not a guarantee of future results.
Is 4% still a safe withdrawal rate?
It remains the most cited benchmark, but researchers disagree about its forward-looking safety. Arguments for lower rates cite low expected bond returns and longer retirements; arguments for higher rates cite the rule's historical conservatism and the value of flexible spending rules that cut withdrawals after market declines. Testing your plan at 3%, 4%, and 5% — as this calculator allows — shows how sensitive the income is to that judgment.
Does this include Social Security?
Only if you enter it: the other-income field adds any annual pension, Social Security, or annuity income on top of savings withdrawals. The Social Security Administration provides personalized benefit estimates at ssa.gov, and the claiming age chosen (62 to 70) changes the benefit substantially — each year of delay past full retirement age increases it up to age 70.
Are retirement withdrawals taxed?
Generally yes for tax-deferred accounts: withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income, and required minimum distributions apply from age 73 under current US law (SECURE 2.0 Act). Roth account withdrawals are generally tax-free in retirement if qualified. Taxes can reduce spendable income meaningfully, so gross withdrawal figures like this calculator's overstate take-home income for tax-deferred balances.
What is sequence-of-returns risk?
The risk that poor market returns early in retirement, when the balance is largest and withdrawals have begun, permanently impair the portfolio even if average returns over the whole retirement are acceptable. Two retirees with identical average returns can have opposite outcomes depending on the order of good and bad years. It is the main reason a fixed withdrawal rate can fail despite reasonable average-return assumptions.
Referencias
- Bengen WP. Determining Withdrawal Rates Using Historical Data. Journal of Financial Planning, 1994.
- Cooley PL, Hubbard CM, Walz DT. Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable. AAII Journal, 1998 (the Trinity study).
- Social Security Administration (SSA). Retirement benefits and benefit estimates. ssa.gov.
- Internal Revenue Service (IRS). Retirement topics — required minimum distributions (RMDs). irs.gov.
- Consumer Financial Protection Bureau (CFPB). Planning for retirement. consumerfinance.gov.