- Select the type of calculation you wish to use. You can calculate either the maximum withdrawal for a period of time, or how long a specific withdrawal amount will last.
- Starting balance
- This is the total amount that you currently have invested. Include any sources of investment savings such as 401(k)s, IRAs and annuities that you wish to include in this analysis.
- Annual return
- This is the annual rate of return you expect from your investments after taxes. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2023, had an annual compounded rate of return of 15.2%, including reinvestment of dividends. From January 1, 1970 to December 31st 2023, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.9% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
When you are taking periodic distributions from an account or investment, the return earned is often lower due to more conservative investment choices to help ensure a steady flow of income.
- Expected annual inflation rate
- This is what you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI). From 1925 through 2023 the CPI has a long-term average of 3.0% annually. Over the last 40 years the highest CPI recorded was 13.5% in 1980. For 2023, the last full year available, the CPI was 3.1% annually as reported by the U.S. Bureau of Labor Statistics.
- Amount of distribution
- This is the amount that you expect to be withdrawing from your investments. All distributions are assumed to be taken at the beginning of each period. If you choose the calculation option 'Maximum periodic distribution' this field will be calculated.
- Years of distributions
- This is the number of years that your distributions are to last. If you choose the calculation option 'Years balance will last' this field will be calculated.
- Inflation adjustments
- These selections allow you to adjust your distributions for inflation. If you choose 'No adjustment for inflation' your distribution will remain at a constant amount for the entire duration of your distributions. 'Increase distributions annually' will increase your distribution amount at the end of each year by the rate of inflation. This begins at end of the first year of distributions. Choosing this option helps illustrate the cost of providing a current amount of purchasing power throughout your distributions.
- Distribution frequency
- The frequency that withdrawals are made from this account. Options include weekly, every other week, twice monthly, monthly, quarterly, semi-annual and annually.