Methodology
Here is exactly how the calculator works
How It Works
The calculator uses the "Classic 4% Rule" from William Bengen's 1994 research.
- Year 1: Withdraw 4% of your initial portfolio
- Year 2+: Increase that dollar amount by each year's inflation
- Withdrawals are annual (beginning of each year)
- Remaining portfolio grows/shrinks with S&P 500 returns
- For comparison, the same withdrawals are also run on the Trinity study's stock/bond mixes (75/25, 50/50, 25/75, 0/100), rebalanced to the target mix every year
Example
$1M portfolio → $40k Year 1 → if 3% inflation → $41,200 Year 2
Data Sources
S&P 500 returns & CPI inflation: Robert Shiller, Yale University
Includes monthly S&P 500 prices, dividends, and CPI from 1871–present. We use annual returns (January to January).
Bond returns: the same dataset's monthly total returns on 10-year U.S. Treasuries (GS10), compounded January to January. The original Trinity study used long-term high-grade corporate bonds, so its success rates differ slightly.
Fees and Taxes
Fees. Results assume no fees unless you pick an annual fee under Portfolio Parameters. The fee is charged on the portfolio at the end of each year, like a fund's expense ratio or an advisor's fee. It matters more than it looks: with $1M at 4% over 30 years, the historical success rate is 94.4% with no fees and 86.1% with a 1% annual fee.
Taxes. Results are before taxes, because what you owe depends on which account the money comes from:
- Taxable brokerage account: only the gain is taxed. Selling shares gives you back your cost basis tax-free, and the profit is taxed as a capital gain (0%, 15% or 20% federally for shares held over a year). Dividends are taxed every year, even when reinvested.
- Traditional 401(k) or IRA: every dollar withdrawn is taxed as ordinary income.
- Roth 401(k) or IRA: qualified withdrawals are tax-free.
The simplest way to account for taxes is to treat the withdrawal as your pre-tax budget. If you need $40,000 a year after tax and expect to pay about 10% in tax, plan to withdraw about $44,400 a year. This is general information, not tax advice.
Assumptions
100% S&P 500, Plus Stock/Bond Mixes
The main results put all money in the S&P 500. The stock/bond comparison holds the rest in 10-year Treasuries and rebalances annually.
Before Taxes, Fees Optional
Results are before taxes. Fees are zero unless you pick an annual fee in the calculator. See Fees and Taxes.
Annual Withdrawals
Taken at the beginning of each year.
Dividends Reinvested
Returns include dividend reinvestment.