Testing a withdrawal rate against a portfolio
This models what a portfolio's own return assumptions imply about sustainable withdrawals. It is a model output, not a safe rate — and it will often exceed the familiar 4% rule.
What this calculator does
- Tests a chosen withdrawal rate against a portfolio over a stated retirement length.
- Derives a rate implied by your equity and bond return assumptions.
- Reports how long the portfolio would last at the tested rate.
- Shows the rate at which capital would be preserved rather than depleted.
How the calculation works
The calculation blends your equity and bond real return assumptions in proportion to the allocation you set, giving a portfolio return net of inflation. From that it derives two figures. The capital preservation rate is simply the blended real return: withdraw only that and the portfolio's real value is maintained indefinitely. The recommended rate is higher, because it permits the capital to be drawn down across the retirement length you specified rather than preserved forever. The tested rate you enter is then run against the portfolio to see how long it lasts. The critical caveat is what this model does not contain: it uses a constant return, so it cannot express sequence of returns risk — the fact that a bad first decade can exhaust a portfolio whose average return looked perfectly adequate. That is the dominant risk in retirement drawdown, and its absence is why the derived rate should be treated as an upper bound from a smooth model rather than as a safe withdrawal rate.
The rule
Blended real return = equity share × equity real return + bond share × bond real return. Capital preservation rate = the blended real return. The tested rate is applied annually to see how long the portfolio survives.
Step by step
- Blend the equity and bond real returns by the allocation.
- Report the blended return as the capital preservation rate.
- Derive a rate that depletes the portfolio over the stated retirement length.
- Apply the tested withdrawal rate to the portfolio and project its longevity.
Worked example
A £600,000 portfolio, 60% equities and 40% bonds, assuming 5% real on equities and 1.5% real on bonds, tested at a 4% withdrawal rate over a 30-year retirement.
What was entered
| Total retirement pot value | £600,000 |
|---|---|
| Retirement duration | 30 years |
| Equity allocation | 60% |
| Expected equity real return | 5% a year |
| Expected bond real return | 1.5% a year |
| Test withdrawal rate | 4% |
| Guyton-Klinger guardrails | Off |
The arithmetic
- The blended real return is 60% × 5% + 40% × 1.5% = 3.6% above inflation.
- That 3.6% is the capital preservation rate: withdraw only that and the portfolio's real value is maintained.
- The tested 4% gives £24,000 a year, or £2,000 a month.
- Because 4% is only slightly above the 3.6% preservation rate, the portfolio depletes very slowly and the model projects it lasting 66 years.
- The rate the model derives for depleting the portfolio across 30 years is 5.51%, giving £33,060 a year.
- That 5.51% is well above the familiar 4% rule, which is a signal about the smoothness of the model rather than about safety.
What the calculator returns
| Rate implied by these assumptions | 5.51% |
|---|---|
| Income at the tested rate | £24,000.00 |
| Projected portfolio longevity | 66 |
| Capital preservation rate | 3.6% |
Key assumptions
- Returns are entered as real returns, already net of inflation.
- The blended return is achieved smoothly every year, with no volatility.
- The allocation is held constant and rebalanced throughout retirement.
- Withdrawals are taken at the start of each year at the stated rate.
Limitations
- The model uses a constant return, so it cannot represent sequence of returns risk — the single most important danger in drawdown. A portfolio that meets its average return but suffers a poor first decade can fail where this model shows success.
- The derived rate is an output of the assumptions you supplied. Optimistic return inputs produce an optimistic rate, and it should not be read as a safe withdrawal rate.
- Longevity figures beyond a normal retirement length are an artefact of a smooth model rather than a meaningful prediction.
- Tax on withdrawals is not modelled, and it materially reduces spendable income from a pension.
- Charges are not deducted, and they come directly out of the return the whole model rests on.
- This is a projection, not advice. Free impartial guidance is available.
Common questions
Why is the derived rate higher than the 4% rule?
What is sequence of returns risk?
What is the capital preservation rate?
Should I use the rate this produces?
Related calculators
- Monte Carlo Investment Simulator — Replace the smooth return with a distribution, which is where sequence risk becomes visible.
- Retirement Income Calculator — See what a drawdown income actually delivers after tax.
- FIRE Calculator — The withdrawal rate chosen here determines the size of a financial independence target.
Official sources
Every figure in this guide was checked against the sources below. Where a source could not confirm a figure, it is marked as requiring verification rather than presented as settled.
- Pension Wise: free pension guidance — MoneyHelperFree impartial guidance on pension options, available from age 50
- Taking your pension as a number of lump sums or flexible income — MoneyHelperHow flexible drawdown works and the risk of exhausting the pot