A Calculator for S&P 500 Index Funds
concerned with 4% Rule retirement withdrawal safety

The 4% Rule was about balanced funds (perhaps a 60/40 fund, 60% stock mixed with 40% bonds), so interest in the suitability of a 4% Rule for withdrawals from a 100% S&P 500 fund convinced me that a S&P calculator such as this should be of interest. This article is intended as a guide about planning a safe and sustainable investment and retirement withdrawal plan from a S&P 500 Index fund that would survive typical bad market times (which do happen, but the long term overall rewards in good times are well worth it). Withdrawals cost far more than just the dollars withdrawn. It also costs all the long term substantial future compounded earnings those withdrawals could have earned. The best plan is of course to postpone all withdrawals until retirement, so the fund will continue growing, and will be there when actually needed at retirement. The valid concern is that continuous withdrawals during earlier years or during bear market downturns (before fund has grown to be able to survive the withdrawals too) could deplete a fund, ending it prematurely, not lasting until needed for retirement. Is 4% a right number for S&P 500 plans too?

The S&P 500 calculator and Fund Survival Test is below, which examines 50 years of historic S&P 500 returns. Don't miss that, there is a lot there. Try the calculator options which can compare and show the effect of the past history and very importantly, show the effect of withdrawals (4% or any others). It certainly offers an interesting view about the years of market gains. It can also show compounding of gains over a multi-year period, including the effect of withdrawals or additional investment.

But there is a lot more here. This page is just the calculator now, but the page was far too long as one page, so much of the introductory material describing the S&P 500 and the market and the 4% Rule was reluctantly moved to a second page at A few things to know if don’t already. If you are new to the market, it's there if you want to see it.

It is a mistake to think of stock dividends as new income to be withdrawn. The dividend money was moved from the companies (who's value then went down by millions or billions) into your fund, so the remaining stock price (which reflects the value of the company) is equally reduced when the dividend is paid. Due to the corresponding price drop, the value sum of withdrawn dividend and the remaining stock value remains exactly the same value, no gain. The value change due to that dividend transaction on that day is zero. Withdrawing dividends would instead only be a simple direct withdrawal that reduces your current fund value (same as any other withdrawal). There's a table below showing the huge long term loss of withdrawing dividends. See more detail on a following page: Stock Dividends are valuable, but withdrawing them is withdrawal, Not income.

However reinvested dividends do become additional shares which do create significant future compounded earnings (But just Not on that same first day, and Not if withdrawn.) The withdrawn dividend may seem small, but in the calculator below, click the "withdraw all dividends" option (or Example 2 below) to see the unimaginable compounded fund value loss in many years. It's good to know how it works.

Calculator for Survival Test if Starting Fund Each Year

The Survival Test feature of this calculator performs an examination for S&P 500 Index funds to show how market drops and/or withdrawals have survived in the past bad bear market history typical of the real world over the last 50 years, from any starting year, and can be started with any fund amount. It restarts the calculator at every past chart year, with any withdrawals or additions, seeking to find the effect of the bad times. We can't know future performance, however the overall S&P annual gain has always averaged about 10% a year, even more in its good years, but then with losses in the bad years. We cannot repeat those same past years, but the same kind of periodic market crashes have always happened, and are still routinely expected now and then (the bitter with the sweet, which averages out, and the sweet wins). But is a valid future concern about retirement withdrawals being more than the situation can bear. We don't know that future situation, but if we can determine a withdrawal rate that would have always been safe in any starting year in the last 50 years, it should seem safe in the future too. This past history has some very bad years, and some very good years too, more good than bad.

We can't see the future to know when a crash might occur, but the calculator below computes "how much" occurred in past "typical" crashes. You might plan for it by having more fund money in the fund, or by allowing for reducing withdrawals, especially during bad market times.

Test it yourself (next below). This Fund Survival Test performs the convenience of recomputing the fund beginning in each and every year in the 50 year chart, and looks at the survivability in any situation there due to any specified withdrawals. Various Start Years do cause different results depending on market year situations then, and especially of course, due to any withdrawals specified, and on how many years of opportunity follow. We don't know when future crashes will occur, and adding more investment money all along is always a great plan too (more money grows more). This is historical data, Not the future, so the exact dollar values of the past data are not significant today. But the past can be said to be "typical market situations", and it can show a lot in a glance. The idea is to show impact of withdrawals (how the market works), in situations that have happened and conceivably might happen again. The best earning plan is always "no withdrawals", but this topic is intended to be about necessary withdrawals during the 30 years of retirement.

Here, a fund depletion failure is indicated if the fund value falls below the specified Failure Minimum Limit, which you can choose. This limit is because the limit zero does not seem useful with percentage withdrawals, like even 30% is hard to ever reach zero (at 10 cents, even 30% reduction is still not zero.) The default $100 limit does not hurt the concept, but you can change it. Entering recovery with only $100 is not optimum for fast growth, but we are looking for a busted fund near value zero here.

The best explanation of what this Survival Test does is seen by running a Test example. I invite you to try it with a hypothetical example with calculator initial defaults (starting with $25K in 1970) except with button 2 at $200/month withdrawal. The Test All Start Years choice will show the situation. The future is not known, but this example shows the possible risk of the specified withdrawals that have actually happened. And if the plan should fail, of course there are smarter plans.

  Show this setup in calculator below (called Example 0)

Then while there, also instead use button 1 for 11% (which is near the average fund gain), which just always continually maintains more or less about the same fund value (withdrawal dollars to be recomputed as the same percentage every year). The 11% did not fail, but it limited the fund value to about $19K, and the total growth value recoverable to about $140K (including the withdrawals) instead of the $4.7 Million if instead no withdrawals for 51 years. Withdrawals have a very high earning cost, but are of course the expected plan during retirement.

Then also try button 3 with both 11% and $200/month acting as limits on each other, smoothing the action. It is a more even and reasonable result that does not fail the Test, but the recoverable Total Value is still only about $250K (about 4.5% for 51 years).

And just to make the point about the cost of withdrawals, also try button 0, no withdrawals at all. Seeing how crashes and withdrawals work can only make any question about the withdrawal danger be better understood.

Or to make the point about a larger fund value, try button 2 and the same $200/month again that failed quickly (in each of 13 start years), but a $50,000 starting investment smooths it over and does not fail. In fact, it was enough to get past the bad years and then it still grows to $4.4 Million in 52 years. So situations differ, and the details are far from absolute. Letting the fund grow before starting withdrawals is the best plan.

But for a dramatic difference, contrast that with Example 4 below about letting the $25000 grow first (for 20 years), before starting any larger retirement withdrawals. There are no hard answers, but this is intended to be instructive. This does show past years history, and future years are unknown. It will depend on the fund value, which depends on the withdrawals you choose.

There are several more examples below. More money in the fund will always last longer, but technically, if no withdrawals, the fund does not go bust in the bad periods even if starting with only $100 in 1970 (declaring a $60 Minimum). The value does fall to near 60% about three times then, if starting at 1973, 2000, or 2008, but it still survives to grow to near $21K today if left undisturbed. Any fund failures are due to your withdrawals, which should be left until retirement. The Test result shows that this example $200/month fixed amount withdrawal works if the fund value grew a little larger, or started larger, but otherwise, it also still fails in quite a few years too. Since we don't know the future, that's a serious problem that conceivably could happen again. Starting with $25K at 1970, the early fund bad times did not yet have sufficient gains in the fund to provide the withdrawal demands. As the fund decreased, the fixed withdrawal was withdrawing more and more percentage, and could not survive that. The later bad times of the 2000s also took it down so some starting years failed. If instead withdrawing a small percentage, like 5% or even 10% (with dollars to be recomputed every year), the percentage withdraws much more when the fund value is high, but very little when the fund value is low, which helps survival considerably (fund probably never reaches zero). But it is variable, and a fixed dollar amount is constant and more suitable for retirement living expenses, but it really hits the fund hard in down years. Button 3 provides both percent and dollars as limits on each other, which can smooth it out. But all withdrawals are costly, and if no withdrawals, $25000 could have earned more than $4 Million (in 50 years, in spite of the bad years). Maybe some of those results look scary, but please also just retry it with No Withdrawals to see the really huge difference. It will not fail if no withdrawals. And of course, more fund money does last longer. There are more examples below, just some ideas to think about. Less withdrawal generates More total earned income, except it is in different time frames.

IRA RMD: A percentage withdrawal is safest, because it reduces the withdrawal dollars when the fund is low. But it might be of interest to future retirees that an IRS Required Minimum Distribution (RMD) of an IRA fund is a fixed dollar amount. The calculator can start that withdrawal at any year. Put a monhly RMD withdrawal amount at button 2, and if no previous data, put the current IRA fund value as Starting Investment (at correct start year). The RMD increases with your age (see RMD on next page)), and the fund should earn gains too. Note that the RMD amount is computed from the total of all your RMD funds, but here, the percentage shown is from that one fund you are withdrawing it from. Of course, an IRA RMD is Not designed to last, but is instead designed to pay the taxes.

Again, this Survival Test cannot predict the future. It only shows historical results, assumed possibly typical of the future too, but future results are unknown. The previous bad years are useful to show examples of possible market action. The important thing is that surviving bad market years needs sufficient remaining fund value to recover, so minimizing withdrawals is important, certainly in early or bad years. Starting later also limits earnings simply because of the fewer years left to grow then.

S&P 500 Index Fund calculator with 50 year history

Starting Investment $   Start Year 1970-2022   Your Fund Fee %
  Reset settings to initial defaults ($25000 in 1970, withdrawals Off, $100 Minimum limit)

Survival Test: Test Starting at all chart years.  Minimum value $ defines Depletion
Reset Survival Test mode OFF (except examples)
Include Test showing only any depleted (busted) fund years
Include Test showing Starting in All Years

Withdrawal and/or Investment:
Makes the selected changes below at All Years, unless adding these year limits:
Start these actions at and after Year
Stop these actions at and after Year

Reinvest dividends
Withdraw dividends in selected action year range (Withdrawals are shown in blue)

0 No additional Withdrawal or Investment (only the Initial investment)
1 Annual Withdrawal % (All Withdrawals are shown in blue)
2 Monthly Withdrawal $ per month
3 Withdrawal is the lesser amount specified at the 1 and 2 buttons
4 Add Investment $ per month (Dollar-cost averaging)
5 Add Investments in 4 until year and thereafter make withdrawals in 3
6 Single actions of: (only one action in the same year, within range of Action Start/Stop)

Year end   $  Withdrawal   Investment
Year end   $  Withdrawal   Investment
Year end   $  Withdrawal   Investment
Year end   $  Withdrawal   Investment
Year end   $  Withdrawal   Investment

Any button, or pressing Enter in an active extra field, or a will recalculate
the tables. The exceptions are the Investment/Withdrawal buttons in Option 6 are
nonresponsive, but when ready, click the 6 button, and they will be read.

The S&P 500 had 70 record high closes in 2021. The last record high close was 3 Jan 2022 at 4796.56
See the S&P 500 daily market action, including the frequency of the S&P 500 record highs.
Gain $
Net fund
value $
+ Div $
YearS&P yr
Close $
gain %
Net fund
value $
+ Div $
YearS&P yr
Close $
gain %

Chart bottom summary row: Withdrawn sum values are shown in blue. Left side of bottom row are column Sums. On right side are column simple Averages (of individual years), of all rows except 2022, which is an incomplete year so far (Annualized Return is shown in the Withdrawal Depletion table next below). Columns 1 & 4 on bottom summary row may contain two rows itself. Sums added or dividends reinvested are on its top row (black text there). Any sums withdrawn are at its bottom row and in color blue.

There may be some unavoidable precision loss. Withdrawals and deposits and fund fees are calculated here to be from the actual previous year end result values, but those actions are on intermediate days during the year. However the dividends and price gains do have year end annualized factual summary data, and the calculator does appear to be pretty close to actual final past fund results. The S&P funds match the same S&P dividend percentage proportionately. The "Gain + Div" column is just the sum of the years gains, but Dividend is not included in the fund if it is instead withdrawn.

All chart values are year end values except for 2022 being a partial year. Events within the year can be exciting, but some of the intermediate history and larger changes might be hidden, since only the year end is shown. For example, the 2020 pandemic dropped -34% in March, but recovered to +16% at year end. There was also a sudden 18% drop 12/24/2018, but it recovered in a week to only to a 6% drop at year end, and its rapid total recovery of course continued to new record highs.

Don't assume fund expense fees are tiny and negligible. Enter your fund fee as zero to see the difference it makes after accumulating many years. S&P 500 funds with a small fund fee are available and advantageous. I like the Vanguard VFIAX, with a 0.04% fee.

Fund Survival Test Results

The Test Mode computes starting an S&P 500 fund in many past years (computes up to 1431 year situations if no depletion failures) and watches for the fund going bust due to specified withdrawals during past market crashes. The future is of course unknown, but this is what has happened in the past. This can show the possible real effects to be ready for. The 1970s and 2000s were not good times, however we survived it, and the other years, and the last dozen years, have mostly done quite well.

The Lowest Year Value is of course typically the starting year, but withdrawals or a later crash can lower it too. Every start year from 1970 on is shown, which can show overall fund gain results when starting any year (including any withdrawals or investments specified above). The future will be different, but we might expect similar events, sometime. The Test shows the past start year results, and you can also run the calculator manually from any Start Year of interest to see the intermediate details of that years results.

Total Return is the Final Fund Value with any withdrawals added back to a total. It is the return made available to you, both already received, and that can still be withdrawn. Those withdrawals and the starting investment are as currently specified in the calculator above.

The Annualized Return is Not shown if Dividends are withdrawn, but any withdrawal seriously reduces the returns. The Annualized Return is the hypothetical calculated interest rate so if that same fixed interest rate were paid in each of those years (like a bank account, for comparison purpose), the compounding will produce the same total final result. The final partial year 2022 is included in each starting span, and is annualized as the partial year, but that complete year is not known yet.

Here's a quick look at actual history summary of past S&P market action, in five and ten year periods (the top row is only 2+ years).

S&P 500 gains from $25,000 in 1970, invested dividends, with no withdrawals

Percentage gain =
New value - Old value
Old value
× 100

All this is history, Not the future, but it has all happened. The -11% and 2% five year dips shown are just the ending value of the five year periods. The worst part of these multi-year negative dips reached about -50% in 1973, 2000, and 2008, but recovered somewhat by the end of the five year interval shown in this table. Much better financial rules seem to be in place now to help the market now, but all five year periods are Not alike, and some could include bad market times (it is called "risk" and we do still have politicians in Congress). Still, if it is a worthy investment, hang in there, it does routinely recover, always has, with good gains long term. Even with a few seriously bad years, if without withdrawals, the cumulative long term compounding effect should be evident and mighty impressive.

Retirement: Maybe 30 or 40 years seems a long time away, but nevertheless, realize that money will be extremely important during your retirement. Because retirement typically means no more job or salary, so you will need planned investment savings to live on. You might have maybe 30 more years during retirement too, but the early investment grown large can continue growing then too. So realize retirement age is definitely coming, and planning for it now would be very wise, and maybe allow travel and cruises then too. There are obvious advantages of having sufficient money during retirement. You might be able to plan for this in later life, however the compounding of many years of Time will be your best investment tool if starting early, or your worst loss if you wait. So start now while you still have time for it to work. It will be too late after you need it. Realize the importance of the goal, and keep your eye on the prize. Bigger plans are possible, but an easy way is that if just $10,000 were put into a S&P 500 Index fund (for example VFIAX) in 1980 (40 years ago) and left untouched, it would be $1+ Million now, in spite of a few seriously bad times (S&P does always recover). The time takes care of it. The best plan is to start early and leave it alone and withdraw nothing until retirement needs make it necessary. Of course, adding a little to it all along is a very good thing too (especially in down markets, to buy low).

The Message again: Start Very Early, decades before you will need money for retirement. And until retirement, leave it untouched and working. Withdrawing it early to buy a jet ski would be foolish.

Withdrawals are a huge cost in "What could have been"

Appreciable withdrawals from funds, including dividend withdrawals, can cost much more loss than you might imagine, and might be fatal in bad market times. All of the future years provide a very serious compounding benefit, but every dollar withdrawn loses all of the future gains it could have earned, a repeated loss every succeeding year. If the fund has grown a little, a modest percentage withdrawal rate (like 5%, with the dollars recomputed every year) should be sustainable, because the percentage means the dollar amount is low when the fund value is low. Whereas fixed dollar withdrawals are pretty much the opposite effect, percentage-wise. The sustainability of a fixed dollar withdrawal rate seriously depends on the amount of money remaining in the fund. Withdrawing the dividends might be only about 2+% a year, but the withdrawal of those "future shares" will make a huge difference preventing compounding over many years. Any way you do it, withdrawals are costly, and long term, will drastically reduce the funds total value that it could have earned. The calculator provides a visual way to realize this if you try some things in it (again, based on actual past results instead of knowing the future).

Withdrawing dividends is extremely costly to the future fund income over the many years

S&P 500No withdrawalsWithdrawing all dividends
YearsFund Value
Fund Value
after WD
End Value
incl WD
CostLoss of

The cost of withdrawals is the money "that could have been" minus the money remaining available.

WD Cost % =  
(Final value w/No WD) - (WD + Final value after WD)
Final value w/No WD
× 100

Long term, reinvesting dividends is a major part of S&P earnings. THE major part depending on definitions. That ought to get your attention. Do you really need to withdraw that (about 2+%) dividend each year, or would it (and its compounded future earnings) be better used at retirement? You might not be aware how very expensive that gets long term, but it certainly does, and there are choices. Reinvesting the dividend would add its additional shares every year for considerably more growth every year, greatly affecting final income for retirement. The exact gain values depend on market performance in the past decades, but that's true withdrawn or not, so the degree of cost of Withdrawal Loss depends on the years of duration of the compounding gains.

So don't imagine that withdrawing dividends is withdrawing income. Withdrawing dividends only lowers the fund value, same as does any equal withdrawal, no difference. Any withdrawal of same amount and timing will have the same numbers. Withdrawals are too expensive except in retirement when that is the whole intended need and planned purpose. The reported year gains can only compute the same numbers the same way. Every single digit in this table is the same for any withdrawal of the same amount. The compounding of the fund gains does work well if having the dollars to work with.

Reinvesting dividends does add shares, but without changing fund value on that day, however the new shares can add additional compounded future earnings every future year, which is the big benefit. For more, see Stock Dividends are valuable, but are not actual immediate income on next page.

Dividends in the table below are reinvested, but that table then assumes you might intend to withdraw a little all along from the start... just because it's there I suppose, except it is not there after you withdraw it. The numbers here come from the calculator above. The Cost of the Withdrawals is the possible fund value without withdrawals, minus the amount available to you (after the withdrawals and the remaining value still there). The cost is the loss that you did not get (losing the compounded gains it could have earned). Greater withdrawal is less overall gain.

Cost of Continuous Withdrawals for 52 years
after S&P 500 Investment of $25000 in 1970

Final fund
Cost of
Cost as

Fund Fees: The fees are also a continuous withdrawal. Try entering your fund fee as zero to see the difference that compounding of lost earnings cost there. Be sure you are entering the correct fee for your specific S&P fund (fees do vary significantly). The cost of the fee every year is much more than just the fee. It also continues to cost the lost earnings on it every year, compounded over the years. You definitely want to find a low fund fee.

When losing the compounding over many years, the long term expense of regular withdrawals becomes extremely high, compared to "what could have been". As the withdrawal percent increases, the fund value decreases so then it earns less, and so the dollar amount of any percentage withdrawal total also drops. The 2% case is comparable to just withdrawing all the S&P 500 dividends, the effect is the same. It should be a sobering thought. I don't mean to be preachy, but awareness is my goal. At least evaluate the actual need first. Just because it is there seems the worst reason to withdraw it. The best reason for withdrawals to wait is that your need is likely greater at retirement time. A common purpose of mutual funds is of course for the withdrawals to support retirement, but that idea is to first invest for 20 or 30 years without withdrawals to build up the fund, so you can have something to withdraw in retirement. You can take action on that NOW. Do realize that you are not simply subtracting the withdrawals. The big deal is that you are also subtracting all the years of compounded gains those withdrawals could have earned (which is a hugely larger number). The better idea is to let the fund accumulate something first. See Example 8 below.

The magic of the gains is that the growth is compounded, with the gains earning more gains, year after year, increasing dramatically after a couple of decades. But continuous withdrawals are a real big thing affecting a fund, reducing the gains and the compounding, again over many years. If you withdraw more, you get much less. You can see the result yourself in the calculator above. Imagine investing $25,000 one initial time in a S&P 500 fund for 50 years (historic S&P 500 data from 1970). That span could be at your age 25 to 75. If you're young, you need to realize those many available years are the huge magic opportunity, which diminishes if you wait. Just ten years might be impressive, but 50 years is simply awesome.

Just to be clear, withdrawals during retirement are certainly an expected main purpose of the market funds, but earlier withdrawals are detrimental to that possible "what could have been" retirement income. This is especially true during long term, when the compounding can make so much difference.

One purpose of these examples is to show some of the controls possible in the calculator, but the really big point is that if no withdrawals, 50 years of S&P 500 gains will be absolutely awesome. Retirement time will come, ready or not, and you need to realize that you should get started on it NOW. Time is the tool that works, but if you wait too long, this huge opportunity diminishes.


If not withdrawing, the fund will not go bust. Very bad times in the past have dropped it to near 50%, but not to very near zero. That will certainly be very worrisome then and requires waiting for its recovery, but if you let it ride, it will recover. It has always recovered (but which could take a year or two). But withdrawing it then just makes the loss real and permanent. The S&P 500 companies are very well established, and it will come back. Following are a few examples of that in the last 50 years.

This is looking at some choices with investment starting with $25,000, to show the good effect of minimizing withdrawals. The exact value results in these examples will vary a bit from the last 2022 result entered in the calculator chart (the text in these examples below is Not updated with every days current price change, but the calculator itself will recalculate from the last price entered.) Again, these results are computed from the past years in history, and future results are not known. The standard qualifying words are: Past success does not guarantee future performance.

1. Start at 1970: (52 years until today) If with no withdrawals of any kind, $25K grew to $5.3 Million today. This is the pages initial default case. The message is: Start your investing early. It will be all-important when you near retirement age.
So try some things. Starting with only $1000 (with no withdrawals) would get past the bad years and end with $195K. The bad years are survivable, but withdrawals may not be. (Again, the future is unknown, but some of the past was pretty bad, until it recovered.)
  1 Show this setup in calculator (it just restores the initial chart).

2. Withdrawing dividends (for 50 years from $25K start) instead reduces gains of less money working, which drops to "only" $1.25 Million final growth. DO NOT ignore the long term importance of reinvesting dividends. The dividend may be small, like maybe 2%, but it repeats and compounds and grows, every year. The point is that in 50 years, withdrawing the then $259K dividends cost $3.8+ Million loss of future long term growth.
  2 Show this setup in calculator

3. Or instead of dividends, continuous withdrawal of $100 per month (totaling $62K in 52 years) dropped the fund to $17K first (in 1974 which was particularly bad times), but it survived, and grew to $2.3 Million in 52 years. However that $62K of withdrawals cost $4 Million of the gains in example 1 (over 50 years). Give that some thought concerning withdrawals.
  3 Show this setup in calculator

A few more things you might see here about how things work.

While it may not be intuitive during the bad times of gloom and doom and worry about the market, but actually, those low points are exactly the right time to be adding more money then (to buy low), making recovery gains grow dramatically. The low points would be the worst time to sell it off. It recovers, but it could take a year or two.

4. This might get your attention. Continual withdrawals beginning Day One is NOT a normal plan. To make the fund count with greater gains, let it build for many years until retirement time, and only then start withdrawing to help replace salary. Or maybe if already retired and you have some savings that are not earning anything, but need it to help with immediate withdrawals for living expenses. The S&P is capable with higher gains that have averaged about 10% a year. Some years more, and some years less, and some even negative several times. And BIG negative (near -50%) a few times. Again, the S&P 500 is the stocks of the 500 largest USA companies, relatively safe IMO. Market crashes can certainly still occur, but they always recover eventually. But when moving savings, do realize there is market risk, stocks can lose value (and unless it is IRA or 401, moving is likely a taxable event).

Just to see a retirement situation, starting with $25,000, set Button 3 with both 10% and $2500/month withdrawal limits (starting 1991 for 21 years growth and then expected 30 years remaining). This could be ages 44 to 65 retirement, with first 21 years for it to grow, and then lasting 30 years in retirement. Both limits of the $2500/month fixed withdrawal number with 10% limit keeps the excessive withdrawals down when the fund is at highest values. This past data does survive if starting at any past year (the past is not the future, but just meaning in similar market conditions in future years). Or increasing the investment all along as possible is certainly a good plan too.
  4 Show this setup in the calculator

This is past data (but includes several really poor years, possibly typical), so caution is advised in the future real world. This idea is to let it grow to a very substantial value before starting withdrawals, and then keep an eye out on the gain of future years then. If the average gain is keeping up with the average withdrawal, it will work. The average S&P gain has been near 11%, but 2000 began three years averaging about -15% (which then of course still did recover).

5. An IRA account has a $6000 annual contribution limit, which increases a bit every few years. This example starts Dec 31 1979 with first $6000, and then continuously add the maximum tax-free contribution of $500 per month ($6000 per year IRA limit until 2004, contribution totaling $150K in the 25 years). It grew to $1 million in that time (which included the 2000s decade), and to $5 Million in the next 22 years until now. There will be a lot of tax owed on the IRA, but you would like that at retirement time, it certainly seems worthwhile. If it were Roth, it would be tax free.
  5 Show this setup in the calculator

6. Start at 2000: (Buy low, when it is down, except it gets worse in 2008). The 2000s were really bad times with two severe crashes in the decade (2001 and 2008), so bad it didn't recover until 2007. But if no withdrawals of any kind, $25K still grew to $118K today, which is not too shabby, still about 4.7x. And the Test result shows this same thing (as no withdrawals), starting in every year, same $118K if starting in 2000.
  6 Show this setup in the calculator

But then instead of withdrawing anything, adding more money at the low points is the special opportunity to see dramatically greater gains in the recovery. Adding $25K more in 2002 (doubling original investment when price was down about 40%, and things looked so bad) would total $282K in 2021. We can't time the bottom, so had this been the plan, you'd done it earlier, and continued adding all along.

7. Start at 2009: (12 years) These were the better good times, building from the previous 2008 lows, and if with no withdrawals, $25K grew to $165K in about that time. But economic and political pressures can hurt the market, so there is always risk. But so far, it has always recovered and continued.
  7 Show this setup in the calculator

Perhaps of the most interest to the concept, 8 and 9 are results of two of what turned out to be the worst-timed bad investment times (unavoidable because the future is unknown. But it does recover.)

8. Start a $25K investment at 1973 right before the 1974 crash and see it drop 40% then. But don't touch it for 27 years, and then start withdrawing 8% in 2000 (just in time for a really BAD decade, which turned out to be some of the worst scary times, but your fund had resources by then to withstand it). So from 2000, start 22 years of retirement withdrawals totaling $785K, varying widely but averaging perhaps about $36K annually (about $3000 monthly). And it still leaves about $670K remaining today, maybe for inheritance (often a goal). The entire cost to you was the original $25K (this is past history, it cannot predict the future, but there are better times than this example hits).
  8 Show this setup in the calculator

However, the abnormally large 8% withdrawals in the first three years of the 2000 downturn were detrimental. But if instead of 8%, try withdrawing a fixed $3000 a month (button 2, starting at year 2000 again) works if starting in 1973, but this fails early if not starting until the 1980s. A large fixed withdrawal in a small fund hits the down years heavy. Whereas a reasonable percentage (assuming dollar amount is readjusted each year) is a smaller withdrawal in those down years. Even $200/month starting at Day One (when fund is small) fails several years in the 2000s.

So a good plan is to use button option 3, with say BOTH of the same 8% and $3000 withdrawals as limits on each others extremes, which limits a few years to be a little less, but which lets it build more, and then it runs in all years without failure. A percentage withdrawal may not be so much when the fund is low, but it won't go to zero and fail (if withdrawal dollars are adjusted accordingly each year). We can't know the future, but the total of all the many years is the really huge effect.

9. Start investment at 2000 right before those crashes. Start withdrawing 6% in 2003 (right after the first crash), which is 21 years of withdrawals totaling near $24K for average of about $1.1K annually, with $40K remaining today. The last decade (2010s) saw good market growth, doubling in spite of the withdrawals. This growth time is short, but starting with 2x more money would have 2x greater results. To get that greater money (still trying to get your attention), simply starting ten years earlier would have made the 6% be near $6K average annual income assistance, with $175K left. Or 20 years earlier would be about $29K withdrawals with $850K left. Or 30 years earlier for $51K withdrawals with $1.5 Million left. Time is the awesome tool.
  9 Show this setup in the calculator

10. Starting the fund just before bad years is Not the best plan, but we can't know the future. It is only shown as worst case. But one example that works anyway. Start in 1970 with $25K, and then with button 5, contribute $50/month until 2000 ($186K more) when worth $3.8 Million, and then withdraw $5000 a month ($60K a year for $1.2 million) which still remains worth nearly $15 Million. Except if it were are an IRA, the large gain would surely make the RMD be greatly higher.
  10 Show this setup in the calculator

These are just some examples from past history, but it is suggestive of the way things work, and the things that possibly (or typically) can happen in the future. There are noticeably more good years than bad, and the S&P 500 has always averaged about 10% annual gains, but there are a few down years. The bad times might last a year or two, and might drop 50%, but they have always fully recovered (2009 was special and took several years though). Withdrawing the money when it is down in bad times is the worst thing to do, because it absolutely guarantees that the loss becomes real and permanent. Instead adding more investment money when the market is low is a great opportunity offering large gains when the price recovers (buy low, sell high). Hang in there, stay the course. It can seem dark and gloomy and fearful at the time, but withdrawing all money then ends it all (and makes the loss very real). But it has always recovered to continue the gains.

Also see next pages:

General Info describing S&P 500, the market, and the 4% Rule, etc.

Stock Dividends are valuable, but withdrawing them is Not income

S&P 500 daily Action, and Count of annual S&P 500 record highs

Compare performance of 60+ stocks

Copyright © 2021-2022 by Wayne Fulton - All rights are reserved.

Previous Menu Next