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 interested me in this S&P calculator. 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 (like those which have actually happened, which in long term are the majority of the gains). 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 Withdrawals cost far more than just the dollars withdrawn.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?
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 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It is a mistake to think of stock dividends as new income to be withdrawn.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) 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 Due to the corresponding price drop, the value sum of withdrawn dividend and the remaining stock value remains exactly the same value as before the dividend, i.e., no gain on that day. 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 Not income.
However reinvested dividends do become additional shares which likely 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.
The Withdrawal Survival Test feature (below the S&P 500 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. There are two parts here, the calculated S&P 500 table next, and below it, the Survival Test results where it restarts the calculator at every past table year, with any withdrawals or additions, seeking to find the survival 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.
Test it yourself (next below). This fund Withdrawal Survival Depletion 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 withdrawal 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.
To see the idea, 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 (because a percentage withdraws less when the market is down, but a fixed withdrawal amount just keeps on withdrawing), but withdrawing about the average gain did limit the fund value to about $19K (no growth), and the total 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 $500 in 1970. 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 $100K 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.
Again, this Withdrawal Survival Depletion 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.
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.
The compounding over many years makes the long term expense of regular withdrawals become 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.
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 example results are more in agreement with the 2021 totals. The exact result values in these examples will vary 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.) You can of course then adjust the values to fit your goals. 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... a more expected procedure. 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 in 1970, set Button 3 with both 30% in 1 and $5000/month in 2 for withdrawal limits (and starting withdrawals at year 2000 for 30 years growth first (and 2000 was about the worst possible time in the past to start) and then expected 30 years remaining. This could be ages 35 to 65 retirement, with first 30 years for it to grow, and then likely lasting 30 years in retirement (we only see 22 years so far 2022/ Using both limits of the $5000/month fixed withdrawal number with 30% limit keeps the more excessive withdrawals down when the fund is at highest or lowest 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 $100/month until 2000 ($186K more) when worth $3.8 Million, and then withdraw $4000 a month ($48K a year for $1.2 million, but limited to 10%), 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: