Nest Egg Withdrawal Calculator
When you retire, you may need to withdrawal money from your savings and retirement accounts. The Nest Egg Withdrawal Calculator lets you determine how fast you will draw down the money in your nest egg by making withdrawals each year.
With the calculator, you specify whether you want to withdraw a fixed percentage of the nest egg each year or a specified dollar amount each year. And you may see the effect of inflation by specifying an annual inflation rate. In fact, you should specify an inflation rate. Otherwise, you will underestimate the amount of money that you need to accumulate.
Here is a simple example. Suppose that you have a $500,000 nest egg which is growing at 6% each year. You want to take out 5% of the nest egg's balance each year for 20 years. Further assume a 3% inflation rate.
The Nest Egg Withdrawal Calculator shows that the balance of the nest egg after 20 years is $557,853.66. The 6% annual rate of return offsets the 5% withdrawal rate and 3% inflation rate so the nest egg balance actually increased over the 20 years. With a 2% annual rate of return, the nest egg balance would be $258,467.78 after 20 years.
For each year the gain (or loss if you chose a negative rate of return) is computed before the withdrawal is made.
The effect of inflation starts with year two for the two withdrawal options.
For the dollar withdrawal option the amount of the annual withdrawal amount is increased each year by the inflation rate. So the annual dollar withdrawal amount is compounding at the rate of inflation.
For the percent withdrawal option the amount of the withdrawal amount for each year is equal to the annual withdrawal percentage plus the annual inflation rate.