Withdrawal rates
How much can you withdraw each year without running out?
At 3.5%, the withdrawal rate in the Goal module's worked example, a portfolio lasted the full 40 years in 91% of 40,000 simulated paths and kept its full real value in 74%. The table shows both outcomes for rates from 3.0% to 5.0%, because the second is always the lower number.
The table
| Withdrawal | Survives 40 yrs | Keeps real principal |
|---|---|---|
| 3.0% | 96% | 82% |
| 3.5% | 91% | 74% |
| 4.0% | 83% | 65% |
| 4.5% | 74% | 55% |
| 5.0% | 63% | 45% |
Assumptions: 5% real return, a 12% standard deviation of annual real returns, 40-year horizon, 40,000 simulated paths, withdrawals adjusted for inflation each year. Every figure is in today's purchasing power.
How it was computed. Real (inflation-adjusted) returns are drawn from a lognormal distribution with a 5% geometric mean and a 12% standard deviation of annual real returns, and simulated month by month for 40 years. The withdrawal is a fixed share of the starting portfolio, taken in equal monthly parts, so it holds its value in today's dollars. A plan survives if the portfolio is never depleted, and keeps its real principal if it ends the 40 years at or above its starting value.
Two numbers, not one
A plan can last the full 40 years and still eat into its principal: it ends with money left, but less than it started with in today’s dollars. So every rate in the table has two outcomes, and the second is always lower.
At 3.5% the plan survives a 40-year horizon with 91% probability. But it preserves the principal in real terms with only 74% probability. Perpetuity in the strict sense doesn’t exist. There’s only high probability, and a model honest enough to show you both numbers instead of the flattering one. Showing only the first is how a plan gets to look safer than it is.
How Perpetory uses this
The Goal module sizes the capital that pays you indefinitely at the rate you choose, and reads your pace from the free cash flow your companies actually produce, with the transfers between your own accounts taken out. In the worked example, an income of $6,000 a month at 3.5% needs $2,057,000, and a pace of $7,500 a month reaches it at age 55. See it on sample data →
Every figure here is a model output under the assumptions stated above, not a prediction of returns.