Retirement Income Calculator: Key Benchmarks for Your 30-Year Plan

Sustainable Withdrawal Rate (SWR)

How much can you safely withdraw from your retirement savings without running out of money? That's the million-dollar question that the Sustainable Withdrawal Rate (SWR) tries to answer.

The SWR represents the initial percentage of your retirement portfolio you can withdraw during your first year of retirement. Think of it as setting up your personal retirement paycheck.

What happens after that first year? Foundational retirement income studies assume you'll increase this amount annually to keep pace with inflation, maintaining your purchasing power as prices rise over time.

The research behind this concept has become legendary in financial planning circles. William Bengen pioneered this work in the 1990s, with academics later expanding on it through what became known as the "Trinity Study."

These researchers weren't just playing with numbers. They analyzed decades of historical market data to find withdrawal rates that could sustain income throughout retirement—typically defined as 30 years—even during economic storms like bear markets and inflation spikes.

Based on extensive backtesting using historical U.S. stock and bond market data (typically spanning from the 1920s through the publication dates), a benchmark range emerged:

Benchmark Range: 4% - 5% initial withdrawal rate.

This range is anchored by the widely cited "4% Rule," which showed remarkable resilience in testing. An initial withdrawal of 4%, adjusted annually for inflation, demonstrated a very high historical success rate (often cited as 95% to 100%) over 30-year retirement horizons.

This was particularly true for portfolios with significant equity exposure (50% to 75% stocks).

Bengen's original research, using a 50/50 mix of large-cap US stocks and intermediate-term government bonds, supported this 4% level, finding it historically robust across various starting points. The Trinity Study confirmed these findings, showing high success rates for 4% withdrawals with similar balanced portfolios.

Could you push the withdrawal rate higher? Subsequent analyses indicated that initial rates slightly higher than 4%, potentially up to 5%, could also exhibit high historical success probabilities—though generally lower than the rock-solid 4% rate.

What factors influence whether you could safely use rates between 4% and 5%? Several key elements come into play:

• Your specific asset allocation (higher stock allocations sometimes supported slightly higher rates)
• The length of your retirement horizon (shorter horizons might sustain higher rates)
• Your personal tolerance for a lower probability of the portfolio lasting the full duration

For instance, the Trinity Study showed an 84%-87% success rate for a 4.5% withdrawal over 30 years depending on allocation, and an 85% success rate for a 5% withdrawal over 25 years with a 50/50 mix.

It's fundamental to understand that the "safety" associated with the 4%-5% range reflects historical probability, derived from simulations against past market sequences. It's not a guarantee of future outcomes.

The success of these rates historically was contingent upon specific assumptions: a 30-year time horizon, annual inflation adjustments to withdrawals, and a portfolio composition typically weighted toward stocks (50%-75%).

Moreover, the historical viability of any SWR was intrinsically linked to the interplay between investment returns and inflation. Your portfolio generally needs to generate returns sufficient to cover inflation-adjusted withdrawals over the long run.

Source Type: Academic retirement study / Financial institution analysis.

Long-Term Inflation Rate

Ever notice how a dollar doesn't stretch as far as it used to? That's inflation at work—the silent force gradually eroding your purchasing power year after year.

%%{init: {'theme': 'base', 'themeVariables': {'primaryColor': '#4285f4'}}}%%
pie title 
    "3%" : 30
    "3.5%" : 40
    "4%" : 30

Inflation signifies the rate at which the general price level for goods and services rises over time. For retirees, it's particularly troublesome because it increases your future living expenses and requires larger nominal withdrawals from your savings just to maintain your standard of living.

How do we track this economic phenomenon? The most commonly used measure in the United States is the Consumer Price Index (CPI), specifically the Consumer Price Index for All Urban Consumers (CPI-U). This metric is compiled and published by the U.S. Bureau of Labor Statistics.

When researchers develop sustainable withdrawal strategies, they don't ignore inflation. SWR studies typically incorporate historical CPI data to model the annual adjustments needed for withdrawals to maintain purchasing power.

So what does history tell us about long-term inflation trends? Analyzing historical CPI data over many decades reveals a relatively stable pattern:

Benchmark Range: 3% - 4% average annual rate.

This range represents the approximate long-term historical average annual inflation rate in the U.S. based on government-reported CPI data extending back over significant periods, such as since 1913 or the post-World War II era.

Calculations using data from 1914 through 2024 yield an average close to 3.7%. Analysis focusing on the post-WWII period often results in slightly higher averages, but the 3%-4% range serves as a stable, long-run approximation.

It's important to recognize that this long-term average smooths out considerable historical fluctuations. The U.S. economy has experienced dramatic swings in both directions.

Remember the 1970s and early 1980s? Inflation soared significantly higher than this range. During the Great Depression? The economy experienced very low inflation or even deflation (falling prices).

While the long-term average provides a useful baseline for retirement projections, these historical volatility patterns underscore the uncertainty inherent in future price level changes. Your retirement plan needs to account for the possibility of both higher and lower inflation environments.

Source Type: Government statistical agency data (e.g., Bureau of Labor Statistics CPI data).

Historical Investment Returns (Nominal Annual Averages)

What kind of growth can you reasonably expect from your investments over the long haul? Historical investment returns give us some clues.

%%{init: {'theme': 'base', 'themeVariables': {'primaryColor': '#4285f4'}}}%%
flowchart TD
    A[Historical Investment Returns] --> B{Asset Class}
    B --> |Stocks| C[Nominal Returns 9-11%]
    B --> |Bonds| D[Nominal Returns 4-6%]
    
    C --> E[Real Returns ~6-7%]
    D --> F[Real Returns Lower]
    
    E --> G{Factors Affecting Returns}
    F --> G
    
    G --> H[Market Volatility]
    G --> I[Economic Conditions]
    G --> J[Inflation Impact]
    
    H --> K[Potential for Significant Gains/Losses]
    I --> K
    J --> K

These benchmarks reflect the average annual growth rate of major asset classes over extended periods. They include both price appreciation and the reinvestment of income (dividends for stocks, interest for bonds) and represent nominal returns (not adjusted for inflation).

Understanding these long-term averages helps put the growth potential of retirement portfolios in context. They're the fuel that has historically powered sustainable withdrawal rates.

Large-Cap US Stocks (e.g., S&P 500 Index)

Large-capitalization U.S. stocks, often represented by the Standard & Poor's 500 Index (S&P 500), form a core component of many retirement portfolios. This index tracks the performance of 500 of the largest publicly traded companies in the U.S.

Benchmark Range: 9% - 11% average annual return.

This range reflects the long-term historical average total return (price appreciation plus reinvested dividends) for the S&P 500 index or similar broad U.S. stock market benchmarks, calculated over periods extending back to the mid-20th century or earlier.

Multiple analyses converge around a 10% average annual nominal return. For example, data from 1928 or 1957 through late 2024 indicates an average annualized return slightly above 10%. Other sources cite long-term averages of 10.5% or within the 8%-10% range. The 9%-11% band reasonably encapsulates these findings.

But here's the catch: this average figure masks significant year-to-year volatility.

Historical data shows periods of substantial gains far exceeding the average, but also years with significant losses, such as the major downturns in 2000-2002 and 2008. This volatility creates what financial planners call "sequence-of-returns risk" – the danger that poor returns occurring early in retirement can disproportionately harm a portfolio's longevity due to ongoing withdrawals.

What about after inflation? Real returns, after accounting for inflation, are lower than these nominal figures, typically falling in the 6%-7% range historically.

Source Type: Historical market data / Index provider data.

Investment-Grade US Bonds (e.g., US Aggregate Bond Index)

Investment-grade U.S. bonds represent debt issued by the U.S. government or corporations deemed to have a relatively low risk of default. A common benchmark for this asset class is the Bloomberg US Aggregate Bond Index (or its predecessors), which tracks a wide range of taxable, investment-grade U.S. dollar-denominated bonds.

Why include bonds in your retirement portfolio? They typically provide income and reduce overall volatility compared to an all-stock portfolio.

Benchmark Range: 4% - 6% average annual return.

This range reflects the long-term historical average total return (price changes plus reinvested interest payments) for broad, high-quality U.S. bond market benchmarks over periods dating back to the early-to-mid 20th century.

Research examining data since 1926 indicates average bond returns in this 4%-6% corridor, with benchmarks like the Aggregate Bond Index averaging around 5% over certain long periods. While recent 10-year returns for bond indexes have been lower, the 4%-6% range aligns with the very long-term historical perspective relevant for establishing stable benchmarks.

Like stocks, bond returns have varied over time, although generally with less volatility. Interest rate changes significantly impact bond prices and returns—when rates rise, existing bond prices fall, and vice versa.

Real returns for bonds, after inflation, have historically been lower than their nominal returns. This difference between stocks (higher average return, higher volatility) and bonds (lower average return, lower volatility) drives asset allocation strategies in retirement planning.

The specific mix of stocks and bonds significantly influences both the potential long-term growth of a portfolio and its susceptibility to downturns—key factors considered in SWR studies.

Source Type: Historical market data / Index provider data.

Life Expectancy at Age 65

How long will your retirement actually last? It's a crucial question with profound financial implications.

Life expectancy at a given age represents the average additional number of years a person is projected to live, based on mortality rates observed within a specific population during a particular period. For retirement planning, life expectancy at age 65 provides a crucial baseline for estimating the duration over which your retirement income needs to last.

This duration, or time horizon, is a critical input for assessing whether your withdrawal strategy is sustainable or likely to leave you broke in your later years.

Figures are derived from period life tables published by U.S. government statistical agencies, reflecting recent mortality data.

Benchmark Figures (based on recent data):

• Males: Approximately 18 years remaining.
• Females: Approximately 21 years remaining.

These figures align with data from the Social Security Administration (SSA) Actuarial Life Tables and the Centers for Disease Control and Prevention's National Center for Health Statistics (CDC/NCHS) for recent years, such as 2019 or 2023.

For example, SSA data for 2019 showed 18.1 years for males and 20.7 years for females, while CDC data for 2023 indicated 18.2 years for males and 20.7 years for females. Minor fluctuations occur year-to-year, but these values represent stable recent estimates.

Here's the essential point most people miss: these figures are averages for a population group. By definition, approximately half of the individuals who reach age 65 are expected to live longer than this average—potentially significantly longer.

This reality underscores the importance of planning for longevity risk—the very real possibility of outliving your savings. Retirement planning horizons often need to extend beyond these average life expectancy figures to account for this possibility.

This influences both the required level of savings and the assessment of sustainable withdrawal rates over potentially longer durations than the standard 30 years used in some SWR studies.

Source Type: National statistical source (e.g., Social Security Administration Actuarial Tables, Centers for Disease Control and Prevention/National Center for Health Statistics).

Consolidated Benchmarks

Looking for a quick reference guide? The following table summarizes the key metrics and their stable, historically derived benchmark ranges or values, along with the type of authoritative source typically used for each.

This provides a handy reference for interpreting retirement income calculations:

Conclusion

These benchmarks aren't just numbers—they're the financial guardrails for your retirement journey.

The 4-5% withdrawal rate, 3-4% long-term inflation, 9-11% stock returns, and 18-21 year life expectancies represent decades of historical patterns, not crystal ball predictions. They're your reality check against both irrational exuberance and unnecessary pessimism.

What makes retirement planning challenging? It's the dance between three powerful forces: investment growth building your nest egg, inflation silently eroding your purchasing power, and the wildcard of your personal longevity.

Your retirement experience won't perfectly mirror these averages—no one's does. Market returns swing wildly year to year. Inflation spikes and retreats. And you might outlive the averages by a decade or more.

Use these benchmarks as your starting coordinates, then adjust for your unique situation. They won't guarantee success, but they'll keep you grounded in what's historically proven possible.