ABC Tools

How Long Will My Money Last?

After reading this you will be able to estimate how many years a portfolio survives when you draw a rising income from it, and see why inflation, not the withdrawal itself, usually decides the outcome.

What this tool answers

You have a lump sum invested. You take money out every month to live on. The rest stays invested and grows, but prices keep climbing, so next year you need more dollars to buy the same groceries. The question is simple to state and slow to answer by hand: does the growth outrun the withdrawals, or does the balance grind down to zero?

Here is the hook. Suppose you have 500,000 earning 5% a year, and you take 2,500 a month. If withdrawals never rose, the money would last about 28 years. Let those withdrawals rise 3% a year to keep pace with inflation, and the money runs out in roughly 23 years and 5 months. That five-year gap is the entire point of this tool. A flat withdrawal flatters the picture.

When to use it, and when not to

Use this when you already have a pot of money and want to know how long a spending habit can continue: an early-retirement bridge, a redundancy payout, an inheritance, or the drawdown phase of retirement. It answers "given this balance and this lifestyle, how many years do I have?"

It is the wrong tool if you are still saving toward a target. For that, the Retirement Savings Calculator projects a balance at retirement and the income it supports, and the FIRE Calculator works out the number you need and how long until you reach it. If you want to run the logic backward, asking what monthly income a lump sum can safely sustain, use the Annuity Payout Calculator.

This model uses a single fixed return every year. Real markets do not behave that way. A bad run early in retirement hurts far more than the same run later, a risk called sequence-of-returns risk. Treat the result as a smooth-average estimate, not a promise.

The formula and the intuition

Work in months, because you withdraw monthly. Let the balance at the start of month n be B_n. Convert the two annual rates to monthly rates:

r = (1 + R)^{1/12} - 1, \qquad g = (1 + I)^{1/12} - 1

Here R is the annual return (0.05 for 5%), I is annual inflation (0.03 for 3%), r is the monthly growth rate, and g is the monthly inflation rate. Using the twelfth root rather than dividing by 12 keeps the compounding honest.

The first withdrawal W_1 is the monthly figure you enter. Each later withdrawal grows with inflation:

W_n = W_1 \cdot (1 + g)^{n-1}

Each month the tool takes the withdrawal first, then grows what remains:

B_{n+1} = (B_n - W_n)(1 + r)

The money lasts as long as B_n \ge W_n. The instant the balance can no longer cover the next withdrawal, you are done. Notice the tug of war: the balance is multiplied by 1 + r each month, while the withdrawal is multiplied by 1 + g. What matters is not either rate alone but the gap between them.

Why the gap between return and inflation rules everything

Strip out the withdrawals for a moment and think in constant purchasing power. A dollar invested grows at r but is eroded at g. The real monthly rate is roughly the difference:

r_{\text{real}} \approx \frac{1 + r}{1 + g} - 1

With 5% return and 3% inflation, the real annual rate is about 1.94%, not 2% exactly, because the two effects compound rather than subtract. That small real rate is all the tailwind your portfolio actually has. If return equals inflation, the real rate is zero and the money simply drains at the withdrawal pace. If inflation beats return, every year makes the hole deeper.

This is why two people with the same 2% gap behave almost identically, whether their numbers are 3% and 1% or 7% and 5%. The absolute rates barely matter; the spread does.

Reproducing the demo: 500,000 at 5%, drawing 2,500 rising 3%

  1. Monthly return: r = 1.05^{1/12} - 1 = 0.004074, about 0.4074% a month.
  2. Monthly inflation: g = 1.03^{1/12} - 1 = 0.002466, about 0.2466% a month.
  3. Month 1: withdraw 2,500. Balance becomes (500000 - 2500) \times 1.004074 = 499527.
  4. Month 2: withdrawal rises to 2500 \times 1.002466 = 2506.17. Balance becomes (499527 - 2506.17) \times 1.004074 = 499046.
  5. The balance drifts up at first because 5% growth beats the early withdrawals. It peaks near month 30 above 501,000, then turns down as the rising withdrawal overtakes the growth.
  6. Continue month by month. The balance reaches zero during month 281, which is 23 years and 5 months.

The early rise is the trap. If you glanced at your statement in year two and saw the balance holding steady, you might conclude the plan is safe. It is not. The withdrawal keeps compounding, and by year fifteen it has grown from 2,500 to about 3,890 a month while the balance falls faster each year.

The balance rises slightly for the first two years, then curves down ever faster. The vertical marker sits at month 281, where the money runs out.

Explore the return-versus-inflation gap

With balance 500,000 and a 2,500 monthly withdrawal, the money lasts about 23 years 5 months at 5% return and 3% inflation. Raise the return to 7% and it stretches past 40 years. Drop it to 3% (equal to inflation) and it falls to about 18 years. Let inflation exceed return and the balance never recovers its early peak.

Reading and interpreting the result

The tool reports one of two outcomes. Either it names the month the balance hits zero, or it tells you the money survives indefinitely. The second case happens when the growth on the balance always covers the next withdrawal, so the balance never trends down. As a rough guide, the portfolio survives forever if the first year's withdrawals stay below the real return on the balance.

Test it with the demo numbers. The first year of withdrawals totals about 30,400, which is 6.08% of 500,000. The real return is only about 1.94%. Since 6.08% far exceeds 1.94%, the money must run out, and it does. To make the same balance last indefinitely at these rates, the yearly withdrawal would need to sit near 9,700, about 810 a month.

A quick sanity check: divide your first year of withdrawals by your balance to get a withdrawal rate. If that rate is well above your real return, plan for a finite number of years and check the exact figure with the tool.

Common mistakes

Comparing return and inflation by subtraction. People say "5% minus 3% is 2%, so I have a 2% cushion." The true real rate is 1.94%, close enough here but the shortcut drifts as rates rise. Always compound.

Ignoring the early peak. A portfolio that grows for the first few years feels safe. The demo balance climbs above its starting value before it falls. Judge the plan by where it ends, not where it sits in year three.

Using flat withdrawals. Holding the withdrawal at 2,500 forever makes the money last about 28 years instead of 23. That five-year error is your standard of living quietly shrinking, because 2,500 in 20 years buys far less than it does now.

Treating one fixed return as reality. Markets deliver lumpy returns. A run of poor years at the start can end the portfolio years earlier than the average suggests. Use the estimate as a midpoint, then stress-test with a lower return.

Related tools

If you are still building toward the balance you plug in here, the Coast FIRE Calculator shows the savings that grow to your target on their own without further contributions. To value a fixed stream of future payments as a single figure now, the Annuity Value Calculator handles present and future value of a payment stream. These pair naturally with the depletion view: one tells you what a pot is worth, this one tells you how long spending from it lasts.

Frequently asked questions

Why does my money last fewer years than a simple balance divided by withdrawal?

Dividing 500,000 by 2,500 gives 200 months, ignoring both growth and inflation. Growth extends the life; inflation shortens it. Here growth wins on net, so the money lasts 281 months, longer than the naive 200, but far short of what a fixed-withdrawal model would suggest.

What return should I assume?

That depends on your mix of assets and is genuinely uncertain. Many people model a broad stock-and-bond portfolio somewhere between 4% and 7% nominal. Run the tool at the low end as well as your central guess, and compare the depletion dates.

Does the tool account for taxes?

No. The withdrawal is treated as spendable cash. If you owe tax on withdrawals or gains, increase the monthly figure to cover it, or reduce the return to a post-tax rate.

What does "never depletes" actually mean?

It means that at the rates you entered, monthly growth always exceeds the next withdrawal, so the balance trends upward forever. In practice a market downturn could still break this, since the model assumes one steady return. Treat "never" as "not under these smooth assumptions."

Should I plan to spend down to exactly zero?

That is a personal choice, not advice this tool can give. Some people aim to leave a cushion for a long life or for heirs; others plan to use the whole pot. The tool simply shows the arithmetic. A qualified adviser can help you decide.

Try it yourself in the tool

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