If you're ready, you can find the checklist here: SWR Checklist, or open the calculator and follow along: SWR Calculator.
Here's what I'll cover:
- What the SWR Calculator Really Does
- Your Toolkit: Understanding the Inputs
- The Engine: How the Simulation Works
- Step-by-Step: Running Your First Scenario
- Making Sense of the Numbers: Understanding the Output
- Pro-Tips and Limitations
What the SWR Calculator Really Does#
The calculator uses decades of historical market data to stress-test your retirement plan. For every possible starting month in your chosen timeframe, it runs a full simulation of your retirement, month by month, to see if your portfolio would have survived.
This method is the gold standard for understanding how a strategy might have performed through a wide range of economic conditions, from bull markets to painful downturns. The calculator uses a historical dataset from 1871 up to today. Each year I will update the figures with the previous year's data.
Key operational details:
- Monthly Precision: The simulation applies investment returns to each of your chosen assets every single month.
- Realistic Withdrawals: Your spending is modeled based on your selected Withdrawal Frequency. The tool calculates your initial annual withdrawal amount and then gives it a cost-of-living adjustment for inflation throughout the simulation.
- Fees Matter: It accounts for the slow drag of fees by applying your specified Annual Fees on a monthly basis.
A powerful set of statistics that gives you a clear picture of your retirement plan's viability.
Your Toolkit: Understanding the Inputs#
Getting a meaningful result starts with feeding the calculator the right data. Here's a breakdown of each setting:
Core Settings#
| Input | Description |
|---|---|
| Initial Value | The starting amount of your retirement nest egg (e.g., 1,000,000) |
| Years | Your planned retirement duration (e.g., 30 years) |
| Start Year / End Year | The historical window you want to test against |
| Withdrawal Rate (%) | The percentage of your initial portfolio you'll withdraw in the first year |
A wider date range gives you more scenarios and a more robust test. This is the core variable you'll be testing.
Withdrawal Settings#
Withdrawal Frequency: How often you take withdrawals.
| Option | Description |
|---|---|
| Yearly | One withdrawal per year |
| Semi-Annually | Withdrawals every 6 months |
| Quarterly | Withdrawals every 3 months |
| Monthly | Monthly withdrawals |
Inflation Data: Choose whether to adjust your withdrawals for inflation.
| Option | Use Case |
|---|---|
| US Inflation | Maintain purchasing power over time |
| No Inflation | Keep withdrawals fixed (not recommended) |
As a rule, always plan for inflation. Fixed withdrawals lose purchasing power over time.
Portfolio Settings#
Portfolio Allocation: This is where you build your investment mix.
- Add multiple assets (like stocks and bonds)
- Set their percentage allocation
- For the calculator to run, your total allocation must equal 100%
Annual Fees (%): The total expense ratio (TER) of your investments.
Even small fees compound over decades. Don't skip this input. It has a real impact on your results!
The Engine: How the Simulation Works#
Ever wonder what's happening behind the scenes? For each and every historical starting point, the calculator runs this simple, transparent loop:
1. Setup: It carves up your initial portfolio into the different asset buckets you defined.
2. First Withdrawal: It calculates your starting annual withdrawal amount based on your chosen rate.
3. Monthly Loop: For every month of your planned retirement, it does the following:
- Applies the historical return for that month to each of your assets
- Deducts a small slice of the annual fee
- If it's a withdrawal month, it takes out the inflation-adjusted spending amount
- Checks if the portfolio has run out of money. If so, the simulation ends and is marked as a failure
This process repeats for hundreds of overlapping historical periods, giving you a powerful statistical overview of your plan's strengths and weaknesses.
Step-by-Step: Running Your First Scenario#
Let's run a test together.
- Fill in the main fields:
Initial Value,Years,Start/End Year,Withdrawal Rate (%), andAnnual Fees (%) - Choose your
Withdrawal Frequencyand setInflation Datato "US Inflation" - Build your portfolio:
- Use the "Add Asset" button
- Adjust the percentages until the total is exactly 100%
- The "Total" label will turn green when you're ready
- Click Calculate
The tool will now run all the simulations. When it's done, the results panel will appear with a summary of the findings.
Making Sense of the Numbers: Understanding the Output#
Here's what each number means for you:
Success Metrics#
| Metric | What It Means |
|---|---|
| Chance of Success | The headline number: the percentage of historical scenarios where your money lasted for the entire retirement period |
| Worst Duration | In failed scenarios, how long your money lasted in the absolute worst case |
A high success rate (90%+) means your plan survived most historical conditions. The worst duration tells you your margin of safety.
Terminal Values#
| Metric | What It Means |
|---|---|
| Best Terminal Value | The highest final portfolio balance from all successful scenarios |
| Worst Terminal Value | The lowest final balance. If $0, at least one scenario failed |
| Median Terminal Value | The "middle" outcome. 50% ended higher, 50% ended lower |
| Average Terminal Value | The average final balance across all scenarios |
If the worst terminal value is positive, it shows the closest you ever came to running out of money while still succeeding.
Pro-Tips and Limitations#
Pro Tips#
Don't just test one withdrawal rate. Try a few different ones (e.g., 3.0%, 3.5%, 4.0%) to understand how sensitive your plan is.
Start with a simple allocation (like US Stocks and US Bonds) before adding more complexity.
Test different retirement lengths (25, 30, 35 years) to see how duration affects your success rate.
Limitations#
This calculator does not model taxes. Remember to account for taxes. Check your own circumstances.
This tool shows what did happen, not what will happen. A high success rate is a great confidence booster, but it's not a guarantee. Use it to make informed decisions, not to predict the future.
Past performance is not indicative of future results. Use this as one tool among many in your planning process.
Quick Reference Summary#
| Step | Action |
|---|---|
| 1. Set Up | Enter initial value, years, and historical date range |
| 2. Configure | Choose withdrawal rate, frequency, and inflation setting |
| 3. Allocate | Build portfolio to exactly 100% |
| 4. Calculate | Click Calculate and wait for results |
| 5. Interpret | Focus on success rate and worst duration |
| 6. Iterate | Test multiple scenarios to stress-test your plan |
Happy planning!
