Systematic Withdrawal Plan (SWP) Calculator

What this calculator tells you

A systematic withdrawal plan takes a fixed amount from a lump sum each month, while the rest stays invested and earns a return. This calculator shows how long the money lasts at the chosen withdrawal, given the starting sum, the monthly amount and the assumed annual return.

It answers a question many people face in retirement or after receiving a large sum: how long will this money support a regular payment? The answer depends heavily on the withdrawal amount relative to the starting sum, and on the return the balance earns while it is being drawn down.

How the duration is worked out

Each month the balance earns interest at one twelfth of the annual return, and then the withdrawal is taken. If the monthly return earned is larger than the withdrawal, the balance can last indefinitely. Otherwise the balance falls each month until it reaches zero. The number of months can be found from the starting sum, the withdrawal and the monthly rate using a logarithm, which is the method the calculator uses.

A worked example

Suppose you start with 200,000, withdraw 1,000 a month, and the balance earns 5% a year. The monthly return on the balance starts at about 833 in the first month, so the balance falls by about 167 a month at first. The money lasts about 431 months, which is roughly 36 years. A withdrawal of 1,200 a month would shorten that considerably, and a withdrawal of 833 or less would make the balance last indefinitely.

Why the return and the sequence matter

A higher return extends the time the money lasts, and a lower return shortens it. Because the balance is being drawn down, a poor return early in the plan takes a larger share of what remains, which can shorten the period more than the same poor return later. This is called sequence risk, and it is why a single average return can give an optimistic picture.

Limits of the calculation

The calculator uses a fixed return and a fixed withdrawal, neither of which occurs in real life. Inflation may require the withdrawal to rise over time, which the calculator does not model. Taxes on the withdrawals and the gains, and any fees on the account, are excluded. Withdrawals may also be affected by minimum distribution rules in some pension or retirement accounts.

Reviewing the plan as markets move

A withdrawal plan is not a fixed contract. Review the balance and the withdrawal each year. If the balance has fallen well below the level the plan assumed, reducing the withdrawal for a period can extend the life of the money. If it has risen, the plan may allow a larger withdrawal or a longer horizon.

Keep a cash reserve for one or two years of withdrawals if possible. This lets you avoid selling investments in a fall, which is the main way poor early returns damage a plan.

Using the result

Use the result to test a withdrawal rate and a return, and to see how sensitive the duration is to each. Build in a margin by testing a lower return and a higher withdrawal, and review the plan at least once a year. If the money must last a long time, a lower withdrawal and a flexible plan that cuts withdrawals in poor years usually add security.