How to use the compound interest calculator with withdrawals
Start with the amount available for withdrawals. The monthly spending figure is money leaving that balance, rather than a contribution or a percentage of the account.
- Enter the starting balance. Use the capital available when the modeled withdrawal period begins.
- Set the assumed annual return. Check how the rate is expressed and converted into monthly growth. A nominal annual rate and an effective annual return are different inputs mathematically.
- Enter the initial monthly withdrawal. This is the amount scheduled for each month before any annual increase.
- Choose the horizon and withdrawal timing. Specify the period to model and whether money leaves at the beginning or end of each month.
- Set the annual withdrawal increase. Use zero for a constant dollar amount, or enter a percentage to increase the scheduled spending once each year.
Change one assumption at a time when comparing scenarios. A longer horizon, larger withdrawal, or faster annual increase changes how much the initial capital must support.
How withdrawal timing changes the balance
With end-of-month withdrawals, the opening balance earns that month's return before the withdrawal is deducted. With beginning-of-month withdrawals, the payment leaves first, so only the remaining money earns the return.
Let B be the opening balance, i the monthly return as a decimal, and W the scheduled withdrawal. While the account can cover each full payment, the next balance is:
End of month: B_next = B × (1 + i) − W
Beginning of month: B_next = (B − W) × (1 + i)
At a positive return, beginning-of-month withdrawals leave less money invested during each month. At zero return, timing does not change the amount available to fund the same sequence of withdrawals.
If the available money is smaller than the scheduled withdrawal, the actual payment is limited to that remaining amount. The model records a partial last withdrawal and leaves a zero balance; it does not treat the unpaid portion as borrowing.
Annual increases and inflation-linked withdrawals
An annual increase changes the withdrawal amount, not the investment return. For example, a 3% increase turns a $500 monthly withdrawal into $515 after the first 12 months. The next annual increase applies to the already increased amount.
This provides a simplified way to model inflation-linked withdrawals: you choose a constant annual percentage to represent rising expenses. It does not track actual future inflation or automatically preserve purchasing power. A positive increase means the account must fund progressively larger payments even if its return stays unchanged.
Example: when the balance cannot cover a full withdrawal
Assume a $10,000 starting balance, a 24-month horizon, and withdrawals of $500 at each month's end, increasing by 3% after 12 months. For this illustration, use a constant 6% nominal annual return compounded monthly, equivalent to 0.5% per month. This is a hypothetical rate, not a product quote or forecast.
| Withdrawal period | Scheduled monthly amount | Total actually withdrawn |
|---|---|---|
| Months 1–12 | $500.00 | $6,000.00 |
| Months 13–20 | $515.00 | $4,120.00 |
| Month 21 | $515.00 | $439.46 |
The balance covers 20 full monthly withdrawals. In month 21, only $439.46 is available after that month's return, so the account cannot pay the full $515. After the partial withdrawal, the balance is zero. The scenario therefore falls short of the selected 24-month horizon.
Total withdrawals are $10,559.46, including $559.46 of modeled growth. Calculations retain precision internally; displayed amounts are rounded to cents. Moving withdrawals to the beginning of each month still produces a shortfall in month 21, but the partial last withdrawal falls to $384.22.
What a sustainable monthly withdrawal means here
The “amount that lasts” result estimates the starting monthly withdrawal that uses the available balance over the selected horizon, allowing for your return, timing, and annual increases. It is a mathematical solution under those inputs, not a guarantee of income or a recommended spending level.
With annual increases enabled, the result represents the initial withdrawal; later scheduled amounts are higher. With zero return and no increases, the calculation reduces to starting capital divided by the number of monthly withdrawals. A positive balance at the end of a shorter projection does not establish that funds will last indefinitely.
Reading the results and recognizing limitations
Distinguish the month when a full payment first becomes unaffordable from the number of full withdrawals completed. Total withdrawals include money from your original capital. To calculate growth earned in a scenario without deposits, add actual withdrawals to the remaining balance and subtract the starting balance.
The model assumes a constant return. It excludes taxes, fees, and market volatility, and does not capture how a changing sequence of returns affects retirement drawdown. The results are not personalized financial advice or a prediction of when your actual funds run out.
For building savings through deposits, use the compound interest calculator. The compound interest formula calculator solves for an unknown variable in a single initial deposit scenario without withdrawals.
Adjust the withdrawal amount or annual increase above to compare another spending scenario.