Two phases, modelled separately: the years you contribute and the years you draw down. The result is not just a balance at retirement but the monthly income that balance actually sustains for the rest of your life - and, if your target is higher than that, the year the money would run out.
Most retirement calculators stop at the balance on your last day of work. That number is far less useful than what it sustains. A pot of a million sounds decisive until you divide it across twenty-five years and subtract inflation. The projection here runs both phases — the years you contribute and the years you draw down — and reports the monthly income the pot actually supports.
Enter returns after inflation and the whole result is in today's money, which is the only frame in which a forty-year projection means anything. A nominal 7 per cent with 3 per cent inflation is 4 per cent real. Getting this wrong is the single most common way these projections flatter themselves.
It is the largest withdrawal that lands the balance exactly on zero at the end of your horizon, assuming a constant return. Real markets do not deliver constant returns, and the order matters enormously: poor years early in retirement lock in losses because you are selling to fund withdrawals. Two portfolios with identical average returns can end very differently. Treat the figure as a ceiling and plan below it.
In the first decade, what you put in dominates — the balance is too small for returns to do much. In the last decade the opposite is true: a 6 per cent return on a large pot outweighs anything you can contribute. This is why starting early is worth more than saving harder later, and the chart below shows the crossover for your own numbers.
Lower than the historical average, and lower again once you are drawing down. A broad equity portfolio has returned roughly 7% real over long periods, but a retiree holding bonds alongside equities should assume less. The safer habit is to enter a real rate - after inflation - so the result is in today's money.
The largest monthly withdrawal that leaves the balance at exactly zero at the end of your horizon. It is the arithmetic answer, not a safe-withdrawal recommendation: it assumes a constant return, which real markets do not deliver.
A constant-rate projection hides sequence risk. Two portfolios with identical average returns end very differently if one has poor years early in retirement, because withdrawals lock in those losses. Treat any single projection as a central case and stress-test it by lowering the drawdown rate.
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