How much income will my retirement savings produce?

A common starting estimate applies a withdrawal rate of around 4% to the balance at retirement, so a pot of 500,000 supports roughly 20,000 a year before tax. The sustainable figure depends on how long retirement lasts, what returns the portfolio earns and how much flexibility you have to reduce spending in poor years.

It came from studies of historical US market data suggesting that withdrawing 4% of a portfolio in the first year of retirement, then adjusting that amount for inflation each year, survived thirty-year periods in most scenarios. It is a planning benchmark rather than a guarantee, and many analysts now treat it as an upper bound.

How does inflation affect retirement income?

It steadily reduces what a fixed income buys. At 3% inflation, purchasing power roughly halves over 24 years - well within a typical retirement. Any realistic plan either grows the withdrawal each year to keep pace or accepts a declining standard of living.

Should my portfolio stay invested during retirement?

Usually to some degree. A retirement lasting decades still needs growth to outpace inflation, so shifting entirely into cash creates its own risk. The common approach reduces volatility gradually while keeping enough growth assets to fund the later years, and holds a cash buffer so withdrawals need not come from a falling market.

What is sequence of returns risk?

It is the danger of poor returns arriving early in retirement. Withdrawing from a portfolio while it is falling locks in losses and permanently reduces the base that later growth works on. Two retirements with identical average returns can end very differently depending purely on the order those returns arrived.

Retirement Income Calculator

Estimated Annual Retirement Income

Turning Savings Into Retirement Income

Accumulating a retirement pot and living off one are different problems. During your working life the question is how much to contribute; in retirement it becomes how much you can safely take out, for how long, and what happens if markets disappoint early.

The Inputs That Matter

1. Current Age and Retirement Age

The gap between the two determines how much longer the portfolio grows before withdrawals begin. It also sets, indirectly, how many years the money must last - retiring earlier means a longer drawdown from a smaller base.

2. Current Savings

The balance you start from compounds for the whole period before retirement, which is why contributions made early carry so much more weight than those made late.

3. Withdrawal Rate

The share of the portfolio you take in the first year. This is the single most powerful lever on whether the money lasts, and small changes matter enormously across a thirty-year retirement.

4. Inflation Rate

The rate at which your income needs to grow simply to buy the same things. Ignoring it is the most common flaw in retirement projections.

5. Expected Return

What the portfolio earns while you are drawing from it. Returns during retirement matter as much as returns before it, particularly in the early years.

Why the Order of Returns Matters

Two retirees can experience identical average returns over thirty years and end up in very different positions, purely because of when the good and bad years fell. Withdrawing a fixed amount from a portfolio that has just dropped means selling more units to raise the same cash, permanently shrinking the base that any subsequent recovery works on.

This is sequence of returns risk, and it is why the years immediately before and after retirement carry outsized importance. Common defences include holding a cash buffer of one to three years of spending, reducing withdrawals in poor years, and moderating volatility as retirement approaches.

Inflation Is the Quiet Constraint

A retirement income that never rises is a retirement income that steadily shrinks. At 3% inflation, purchasing power roughly halves over 24 years - a period well within a modern retirement. Planning in real terms, where the withdrawal grows each year to keep pace, produces a more honest picture than a flat nominal figure.

Sources of Retirement Income

Portfolio withdrawals are rarely the whole story. Most retirements combine several streams:

Social Security or the state pension, which is inflation linked
Employer pensions, where they still exist
Withdrawals from retirement accounts and taxable investments
Annuity income, where purchased
Rental or part-time earnings

Because guaranteed sources cover part of the spending, the portfolio often has to work less hard than a headline number suggests. Establishing which costs are covered by guaranteed income first tells you what the portfolio actually needs to fund.

Using This Calculator

Enter your current age, intended retirement age, current savings, the withdrawal rate you plan to use, an inflation assumption and the return you expect. The result estimates the annual income the portfolio could support. Try lowering the withdrawal rate by half a percentage point to see how much longevity that buys.

Conclusion

Retirement income planning is an exercise in managing uncertainty rather than predicting a number. Model it, then stress it: a lower return, higher inflation, a poor first decade. A plan that survives those adjustments is worth considerably more than one that only works on the central assumption.