Formula
The balance compounds monthly until the retirement age, using the same contribution each month. A planning withdrawal is then 4% of that balance per year:
Monthly withdrawal = nest egg × 4% / 12
The 4% figure is a rule of thumb for a long retirement, not a promise that the money will last.
Assumptions
- Contributions continue every month until retirement.
- The annual return compounds monthly and never changes.
- Inflation, taxes, Social Security, and pensions are not included.
Worked example
Saving from age 35 to 65 with $25,000.00 already saved and $500.00 added monthly at 6% projects $652,822.02. A 4% withdrawal is about $2,176.07 a month.
Input definitions
- Nest egg
- The projected balance at the retirement age.
- 4% withdrawal
- A planning shortcut equal to 4% of the nest egg each year, divided into months.
Limitations
This is not retirement advice. Markets, inflation, and how long retirement lasts can make a 4% withdrawal too high or leave money unused.
Questions
Does the contribution stop at retirement?
Yes. The projection adds contributions only until the retirement age, then shows the balance at that point.
Why use 4%?
It is a widely used planning shortcut. It is not a withdrawal you are required to take, and it ignores taxes.