This calculator helps you determine either how large or how long
periodic distributions can be taken out of an investment before it
runs out. If you enter the number of years you need the
distributions to last, this calculator determines the amount you
can take out each period. If you enter a periodic distribution, it
will calculate how long before your balance runs out.
Definitions
Starting balance
Total amount that you currently have invested. Include any
sources of investment savings such as 401(k)s, IRAs and Annuities
that you wish to include in this analysis.
Annual return
This is the annual rate of return you expect from your
investments after taxes. The actual rate of return is largely
dependent on the type of investments you select. From January 1970
to December 2008, the average annual compounded rate of return for
the S&P 500, including reinvestment of dividends, was
approximately 9.7% (source: www.standardandpoors.com). During this
period, the highest 12-month return was 61%, from June 1982 through
June 1983. The lowest 12-month return was -39%, which happened
twice, once from September 1973 to September 1974 and again from
November 2007 to November 2008. Savings accounts at a bank may pay
as little as 1% or less but carry significantly lower risk of loss
of principal balances.
It is important to remember that these scenarios are
hypothetical and that future rates of return can't be predicted
with certainty and that investments that pay higher rates of return
are generally subject to higher risk and volatility. The actual
rate of return on investments can vary widely over time, especially
for long-term investments. This includes the potential loss of
principal on your investment. It is not possible to invest directly
in an index and the compounded rate of return noted above does not
reflect sales charges and other fees that funds and/or investment
companies may charge.
When you are taking periodic distributions from an account or
investment, the return earned is often lower due to more
conservative investment choices to help insure a steady flow of
income.
Expected annual inflation rate
What you expect for the average long-term inflation rate. A
common measure of inflation in the U.S. is the Consumer Price Index
(CPI), which has a long-term average of 3.1% annually, from 1925
through 2008. The CPI for 2008 was 4.0%, as reported by the
Minneapolis Federal Reserve.
Distribution amount
This is the amount that you expect to be withdrawing from your
investments. All distributions are assumed to be taken at the
beginning of each period. If you choose the calculation option
"Maximum periodic distribution" this field will be calculated.
Distributions to last
This is the number of years that your distributions are to
last. If you choose the calculation option "Years balance will
last" this field will be calculated.
Inflation adjustments
These selections allow you to adjust your distributions for
inflation. If you choose "No adjustment for inflation" your
distribution will remain at a constant amount for the entire
duration of your distributions. "Increase distributions annually"
will increase your distribution amount at the end of each year by
the rate of inflation. This begins at end of the first year of
distributions. Choosing this option helps illustrate the cost of
providing a current amount of purchasing power throughout your
distributions.
Information and interactive calculators are made
available to you as self-help tools for your independent use and
are not intended to provide investment advice. We can not and do
not guarantee their applicability or accuracy in regards to your
individual circumstances. All examples are hypothetical and are for
illustrative purposes. We encourage you to seek personalized advice
from qualified professionals regarding all personal finance
issues.