JDPFu.com 2025

Here is an excerpt of a fairly simple spreadsheet

4%/Year Spending

			4.00%	Annual Used
			4.50%	Inflation Est
			8.50%	IRR Est
Yrs in Retirement	4.00%	Real Return
	Principal
1	$1,500,000.00	$60,000.00	
2	$1,497,600.00	$59,904.00	
3	$1,495,203.84	$59,808.15	
4	$1,492,811.51	$59,712.46	
5	$1,490,423.02	$59,616.92	
	.
	.
25	$1,443,447.51	$57,737.90
26	$1,441,137.99	$57,645.52
27	$1,438,832.17	$57,553.29
28	$1,436,530.04	$57,461.20
29	$1,434,231.59	$57,369.26
30	$1,431,936.82	$57,277.47

This means you’ll be able to spend little more than the 4%/yr and not worry about running out of cash. In that chart, I’ve used conservative IRR and inflation estimates. Hopefully, you’ll do a little better – perhaps 9% return and only 3.5% inflation. That just means you have a little more money in those years to enjoy.

If you spend 8%/yr, You May Run Out of Money

The principal is reduced annually, if you take a higher percent out to make up for the shortfall, you’ll significantly reduce the principal every year.

			8.00%	Annual Used
			4.50%	Inflation Est
			8.50%	IRR Est
Yrs in Retirement	4.00%	Real Return

1	$1,500,000.00	$120,000.00	
2	$1,435,200.00	$114,816.00	
3	$1,373,199.36	$109,855.95	
4	$1,313,877.15	$105,110.17	
5	$1,257,117.65	$100,569.41	
	.
	.
25	$519,755.70	$41,580.46	
26	$497,302.25	$39,784.18	
27	$475,818.79	$38,065.50	
28	$455,263.42	$36,421.07	
29	$435,596.04	$34,847.68	
30	$416,778.29	$33,342.26

Scary. I’d rather live on less then run out of money.

All these calculations use simple interest, recalculated annually. It doesn’t take much work to use daily compounded interest, but that defeats the real purpose. Annual returns happen over a year, not daily.

Don’t forget, we could all die tomorrow and none of this will matter, but your spouse may have to live with your decision until age 95 or more.

Dial In Your Retirement Income Estimate

Ok, so if you accept conventional retirement planning and the tables above, now you know how to

• inflation adjust your retirement savings goals
• use a conservative IRR to estimate returns – if you do better, great!
• Quickly determine your annual retirement income based on retirement savings.

Since it is a really simple calculation, here’s a table the shows how much 4% of each principal amount. Basically, it is a conservative estimate for how much money you need to save before retiring to live from the interest and dividends only. Nice.

Principal	4% Income
$500,000	$20,000
$600,000	$24,000
$700,000	$28,000
$800,000	$32,000
$900,000	$36,000
$1,000,000	$40,000
$1,100,000	$44,000
$1,200,000	$48,000
$1,300,000	$52,000
$1,400,000	$56,000
$1,500,000	$60,000
$1,600,000	$64,000
$1,700,000	$68,000
$1,800,000	$72,000
$1,900,000	$76,000
$2,000,000	$80,000
$2,100,000	$84,000
$2,200,000	$88,000
$2,300,000	$92,000
$2,400,000	$96,000
$2,500,000	$100,000
$2,600,000	$104,000
$2,700,000	$108,000
$2,800,000	$112,000
$2,900,000	$116,000
$3,000,000	$120,000

Pick your annual retirement income. The more you save, the more you can enjoy.

There are other techniques to reduce the impact of market fluctuations on your retirement too. So in reality, you’ll actually need to add 5 x Annual_Amount to the total savings to be able to ladder your retirement income with bonds or laddered CDs (certificates of deposit). Google a little to learn about that.

Another way – pick the annual income you’d like and multiply by 25×. That will get you a reasonable savings goal. Where does the 25 come from? 1 / 4% = 25.
50,000 * 25 = $1,250,000
Simple.

To safely ladder 5 years of annual spending and ride out market fluctuations, you’ll want to use 30x the annual amount.
50,000 * 30 = $1,500,000
Actually, I should probably rewrite this entire article with that as the headline instead.

What About Social Security?

It is possible Social Security will still be around for some of you. I don’t expect to see any of it myself (born in the 1960s), hence, that is why I completely ignore it in these calculations. The last SS statement I received a few months ago showed about $12,000 annual benefit at age 67. Yawn. I guess if you’re on the lower end, that matters a bunch.

Getting Started Saving

The good news is that the function of retirement spending is not the reverse function to retirement savings. You don’t have to save $50,000 / year over 30 years to end up with $1.5M. Compound interest is fantastic. $400 a month over 30 years at 9% IRR is $737,000. If you delay by 5 yrs, you are left with about $450,000 (I fudged the calc).

Suppose you started very late saving, but you can put away $3,000/month? It is possible at 9% IRR to save to $1.5M in about 18 yrs. You’d have around $750K in 13 yrs, so all is not lost, provided you make a real effort later. Slow and steady wins this race and causes much less hardship over the many years.

Another article on saving $1M.