One More Year Calculator

One more year is a question about a margin, and the margin is smaller than it looks. On the defaults, a 1,000,000 portfolio growing at 7% adds 70,000, a 50,000 contribution lands on top, and the balance moves to 1,120,000. The increment is 120,000, and at a 4% withdrawal rate that supports 4,800 more a year, taking sustainable income from 40,000 to 44,800 against 40,000 of planned spending.

Most of that increment is not bought by working

The 70,000 of growth accrues on money already owned whether the year is worked or not. Only the 50,000 contribution is purchased with the year. Set against actually stopping, the comparison shifts again: retiring now means drawing 40,000 and leaving 960,000 to grow to 1,027,200, against 1,120,000 for the year worked. The difference is 92,800, which is the 50,000 contribution plus the 40,000 not withdrawn and the 2,800 that grows on it. So the headline overstates the value of the work by counting market growth and understates it by ignoring the withdrawal that never happens. The 92,800 is the figure the decision turns on.

Each repeat is bigger in cash and smaller in share

From 1,120,000 the next year adds 128,400, more cash than the 120,000 before it, but 11.46% of the balance rather than 12.00%, and the contribution the work actually buys falls from 41.7% of the increment to 38.9%. The absolute figures keep rising while the part attributable to working keeps shrinking, which is the shape that makes the question harder each time it is asked rather than easier.

A year of inflation takes a quarter of the gain

The 4,800 is nominal, and the 40,000 of planned spending is a figure for today. At 3% inflation that same spending costs 41,200 a year from now, so 1,200 of the 4,800 is consumed by prices rather than gained, before anything is spent. The calculator holds expenses flat and reports every figure in nominal terms.

What a withdrawal rate is, and what it is not

It is an input rather than a constant, because no single figure is settled. It describes a fixed-percentage rule, and work on decumulation under uncertain markets and uncertain lifetimes finds that shape of rule holds up reasonably well across a range of risk preferences. What it does not describe is behaviour. Studying actual drawdown among US households aged 60 to 69, Poterba, Venti and Wise found withdrawals averaging about 2% of balances, with only eighteen percent of those households making any withdrawal at all in a typical year, well below any planning rate.

The rate moves the target further than the return does

The independence target is spending divided by the rate, so 40,000 at 4% is 1,000,000, at 3% it is 1,333,333 and at 5% it is 800,000. Moving from 4% to 3% adds 333,333 to the target, which is more than six years of the 50,000 contribution. Nothing else on the page has that kind of leverage, which is why the rate deserves more thought than the return.

What sits outside

Tax on contributions and on withdrawals, fees, inflation, the sequence in which returns arrive, the timing of contributions within the year, and any employer contribution unless it is folded into the contribution field. Also outside it is everything the decision actually turns on that is not a number.