Drawdown & Safe Withdrawal Simulator — Australia

The 4% rule says you can withdraw 4% of your portfolio in the first year of retirement, then the same amount adjusted for inflation each year, and expect it to last 30 years. It comes from William Bengen's 1994 study and the 1998 Trinity study, both based on US share and bond returns since 1926.

This simulator tests your own withdrawal rate instead of borrowing theirs. It draws a year of returns for shares, bonds and cash thousands of times over, applies your spending rule, and reports how often the money lasted to the end age you set, along with the range of balances left behind.

Most Australians fund retirement from super through an account-based pension. Earnings in the pension are tax free, and payments to someone aged 60 or over from a taxed fund are tax free too. The law sets a minimum payment each year, as a percentage of the balance on 1 July (Moneysmart):

If you plan to spend less than the minimum, the excess still has to be paid out of the pension, though it can be saved or invested outside super. The simulator does not apply the minimums, because money withdrawn does not have to be spent; it tests whether your spending can be sustained.

Two retirements with the same average return can end very differently. A fall in the first few years forces you to sell more to fund the same spending, and those units are not there for the recovery. That is why a simulation that varies the order of returns tells you more than a single average.

The drawdown simulator's "Poor outcome (10th)" figure shows what the worst tenth of paths left behind. If that figure is uncomfortable, the levers are spending, the spending rule, the asset mix and the end age.

• Fixed spends the same real amount every year regardless of markets. It is the Trinity study's assumption and the harshest test.
• Guardrails trims spending when the withdrawal rate drifts too far above where it started, and raises it when the portfolio runs ahead. A modest willingness to cut in bad years usually improves the success rate a lot.
• % of portfolio draws a fixed share of the current balance each year, above a floor. The money cannot run out entirely, but income moves with the market.

Switch on "Include the Age Pension" to add a payment of $30,000 a year from 67, kept level in today's dollars, roughly the full single rate with supplements. Because the pension is means-tested, a large portfolio would receive less, at least until it has been drawn down; the simulator does not apply the tests (Services Australia). For many retirees the pension acts as a floor under spending in later life, which is why it can raise the success rate noticeably.