📖 The story
Mr. Brooks retires with $350,000 in capital and wants to spend it down as a monthly pension over 25 years. In the payout phase he expects 4.5 %.
ℹ Ordinary payout, full drawdown of capital.
Topics › Retirement & Withdrawal › What pension can the savings support?
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Retirement & Withdrawal
What pension can the savings support?
Change any number and press "Calculate" – or use "Type in" on the right to watch it entered.
What you learn
In retirement the remaining capital keeps working: the possible pension is well above "capital divided by months", because the money not yet withdrawn keeps earning interest.
In short: Even in retirement the remaining capital keeps working – the possible pension is well above simply dividing the capital by the number of months.
Formula
R = K0·q^n / ((q^n − 1)/(q − 1))
With the example numbers
R = 350.000,00 €·qn / ((qn−1)/(q−1)), n = 300 = 1.927,53 €
How to read the formula
The reverse pension question: from existing capital the payout is calculated that just uses it up over the term. Because the remaining capital keeps earning interest until the very end, the pension is higher than capital divided by months.
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