Pension / Annuity Calculator

The 4% rule (Trinity Study) suggests withdrawing 4% of your retirement corpus annually—adjusted for inflation each year—to make money last 30 years with 95% success rate. How it works: $1,000,000 corpus × 4% = $40,000/year = $3,333/month. Year 2: $40,000 × 1.03 (inflation) = $41,200. Year 3: $41,200 × 1.03 = $42,436. And so on. Some experts now suggest 3.5% for extra safety, especially with longer retirements or lower expected returns.

It depends on your goals: Interest Only (Perpetuity): Lower income, but corpus preserved forever. Great if you want to leave legacy. Example: $1M at 6% = $5,000/month, corpus stays $1M. Systematic Drawdown: Higher income, but corpus depletes. Example: $1M at 6% for 25 years = $6,446/month, corpus becomes $0. Most retirees start with interest-only, then draw down capital as inflation erodes purchasing power. The 4% rule is a middle ground—corpus lasts 30 years with high probability.

Conservative rates for retirement: Bonds/Fixed Deposits: 4-5%. Balanced Portfolio (60/40): 5-6%. Conservative Equity (40% stocks): 6-7%. Moderate Equity (60% stocks): 7-8%. Why conservative? You're withdrawing, not adding—can't recover from losses. Sequence of returns risk: Bad early years hurt more. You need reliable income, not maximum return. For planning, use 5-7% depending on risk tolerance. Never assume 10%+ for retirement income planning.

Using the 4% rule: Monthly Income × 12 ÷ 0.04 = Required Corpus. Examples: $3,000/month → $900,000. $5,000/month → $1,500,000. $8,000/month → $2,400,000. $10,000/month → $3,000,000. For interest-only (more conservative): Monthly Income × 12 ÷ Return Rate. At 6%: $5,000/month → $1,000,000. At 5%: $5,000/month → $1,200,000. Our calculator shows exact corpus needed for your target income.

SWP is a mutual fund feature that automatically redeems units to give you regular income—like a self-created pension. Benefits: Tax-efficient (only gains taxed, not principal). Flexible (change amount anytime). Better returns than fixed deposits. Keep growth exposure. How it works: You invest lump sum in fund. Set monthly withdrawal (e.g., $5,000). Fund redeems enough units each month. Remaining units continue to grow. Different from pension—SWP gives control, pension gives guarantee.

Higher withdrawal = faster depletion. At 6% return: 3% withdrawal: Forever (lower than return). 4% withdrawal: 30+ years. 5% withdrawal: ~26 years. 6% withdrawal: ~22 years. 7% withdrawal: ~18 years. 8% withdrawal: ~15 years. The difference between 4% and 5% is huge over decades. Our calculator shows exact years for each rate with your corpus.

Annuities give guaranteed lifetime income but have trade-offs: Pros: Income guaranteed for life (longevity risk covered). No market risk—fixed payments. Simplicity—no investment decisions. Cons: Lower returns than self-managed portfolio. No legacy—nothing left for heirs (usually). Inflation erosion—most annuities are fixed. Illiquid—can't access principal. Consider annuity for portion of corpus (50-70%) and keep rest invested for growth and flexibility.

Longevity risk is the biggest retirement challenge. Strategies: (1) Plan to age 95, not average life expectancy. (2) Use 3.5% withdrawal instead of 4%. (3) Keep some growth investments (don't go 100% bonds). (4) Consider partial annuity for guaranteed floor income. (5) Delay Social Security for higher payments. (6) Have contingency plan (downsize house, relocate). The 4% rule was designed for 30 years—if retiring at 60 and living to 95, use 3.5% for safety.

Inflation is the silent killer of retirement. $5,000/month today: In 10 years (3% inflation): Needs $6,720 for same lifestyle. In 20 years: Needs $9,030. In 30 years: Needs $12,136. Solutions: (1) Inflation-indexed annuities (more expensive). (2) 4% rule adjusts for inflation annually. (3) Keep equity exposure for growth. (4) Start with lower withdrawal, increase over time. Fixed pension from employer? Check if it has inflation adjustment (COLA).

Common approach for balanced retirement: (1) Emergency fund: 1-2 years expenses in cash/short-term bonds. (2) Income floor: Cover essential expenses with guaranteed sources (Social Security, pension, partial annuity). (3) Growth bucket: 40-60% in diversified equities for inflation protection. (4) Flexible withdrawal: Use 4% rule with flexibility—spend less in down markets. (5) Review annually: Adjust based on portfolio performance and spending needs. Don't make it all-or-nothing—blend strategies for safety AND growth.