# How Long Will a Million Dollars Last if 5% is Withdrawn Annually?

Shawn Plummer

CEO, The Annuity Expert

## Understanding Annuity Returns

An annuity is a financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees. It’s important to note that annuities can offer returns ranging from 6% to 8% annually. This return rate is particularly attractive because it can provide income for the rest of a person’s lifetime, even if the annuity’s principal balance runs out.

## Calculating 20-Year Duration with \$1 Million and 5% Annual Withdrawal

To determine if a million dollars will last 20 years with a 5% annual withdrawal rate, we need to consider several factors:

1. Initial Amount: \$1,000,000
2. Annual Withdrawal Rate: 5%
3. Duration: 20 years

Let’s calculate the annual withdrawal amount and the impact on the principal over 20 years.

## Annual Withdrawal Amount

5% of \$1,000,000 = \$50,000

This means you would withdraw \$50,000 annually.

## Impact Over 20 Years Without Investment Growth

Without considering any potential growth from investments, the total amount withdrawn over 20 years would be:

\$50,000 x 20 years = \$1,000,000

In this simple scenario, the money would exactly last 20 years. However, this does not consider any potential interest or growth on the remaining balance, nor does it account for inflation or changes in spending needs.

## Considering Investment Growth

If the remaining balance is invested and earns a return, this could extend the duration of the funds. The actual duration will depend on the rate of return, inflation, and any changes in annual withdrawal amounts.

## Annuity Option

Opting for an annuity offering 6% to 8% annually could provide a more secure income stream, as it can guarantee payments for life, regardless of how long the money lasts.

## Conclusion

While a million dollars can potentially last 20 years with a 5% annual withdrawal rate, the actual duration depends on investment returns, inflation, and spending habits. An annuity offering 6% to 8% annually presents an alternative for a more secure and potentially longer-lasting income stream.

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