How Long Will a Million Dollars Last if 5% is Withdrawn Annually?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Without considering any potential growth from investments, the total amount withdrawn over 20 years would be: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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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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