Interactive Tool
The engine: compounding
One force runs through all of personal finance (compounding), and it works in every direction. Watch a balance grow from contributions, return, and time; see how the rate you save (not the size of your paycheck) sets your timeline to financial independence; then watch the same math turn against you as debt. Three views of one equation.
Life phases change your contribution from a chosen year on (a raise, or the kids leaving home). They add money only — retirement spending is modelled by the withdrawal box below.
- Final balance
- $2,071,261
- You contributed
- $154,000
- Growth from returns
- $1,917,261
≈ $2,117 / month · $25,398 / year
in today's dollars, from a $635K nest egg
Across 2,000 block-bootstrapped US histories, drawing 4% a year (raised with inflation) survived most histories, though a bad first decade could still bite.
The “4% rule” is a widely cited approximation of a safe withdrawal rate: draw 4% of your balance the first year, then raise that dollar amount with inflation. William Bengen, whose research first found that roughly 4% survived every historical 30-year retirement (his worst case works out to 4.15%; later work adding small-cap stocks raised it to about 4.5%), never claimed a single number is guaranteed; the odds above show why higher rates get dangerous fast. Stress-test it against your real costs →
Everything here is in today's dollars, built from your inputs above: invest for 40 years, retire at 65, then draw 4% a year from a 60%-stock nest egg for 30 years, through age 95. The drawdown grows at that mix's historical real return, while the build-up uses your steady 9.5% assumption.
At 25, almost all your wealth is human capital: about $2.3M of future earnings versus $10K saved. A paycheck you haven't earned yet behaves like a bond, which is why the young can afford more equity risk. By 65 you've converted that into a $635K nest egg, and human capital is gone. From there, drawing 4% a year earns more than you spend, so the nest egg keeps growing to about $1.1M by age 95: runaway compounding, even in retirement. But this is one smooth, average path: the 94% chance of lasting, above, comes from the bumpy real histories, where a bad first decade (sequence-of-returns risk) sinks some runs even when the average looks safe.
A simplified model: it assumes a steady average return, compounded monthly, with fees and inflation applied evenly and taxes left out. Real markets are far bumpier; switch to Historical to see the real, block-bootstrapped range instead of a single line.
Three views of one idea
- Compound growth. Money earns a return based on the amount of compensated risk you take, and next year that return earns a return too. Over decades, most of a portfolio's final value comes from growth on growth, not the contributions themselves.
- Savings rate. How fast you reach the point where your investments could cover your life depends on the fraction of income you save, almost regardless of how much you earn, because spending and the nest egg you need scale together.
- Debt. The exact same compounding, pointed the other way. Debt isn't automatically bad. Borrowing for an education or a home can pay off many times over in human capital and stability. But at a credit card's rate, paying only the minimum stretches a small balance into decades, so clearing high-interest debt is usually worth doing before investing.
Educational only, not financial advice.
Sources & further reading
How this tool was made
Computed live in your browser from the numbers you enter. The historical modes use real annual US stock, bond, and inflation returns (Damodaran, 1928–present): resampled in five-year blocks for the Monte Carlo runs, and replayed year by year in Twin Lives. Default borrowing rates in the debt tab come from the FRED consumer-rate series.
Research
- Bengen, W. P. (1994). “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning 7(4): 171–180. Origin of the “4% rule.”
- Cooley, P. L., Hubbard, C. M., & Walz, D. T. (1998). “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable.” AAII Journal 20(2): 16–21. The “Trinity study.”
Data
- Historical Returns on Stocks, Bonds, Bills & Real Estate — United States, Aswath Damodaran, NYU Stern School of Business. Annual series from 1928 (histretSP.xls), published by the author without stated usage terms; used with attribution.
- Federal Reserve Economic Data (FRED), Federal Reserve Bank of St. Louis. Series retrieved from FRED and cited to their originators per FRED's terms of use: Treasury yields (Board of Governors), CPI (BLS), 30-year mortgage rates (Freddie Mac PMMS), consumer credit rates (Board of Governors). The S&P Cotality Case-Shiller home-price index (© S&P Dow Jones Indices) is marked 'pre-approval required' on FRED, so only three headline statistics computed from it (long-run appreciation, worst drawdown, rolling-return range) appear here; the index levels are not republished.
Educational use only, not financial advice. Every figure traces back to the sources above or to the inputs you set — the full method and the source code are public.