Methodology

How RetirePeace calculates: methodology, conventions and limits

Every projection on this site rests on modelling choices. This page states them, including the two places where our own calculators deliberately differ from each other.

A retirement calculator is a set of assumptions with arithmetic wrapped around it. The arithmetic is the easy part to get right; the assumptions are what determine whether the answer means anything. This page documents both, so you can judge the output rather than take it on trust.

What each calculator does

Withdrawal timing: the two conventions, and why both exist

This is the most important convention on the site, and the one most likely to surprise someone comparing two calculators.

• The Retirement Calculator applies the year’s growth to the full opening balance and then takes the withdrawal. This treats the withdrawal as effectively occurring at the end of the year.
• The SWP and 2-Bucket calculators take the withdrawal first and apply the return only to what remains. This treats the withdrawal as occurring at the start of the year.

Both are standard, defensible conventions, and each engine is internally consistent. The difference is not trivial: on a corpus of ₹20,00,000 withdrawing ₹1,00,000 a year at 6% over 30 years, the Retirement convention leaves about ₹35,81,000 and the SWP convention about ₹31,07,000, a gap of roughly 15%.

We have chosen to document this rather than force the two engines to agree, because each convention is the appropriate one for its own model. The Retirement Calculator projects a whole life in annual steps, in which income is drawn through the year; the SWP calculator models a drawdown in which the income is taken up front and only the remainder is invested. That is the more conservative reading, and the right one for a tool whose purpose is to test whether a corpus survives. If you are comparing the two, expect the SWP figure to be the lower one, and read the difference as a modelling convention rather than an error in either.

Other timing conventions

• Retirement contributions. New contributions during the accumulation years earn half a year’s return, reflecting the fact that they arrive spread through the year rather than all on day one.
• Investment Growth SIP. Each monthly contribution is added at the end of its month, so it earns no return in the month it is made. The annual return you enter is converted to an effective monthly rate.
• Investment Growth one-time investments. Added at the start of the chosen year, so they compound for the rest of the projection.
• Investment Growth SIP top-up. Applied from the start of the following year, not immediately.
• FIRE contributions. Treated as arriving at the end of each period, using the standard future-value-of-an-annuity formula solved for the payment.

Year numbering in the SWP and 2-Bucket tables

The year-by-year tables in the SWP and 2-Bucket calculators begin at year 0, which is the first withdrawal year, and run through to the final year of your stated duration. A 30-year plan therefore shows 31 rows, years 0 to 30, and simulates 31 withdrawals.

In calendar-range mode (say 2030 to 2060) that is straightforwardly correct, because both endpoints are inclusive. In "number of years" mode it means the plan is modelled with one withdrawal more than a strict count of thirty would produce, which makes the projection slightly more conservative: the corpus is drawn down for a little longer than requested, so any plan that survives the projection would also survive the stricter reading.

We are documenting this rather than changing the loop. Altering it would change results people have already used, in the direction of making every plan look better, which is the wrong direction to move without a strong reason. If you want the strict count, request one fewer year and compare. The row count shown above the table is honest about what is being simulated: it reports rows, not years.

Precision, rounding and currency

• All calculations carry full floating-point precision from beginning to end. Rounding happens only when a number is displayed, so a running balance is never distorted by rounding at each step.
• Large figures are abbreviated for readability. For the Indian rupee this uses the Indian scale (K for thousand, L for lakh, Cr for crore), and for other currencies the western scale of K, M and B. ₹1,00,000 therefore displays as ₹1 L, not ₹100 K.
• Twenty or more currencies are supported. The currency setting changes the symbol, the digit grouping and the abbreviation scale only. No exchange rate is ever applied, and the mathematics never changes. Switching currency does not convert your numbers.

What is not modelled in any calculator

These omissions are deliberate, and they are the same across all five engines. There is no hidden tax model, no fee assumption and no volatility simulation anywhere on the site.

• Tax. Every figure is pre-tax: on contributions, on growth and on withdrawals.
• Fees and charges. Expense ratios, platform fees, exit loads and transaction costs are not deducted. Build them into your return assumption.
• Market volatility. Returns are applied as a single smooth annual rate. No path risk, no drawdown modelling, no simulation of any kind, which is why sequence-of-returns risk does not appear in any projection.
• Currency conversion. No exchange rates, ever.
• Pensions, social security, annuities and rental income. Not modelled. If you expect income from these, subtract it from the spending the corpus has to fund.
• Product-specific rules. The engines model cash flows, not the terms of any particular scheme, fund or account.
• Anything about you. No calculator on this site knows your risk tolerance, your health, your family situation or your tax position, and none of them produces advice.

How the calculators are checked

Each engine has been audited independently of the code that produces the on-screen result: outputs are compared against closed-form financial formulas and against separate re-implementations of the documented sequence, across a wide range of inputs. That audit covers whether each engine computes what it says it computes.

It does not, and cannot, tell you whether the assumptions you entered will turn out to be right. Those two things are frequently confused. A calculator can be arithmetically perfect and still produce a projection that reality does not resemble, because the return and inflation figures were estimates. Choosing return and inflation assumptions deals with the half of the problem the arithmetic cannot help with.

RetirePeace is an educational tool. It does not provide financial, investment, tax or legal advice, and it does not know enough about you to do so. Please read the full disclaimer, and consult a qualified professional before making financial decisions.

This guide is educational and general. It is not financial, investment, tax or legal advice, and it takes no account of your circumstances. Every figure quoted is an illustration produced by the arithmetic described, not a forecast or a guarantee. Investment returns, inflation and market conditions are uncertain and will differ from any assumption used here. See the full disclaimer.