Portfolio depletion — also called ruin risk — is when a retirement portfolio hits zero before the end of the planned retirement period. It is the single worst outcome in retirement planning. Retirement Lab calculates both the probability of depletion and the median age at which it occurs.
Portfolio depletion is the scenario every retiree fears: running out of money while still alive. Unlike a temporary drawdown where the portfolio recovers, depletion is permanent — once the portfolio reaches zero, there is no recovery. It is the inverse of success rate: if a Monte Carlo simulation shows 85% success, it means 15% of scenarios ended in depletion.
How It Works
Depletion occurs when cumulative withdrawals and investment losses exceed the portfolio's ability to sustain itself. The math is straightforward but the dynamics are not:
- Withdrawals exceed returns in early years, shrinking the capital base
- The smaller portfolio generates less growth, even when markets recover
- Inflation-adjusted expenses continue rising regardless of portfolio performance
- A tipping point is reached where the portfolio enters an irreversible decline
Retirement Lab tracks depletion across all simulated scenarios and reports:
- Depletion probability: the percentage of iterations where the portfolio reached zero
- Median depletion age: of the scenarios that failed, the midpoint age at which depletion occurred — telling you not just if but when failure is most likely
Why It Matters for Retirement Planning
Depletion risk is asymmetric — the consequence of failure is catastrophic while the "cost" of being too conservative is merely leaving a larger inheritance. This asymmetry is why most financial planners recommend targeting a 10–20% depletion probability rather than aiming for 0%.
Key factors that increase depletion risk:
- High withdrawal rates: each additional 0.5% above 4% meaningfully increases ruin probability
- Sequence-of-returns risk: a bear market in the first 5 years of retirement is the most common path to depletion
- Long time horizons: FIRE practitioners planning for 40+ years face significantly higher depletion risk than traditional retirees
- Fixed spending: strategies that don't adjust to market conditions deplete faster than dynamic approaches
A Practical Example
A retiree with $1,000,000 withdrawing $50,000/year (5% rate) runs a Monte Carlo simulation:
| Scenario | Success Rate | Median Depletion Age |
|---|---|---|
| Normal distribution, 30-year horizon | 78% | 89 |
| Fat-tail distribution, 30-year horizon | 71% | 86 |
| Fat-tail + bear market year 2, 30-year horizon | 58% | 83 |
The 7-point drop from normal to fat-tail represents hidden risk that standard calculators miss. The bear market scenario shows how a single early shock can shift median depletion forward by 6 years — from a manageable risk at 89 to a serious concern at 83.
How Retirement Lab Addresses This
Retirement Lab reports depletion probability and median depletion age for every simulation run. Switch between normal and fat-tail distributions to see the hidden risk gap, and compare how different spending strategies — fixed withdrawal, guardrails, floor & ceiling — change the depletion outlook across up to 50,000 scenarios. Try it free
Frequently Asked Questions
- What is portfolio depletion in retirement?
- Portfolio depletion — also called ruin risk — is when a retirement portfolio reaches zero before the retiree's death. Unlike temporary drawdowns, depletion is irreversible. Retirement Lab calculates both the probability of this happening and the median age at which it occurs across thousands of simulated scenarios.
- What causes portfolio depletion?
- The most common causes are withdrawing too much too early, experiencing poor market returns in the first 5-10 years of retirement (sequence-of-returns risk), underestimating longevity, and ignoring inflation's compounding effect on expenses over 30+ years.
- How do I reduce my risk of portfolio depletion?
- Lower your withdrawal rate, adopt a dynamic spending strategy that cuts withdrawals during downturns, diversify across asset classes, delay Social Security to maximize guaranteed income, and stress-test your plan with Monte Carlo simulations using fat-tail distributions.