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Investment Bond Withdrawal Simulator.


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The purpose of this simulator is to simulate the potential effects of taking regular withdrawals from an Investment Bond, depending on numerous factors, such as the initial fund value, the level of regular withdrawals, investment growth rate and investment volatility. This tool is similar to the Pension Fund Withdrawal Simulator.

For more information on Investment Bonds, view this page.


One major problem when looking at investment products is that any initial projection works out the final projected fund value by using a linear averaged growth rate (minus withdrawals and regular charges). Usually this assumes that the initial fund value grows by 4%, 6% or 8% minus withdrawals and charges.
However, we know that in the real world investments do not grow at such a uniform rate. In some years they may increase in value by twenty percent, and in other years may lose as much value. Often there can be years of sustained losses and negative growth.
Using a standardised calculation, assuming that on average equity investments have averaged 8% growth over the last fifty years, you could draw out 8% in withdrawals every year and retain your original capital. This could work, but the chances are that you could end up with a seriously depleted fund in ten or fifteen year»s time.
For example, an individual who purchased an Investment Bond in 1999 and invested in a significant amount of equity-based funds will have seen years of negative investment returns, primarily between the years 2000-3 and since mid-2007. Although the other years in this period registered impressive investment returns, if withdrawals continued to be taken during the bad years, this could have had a significant negative impact on the investment fund, and it becomes much harder to get back to the starting point during the good years.
The main factors for success or failure are:
  1. Timing
  2. Investment Decisions
  3. Volatility
  4. “Randomness”


The effects of timing cannot be ignored. If you get off to a good start, any income producing investment is more than likely to work in your favor. For instance if you had invested in 2003 and invested mainly in equities, your fund value, despite taking withdrawals, is likely to be worth more now than at the start date. Conversely, someone who commenced in early 2007 is likely to be suffering as of mid-2008.

Investment Decisions

Investment decisions do matter. Some people may invest aggressively, and switch between equities, property and other exotic assets when they feel the timing is right. Such a strategy may work incredibly well, or fail very badly. This often depends on the investment skills of the person making the decisions.
Because most people are unhappy to take such big risks with their investments, most people “spread” their investments between different sectors and asset classes, and this is where the element of volatility comes into the equation.


Technically, volatility refers to the standard deviation of the change in value of an investment within a specified period of time (often 36 months). This quantifies the risk of the investment over that period. An easier way to explain this is that sometimes prices go up, sometimes they go down, and sometimes they barely move for long periods.  For instance, if an investment fund had an average return of 5% and a volatility level of 20%, this means that the range of returns over the period in question could be between +25% and -15%. However, if the level of volatility was 5%, the maximum return would have been 10%, but there would have been no negative returns.
Investment in a single sector is usually more volatile (risky) than investing across a range of asset classes. By investing in a range of assets, such as equities, bonds, cash, property, precious metals, hedge funds, etc, this is likely to reduce overall volatility, because when certain types of assets are suffering, others are likely to be posting positive returns. This creates a “smoothing” or “averaging” effect. Hopefully this will generate a higher return than just keeping funds in cash, but there is no guarantee of this.
Because most people are risk-averse in the sense that the thought of losing money is more disturbing than taking risks to make large gains, most people would rather trade off some the risk for the benefit of security. Also, common sense dictates that if two different funds or investment portfolios offer the same returns but have different levels of volatility, you may as well go for the lower volatility option, as there is little point in taking on additional risk to achieve the same return.
You may ask “what is an acceptable level of volatility?” This differs from person to person, but a rule of thumb measure is that a range of 0-3% is definitely low risk (cautious), while anything up to 10% is acceptable for the average investor. Anything over 20% is getting into high-risk high-reward territory.


A final point is that of randomness. Whilst market surges and crashes do not usually appear out of nowhere, they do usually catch many investors by surprise (they literally “did not seeing it coming”).
This simulator uses a Monte Carlo Simulation to account for this effect of randomness. Such calculations rely on repetitive random sampling to compute a result, and are useful for providing outcomes where there is no absolute outcome.

How to use the simulator

You will need to enter the initial amount that was invested into the Bond, along with the percentage withdrawals that will be taken each year, along with the levels of annualized growth, volatility and number of years to simulate.
There is an additional option to further reduce withdrawals by an additional percentage if the fund falls below the value of the fund five years previously. This is because people frequently do reduce withdrawals when the value of their capital has been decreasing far more than expected. 
Because this simulator uses an element of randomness, no two calculations will be alike. Therefore, it is more useful to run this several times to see the range of likely outcomes. By increasing the level of volatility, you will increase the range of possible outcomes.
Please bear in mind that this is a simulation, not a projection. A projection uses standardized calculations, so there should only be one outcome. In contrast, a simulation looks at a range of possible outcomes in order to work out what a likely outcome could be.

Important Points

Use of this simulator does not constitute a recommendation to use Investment Bonds to provide income. If you are considering going down this route, we recommend that you seek Independent Financial Advice in the first instance, as there may be more suitable options in your particular circumstances. If you are still in doubt, read through the consumer guidance sections within the Financial Conduct Authority website.
The figures projected by this calculator are only for guidance purposes - whilst we aim to ensure the accuracy of our calculators, we can take no responsibility for the usage made of the calculations generated on this site.

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