Guide
Withdrawing Early: How It Can Hurt Compounding
Early withdrawals reduce the base that earns future growth. Here are two simple examples and how to test them in the calculator.
Published: March 12, 2025 · Updated: December 21, 2025 · By FinToolSuite Editorial
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Compare no-withdrawal and withdrawal scenarios with your own numbers.
Open the calculatorQuick answer
Money removed today can’t compound tomorrow. Small recurring withdrawals can flatten growth over time. See more on withdrawal impact: withdrawals and compounding.
Disclaimer
Educational purposes only; not financial advice. Examples are illustrative; real returns vary and investments can go down as well as up. Fees, taxes, inflation, and rules vary by provider and country. Withdrawals may have tax or penalty implications depending on the account/provider.
Why early withdrawals matter
Compounding builds on the accumulated balance. Early years set up later acceleration. Removing money early shrinks that engine, so later growth can be lower.
Example #1: No withdrawals vs £50/month
Starting: £10,000. Rate: 5%. Time: 15 years. Compare no withdrawals to a £50/month withdrawal.
| Scenario | Total withdrawn (approx.) | Ending balance (approx.) |
|---|---|---|
| No withdrawals | £0 | ~£20,789 |
| Withdraw £50/month | ~£9,000 | ~£7,800 |
Try this in the calculator.
Example #2: Early vs later withdrawals
Same total withdrawal (£50/month for 5 years) but at different times: years 1–5 vs years 11–15. Starting: £10,000; Rate: 5%; Total timeline: 15 years.
| Timing | Ending balance (approx.) |
|---|---|
| Withdraw years 1–5 | ~£12,300 |
| Withdraw years 11–15 | ~£14,900 |
Earlier withdrawals tend to lower the final balance more because they reduce the base sooner. Try timing changes in the calculator.
Takeaway
Withdrawals are sometimes necessary. Seeing the trade-off helps you decide timing and amounts that fit your situation. Testing scenarios shows how sensitive the result is to withdrawals.
How to model this in the calculator
If withdrawals are supported, enter them directly. If not, approximate by reducing principal at a given year or modelling a negative monthly amount in a separate scenario. Label approximations clearly.
Open the calculatorCommon mistakes
- Assuming small withdrawals never matter.
- Changing multiple inputs while comparing scenarios.
- Treating projections as guarantees.
FAQ
Why do early withdrawals matter more?
Money taken out earlier misses more future compounding periods.
Do small withdrawals really make a difference?
Over time, recurring small withdrawals can reduce growth and may eventually shrink the balance.
What if I withdraw occasionally instead of monthly?
Occasional withdrawals matter less than frequent ones but still reduce the base during that period.
Can withdrawals cause the balance to shrink?
Yes. If withdrawals exceed growth, the balance declines.
How do I model withdrawals in a calculator?
Enter them directly if supported; otherwise, approximate by reducing principal or adding negative contributions in a separate scenario.
Do withdrawal penalties or taxes apply?
They can, depending on account/provider. These examples exclude them.
What if returns vary year to year?
Variable returns change outcomes; a simple model still shows directional impact of withdrawals.
How do I decide a reasonable withdrawal amount?
Use the calculator to test different amounts and timings. Results are estimates, not guarantees.
Compare scenarios in the tool
Run a no-withdrawal case and a withdrawal case side by side to see the impact.
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