Suppose you start with $212,000 in savings and you spend $12,000 your first year. How much do you end up with after the first year? Well, you don’t end up with just $200,000. Instead you end up with closer to $206,000, because even if you withdrew the entire $12,000 at the beginning of the year (such that the first $12,000 earns you no interest), the 3 percent you earn on the remaining $200,000 earns you a full $6,000. You can extend this process out for the same annual withdrawals and the same annual interest for the full 25 years.
