How Long Will My Retirement Savings Last?
March 16, 2023 | by Mark H
Retirement is a time of life that most people look forward to. It is a time when you can finally relax, pursue your hobbies and interests, and enjoy the fruits of your labor. However, it is also a time when your financial situation changes drastically. You will no longer have a steady income, and you will need to rely on your retirement savings to sustain your lifestyle.
One of the most common questions that people have when planning for retirement is how long their retirement savings will last. So, how long will it last?
The answer to this question depends on several factors, including your retirement age, your lifestyle expenses, your health, and the performance of your investments.
Factors That Affect How Long Retirement Savings Will Last
There are several factors that can affect how long your retirement savings will last. These include:
- Your retirement age: The age at which you retire will have a significant impact on how long your retirement savings will last. The earlier you retire, the longer your retirement savings will need to last.
- Your lifestyle expenses: Your lifestyle expenses, such as housing, food, and travel, will have a significant impact on how long your retirement savings will last. If you live a frugal lifestyle, your retirement savings will last longer than if you have an extravagant lifestyle.
- Your health: Your health can also affect how long your retirement savings will last. If you have significant health problems, you may need to spend more on healthcare expenses, which can deplete your retirement savings more quickly.
- The performance of your investments: The performance of your investments can have a significant impact on how long your retirement savings will last. If your investments perform well, your retirement savings will last longer, but if your investments perform poorly, you may need to dip into your savings more quickly.
Rules of Thumb to Estimate How Long Your Retirement Savings Will Last
There are several rules of thumb that you can use to estimate how long your retirement savings will last. These include:
- The 4% Rule: The 4% ruleThe 4% rule is a common rule of thumb that suggests that you can withdraw 4% of your retirement savings each year without running out of money for at least 30 years. For example, if you have $1 million in retirement savings, you can withdraw $40,000 each year. However, it is important to note that this rule does not take into account fluctuations in the market, and you may need to adjust your withdrawals if your investments do not perform as expected.
- The 25x Rule: The 25x rule suggests that you need to save 25 times your annual expenses to have enough retirement savings to last for 30 years. For example, if your annual expenses are $50,000, you will need to save $1.25 million for retirement.
- The Percentage of Income Rule: The percentage of income rule suggests that you need to save a certain percentage of your income each year to have enough retirement savings to last for 30 years. The most common percentage is 15%, but this can vary depending on your lifestyle expenses and retirement age.
How to Make Your Retirement Savings Last Longer
If you are concerned about how long your retirement savings will last, there are several steps you can take to make your savings last longer. These include:
- Delaying Retirement: If you delay your retirement, you will have more time to save for retirement and fewer years that your retirement savings will need to last.
- Reducing Expenses: Reducing your expenses can help you stretch your retirement savings further. You can consider downsizing your home, cutting back on travel, or finding ways to save on everyday expenses.
- Investing Wisely: Investing your retirement savings wisely can help you maximize your returns and make your savings last longer. Consider working with a financial advisor who can help you develop an investment strategy that is aligned with your retirement goals and risk tolerance. Additionally, check out our blog post on best retirement income sources to find ways to augment your investment income in retirement.
- Using a Retirement Calculator: A retirement calculator can be a valuable tool to help you plan for retirement and estimate how long your retirement savings will last. Our free retirement calculator is an excellent resource that can help you estimate your retirement savings needs and develop a retirement savings plan that is tailored to your specific circumstances.
How long your retirement savings will last depends on several factors, including your retirement age, lifestyle expenses, health, and investment performance. There are several rules of thumb that you can use to estimate how long your retirement savings will last, but it is important to remember that these are just estimates, and your actual retirement expenses and investment returns may vary.
To make your retirement savings last longer, consider delaying retirement, reducing expenses, investing wisely, and using a retirement calculator to develop a retirement savings plan that is tailored to your specific circumstances. With proper planning and investment, you can enjoy a long and fulfilling retirement without worrying about running out of money.
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