The length of time your money will last in retirement depends on several factors including your total retirement savings, your annual withdrawal amount, investment returns, inflation, and your life expectancy.
Key factors affecting how long your money lasts:
- Retirement savings amount: The total amount you have saved at retirement.
- Annual withdrawals: How much money you plan to withdraw each year to cover living expenses.
- Investment returns: The rate of return you earn on your remaining savings during retirement.
- Inflation: The rising cost of living reduces the purchasing power of your money over time.
- Longevity: How long you live after retirement.
Common methods to estimate how long your money will last:
- Withdrawal rate rules: The "4% rule" is a popular guideline suggesting you withdraw 4% of your initial retirement savings the first year, then adjust that amount annually for inflation. This is generally considered sustainable for about 25-30 years
- Retirement calculators: Online calculators can incorporate your specific savings, expected returns, inflation, and spending to estimate how many years your money will last
- Planning for longevity: Since many retirees live 20-25 years or more after age 65, planning for at least 25 years of withdrawals is prudent
How to make your money last longer:
- Adjust your withdrawal rate to be sustainable (often between 4-5% annually).
- Invest your savings to earn returns that at least keep pace with inflation.
- Monitor and adjust your spending and portfolio regularly based on market conditions and life changes
- Use tools like retirement savings duration calculators to model different scenarios
In summary, to know how long your money will last in retirement, you need to consider your savings, spending needs, investment returns, inflation, and life expectancy. Using retirement calculators and following sustainable withdrawal guidelines like the 4% rule can help you estimate and plan accordingly
