Planning how long your money will last is important, especially in retirement. No one wants to outlive their savings. The good news is there are tools and strategies to help you figure this out. Tracking expenses, estimating returns, and planning withdrawals give you a clear picture.
Let’s break it down and explore what affects how long your money will last and how you can make it stretch further.
How Long Will Your Money Last with Systematic Withdrawals?
Systematic withdrawals are a common strategy to make savings last as long as possible. The goal is to provide regular income while preserving your savings for as long as possible. You can follow either of the two options:
- You withdraw a percentage of your savings each year, like 4%.
- You withdraw the fixed dollar amount annually, adjusting for inflation if needed.
There the most common best practice or rule to determine how long your money will last with systematic withdrawals is the 4% Rule.
How the 4% Rule Works
The 4% rule is a popular guideline for systematic withdrawals. It assumes:
- You withdraw 4% of your savings in the first year of retirement.
- You adjust withdrawals for inflation each year.
- Your portfolio earns an average return of 5-6% annually.
Of course, you should adjust this rule based on the factors that affect your retirement income. Those factors will ultimately determine how long your money will last in retirement.
Factors That Determine How Long Your Money Will Last in Retirement
Several factors affect how long your savings will last in retirement. Knowing these can help you make smarter decisions and plan for the future.
Life Expectancy and Retirement Age
The most obvious factors affecting your long-term savings is when you retire and how long you expect to live. It can seem morbid planning for when you eventually pass. But you need to evaluate your health and average life expectancy to get a better gauge of this. Also, some people aim for early retirement, or a late retirement based on individual goals.
Your Savings and Retirement Accounts
The amount you’ve saved is the foundation of your financial plan. Larger savings give you more flexibility.
Investing in a blend of stocks and bonds might yield a 5-6% annual return, helping savings grow and offset withdrawals. But, keeping all your money in a low-interest savings account might result in slower growth.
Having a diversified investments, such as a Roth IRA or annuity payments, give you extra income.
Your Expenses
Expenses are one of the biggest factors in how long money lasts. Higher spending means you’ll need more savings to sustain your lifestyle.
Tracking your expenses helps you see where your money is going. If you’re asking, “how long will my retirement money last?”, lowering unnecessary spending can stretch your savings. Think about what you need to live comfortably in retirement:
- Housing: Rent, mortgage payments, property taxes, and maintenance
- Healthcare: Insurance premiums, prescriptions, and out-of-pocket medical costs
- Utilities: Electricity, water, gas, and internet bills.
- Transportation: Car payments, gas, insurance, or public transit costs
- Food: Groceries and dining out
- Leisure: Travel, hobbies, and entertainment
Inflation
Inflation makes everyday items more expensive over time. What costs $50,000 a year now might cost $70,000 in 20 years. That’s why it’s important to plan for rising costs.
Tools like a “how long will my money last calculator” can help you see how inflation impacts your retirement savings. Some factors that affect inflation are out of your control, but you should still prepare and consider:
- Rising healthcare costs (especially for retirees)
- Escalating housing costs
- Energy price fluctuations (e.g., gas and electricity)
- Lifestyle inflation, like spending more on luxury goods or hobbies
Market Volatility and Investment Returns
Investment returns also play a big role. If your money earns 5-6% annually, it can grow while you’re withdrawing from it. But poor returns or risky investments can shrink your savings faster than expected.
Poor market performance or high-risk investments might result in losses, shrinking the savings faster. For example, if the market drops by 10%, a $1 million portfolio loses $100,000.
A wealth manager or financial advisor can help you navigate the challenges of seeking the most suitable investment accounts. They can help you determine the best investment mix for your portfolio.
Social Security Benefits
Social Security adds extra income in retirement. It may not cover all your expenses, but it helps reduce the amount you need to withdraw from savings.
Many ask, “how long will my money last with Social Security?” The answer depends on how much you get and when you start taking benefits. Waiting until full retirement age or later increases your monthly payments, which can help your money last longer.
Using “How Long My Money Will Last” Calculators
A “how long will my money last calculator” from SeniorLiving.org or TowneBank estimate how long your savings can cover expenses. They use key inputs to give you a clearer picture of your financial future.
Calculators may ask for the following details:
- Initial Savings: The total amount you’ve saved for retirement.
- Annual Expenses: How much you plan to spend each year.
- Withdrawal Rate: The percentage of your savings you’ll withdraw annually (e.g., 4%).
- Investment Returns: The expected annual growth rate of your portfolio.
- Tax bracket: The bracket and rate you will pay based on income sources.
- Inflation Rate: The estimated yearly rise in living costs.
However, they can't get into the specifics of your situation. They don’t know your unique lifestyle, needs, and tax considerations. That's where professional help comes in. A financial advisor can help you determine this with better accuracy.
How Long Will $1,000,000 Last in Retirement?
This greatly depends on your expenses and lifestyle in retirement. If you withdraw 4% a year, $1,000,000 could last about 25-30 years. This assumes you earn around 5-6% annually from investments and keep up with inflation. If you spend more, it won’t last as long.
How long will $750,000 last in retirement at 62?
If you retire at 62 and withdraw 4% a year, $750,000 could last about 25 years. This assumes steady investment returns and modest inflation. Of course, this assumes you adhere to the 4% rule. Retiring earlier may stretch your savings thinner because you'll have more years of expenses.
How Long Will $2 Million Last in Retirement?
With $2 million and a 4% withdrawal rate, your money could last 30+ years. If your annual spending is $80,000, you’ll use about 4% of your savings each year. Careful budgeting and steady returns can help it last longer.
Let Your Money Serve You
Don’t let your money sit in your bank account. Put it work so you can reap the benefits in retirement. Let the team at Asset Preservation help you create a retirement you’ll enjoy with financial freedom. Work with the right team today!
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
