Whether you are beginning to start saving or are approaching retirement, you may wonder, "How long will my retirement savings last?" The answer depends on your complete financial situation along with factors like your retirement age, marital status, tax bracket, return on investments and lifestyle you desire. Calculating your expected yearly expenses and income during retirement can help you determine the amount you'll need to pull from savings to meet your needs. You can use helpful online calculators to get an estimated life for your savings and then learn about making that cash last longer.
Looking at Some Retirement Figures
If you're wondering about how much savings you should have by the time you plan to retire, it helps to look at some guidelines and statistics. The Street estimates that someone who retires when they're in their 60s will need over $1 million saved or at least eight to 11 times the income they plan to need during retirement. Using the latter calculation, that means a person with a salary of $75,000 a year would need to save $600,000 to $825,000. However, Synchrony Bank reports the average person that age has just $172,000 saved, leaving a major gap that can lead to financial struggles later.
Read More: What Is a Retirement Fund?
Considering Factors Impacting Your Savings
Before you start trying to calculate retirement withdrawals and determine how long your savings will last, it helps to look at the numerous factors that will determine how much you'll need each year. These include the following:
- Age at retirement: The age you plan to retire can impact both how much money you'll have saved and how long you'll need to stretch those funds. If you plan to retire early in your 50s, you'll need to either considerably add to your savings, cut your monthly expenses or seek additional income sources to make up for the gap. Retiring later can allow you to take larger withdrawals since you should have time to contribute more to savings.
- Marital status: If you're married, you can benefit from having two sources of retirement savings when both of you contribute regularly. Since you'll likely share expenses, that money can stretch considerably longer than for a single person responsible for all costs. Your marital status can also impact your tax bracket and impact your after-tax income during retirement.
- Your income sources: Along with the amount you have saved in retirement accounts, you'll likely have other income sources like Social Security benefits and pension funds. You or your spouse might also decide to continue working a part-time job to get some extra income. These extra income sources will help you stretch your retirement fund longer since you'll need to take out less money from savings to pay your expenses.
- Type of savings: Depending on the type of accounts you have like 401(k)s, Roth IRAs and traditional IRAs, you might have already paid taxes on the contributions or need to pay them when you make your withdrawals during retirement. For example, you'll pay federal taxes on your traditional IRA and 401(k) withdrawals, which will impact the money you have for living expenses. And if you plan to retire before you reach 59 1/2, you'll usually face a 10 percent early withdrawal penalty to consider as well.
- Living expenses: Your housing costs, healthcare needs, food expenses, lifestyle-related expenses and other needs will determine how much money you need each year during retirement. These can vary widely based on where you live, how healthy you are and what type of life you prefer. The higher the expenses, the shorter you can expect your retirement savings to last.
- After-tax return on assets: Where you invest your savings impacts the after-tax return you can expect. NerdWallet reports an average pre-inflation 10 percent return on stocks. However, ultimately the market conditions throughout retirement will determine how much you gain or lose, and you may experience wide fluctuations that impact your savings.
- Inflation rate: Your money's mileage in retirement depends on the inflation rate as well. Not only can inflation make it more expensive to cover your bills and buy what you need, but even a small inflation rate can lead to rising healthcare costs that can take up more of your retirement savings.
Calculating Income and Expenses
Now that you know what will help determine how long your retirement savings lasts, you should do some calculations to get a rough estimate of how much money you'll need to withdraw each year.
Start by adding all the expected sources of income you and your spouse plan to have each year. For example, you'd add the annual Social Security benefits, pension and annuity distributions and any money from second jobs. Keep in mind that your yearly amounts will usually change based on increases that come from inflation and any pay raises, but you can get a rough figure by just adding them up as-is.
Next, add up all your expected yearly living expenses such as housing costs, food, home supplies, utilities, entertainment, insurance policies and debt payments. You'll also want to consider your lifestyle and estimate an amount for travel, hobbies and any other activities you'd like to do when retired. Once you add these amounts, you should have a rough figure of how much annual income you'll need.
Read More: Four Steps to Budgeting
So, How Long Will My Retirement Savings Last?
Subtracting your expected yearly expenses from your total yearly retirement income should show the remaining cost you'll need to fund from your retirement savings. So, you could divide your savings by that number to get a rough number of years your retirement fund would last. But to get a more precise number that takes into account factors like inflation, return on investments and increases in income, use a retirement calculator like the one offered through Investors Bank. You'll enter your retirement savings, expected spending, amounts of income and expected tax rate to use this tool.
For example, consider that you're single and plan to retire right now with $300,000 saved. You expect to spend $4,000 a month, earn $3,000 a month from Social Security and other sources, have a marginal tax rate of 12 percent and receive a 5 percent return on your investments. According to the calculator, that would allow your retirement savings to last around 35 years and nine months if you withdraw around $1,136 a month.
If you'd rather not do these calculations, you can consider a guideline called the 4 percent rule. This involves estimating that you'll need to start taking withdrawals of 4 percent of your retirement savings when you first retire and adjust your withdrawal amount a bit yearly to keep up with inflation. The goal for this method is that your savings will stretch to around 25 years.
Tips for Prolonging Your Savings
Now that you have an idea of how long your retirement savings might last, consider a few tips to help stretch those dollars further:
- Consider seeking professional tax advice.
- Try to work until you can get your full Social Security amount.
- Consider cutting your expenses by downsizing your home or holding off on expensive plans.
- If you have a considerable amount saved in low-yield savings accounts, consider investing it elsewhere for a better return.
- Work a part-time job and save what you can.
- Keep long-term care insurance in mind to cut down on healthcare costs later in life.
Along with using these tips for determining how long your retirement fund can last, consider consulting a financial advisor. They can look at your family's financial picture and help you both develop a solid savings plan and explore ways you can stretch those dollars to last through the rest of your life.
- The Street: What Is the Average Retirement Savings?
- Synchrony: What's the Median Retirement Savings by Age?
- SmartAsset: Retirement Calculator
- NerdWallet: What Is the Average Stock Market Return?
- Retirement Calculator
- Fidelity: How Can I Make My Retirement Savings Last?
- Investors Bank: How Long Will My Retirement Savings Last?
- The Motley Fool: How Long Will My Retirement Savings Last?
- Dreambridge Financial: Tips on How to Extend Your Retirement Savings to Last
- eFile: Early Retirement Plan Withdrawal Tax Penalties
- U.S. News & World Report: Retirement Accounts You Should Consider
- U.S. Department of Labor Employee Benefits Security Administration (EBSA). "Savings Fitness a Guide to Your Money and Your Financial Future," Page 1. Accessed March 20, 2020.
- Social Security Administration. "The Future Financial Status of the Social Security Program." Accessed March 20, 2020.
- Stanford University. "The 4% Rule—at What Price?" Page 2. Accessed March 20, 2020.
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.