Figuring out the question as to how long will my money last at retirement has no definitive answer. There are numerous variables to consider such as inflation, unforeseen circumstances, the return of investments, among others. These factors can significantly affect the longevity of your money.
Another issue to consider is how long you will live. What if you’re gifted with long life, say 100 years! That is not impossible considering the advancement in modern science. Yes, long life is a gift from the above, but the longer you live, the longer you have to stretch your retirement money.
The best move you can do is to start saving today. And, when you are close to retirement, there are procedures that you can use to make your money last longer and also to stretch it so that your savings won’t be depleted and you can live a comfortable life, here’s how:
How Long Will My Money Last In Retirement?
As mentioned earlier, there are different factors that will determine how long will your money last. Some of these factors are controllable by you such as the amount of money you will withdraw every year.
The other factors you have no control over are investment returns and inflation/deflation. Learning to understand these factors is of importance because you become aware of how you can improve the issue of how long will my money last. Though you can only get a rough estimate as to how long your money will last at retirement, listed below is a simple calculation so you would more or less calculate how long will my money last:
- Your savings and the income that you plan to have when you are already retired, meaning part-time jobs, plus the annual returns on your investments are labeled as your total retirement income. Apart from that, you add the amount of pension you will get from SSS or other pension plans you are enrolled in.
- The annual expenses should include everything that you would spend on including occasional splurging as a treat for yourself. Ideally, this should only be 4%.
To calculate, divide the total retirement income by the total annual expenses. The answer you will get is the approximation as to how long will you be able to stretch your retirement money. Though this is not a guarantee that your money will last that long, at least, that’s a good way of forecasting the issue of how long will my money last at retirement.
What Is The Four Percent Rule on Retirement Savings?
This means that you use 4% of your retirement money each year on your annual expenses. In short, you will only withdraw a total of 4% of the total retirement money and use that 4% on lifestyle expenses. If you go by this 4% rule, you can have a steady income to up to 30 years after you retired.
You may ask, why 4% only? It is because withdrawing more makes you vulnerable to financial crashes that could deplete your money quicker. Of course, it is not always a guarantee that the 4% will tide you through, it just that the 4% rule will increase the likelihood that you will have enough until your last breath.
Yes, the 4% rule does not promise that you will never run out of money, its aim though is to provide you with a steady income for about 25 to 30 years.
This 4% rule was created by William Bengen during the early 1990s. He analyzed the historical facts from bond returns and stocks and found out that the 4% rule was a sure bet that accounted for the chance of an unpredictable market.
How Long Will My Money Last If It Is $300,000.00?
Assuming that you have retirement money of $300,000.00 and you will withdraw 4% each year, that should last you for a period of 25 years or thereabouts. What is 4% of $300,000.00? It is $12,000.00 and that figure should be enough to cover your annual expenses.
There’s also the possibility that your funds will last longer, say, you make an investment from which you will get a higher interest rate. But, then, you have to understand that when it comes to investment, no guarantees are given to you because the market is always volatile.
If you invest your money in a portfolio with higher interest rates, naturally, you will get more compared to if you will just leave it in your savings account. Based on facts, you can enjoy an interest rate of about 7% annually. That means you can withdraw $22,800.00 per year. Given that rate, your money could last for 33 years. But, then again, it is not a guarantee that it will be the same. As we said, the market is volatile.
How Long Will My Money Last If It Is $500,000.00?
If you have retirement money of $500,000.00, 4% of that is $20,000.00 or $1,666.00 per month. That said, it would probably last you for a period of 25 years. Now, if you invest your money, there’s a chance that it will last longer assuming that the interest rate is at 7% annually. Thus, from $1,666.00 per month, you can now withdraw $3,250.00 each month and your invested money should last you longer to up to 30 years.
Tips On How To Stretch Your Retirement Money
1. Keep on earning even if it is not your primary job
Even if you can no longer continue with your current position, think of getting a part-time job that can bring in money to your money nest. You can work as a freelancer or you may also want to consider working as a part-time Uber driver. Do not underestimate the amount of money that you will earn on a part-time basis because this will help you stretch your retirement money.
2. Plan not to finish your retirement money too easily
One of the determinants as to how long will my money last at retirement or whether your savings will last until old age is how much you spend it. You do not know if you live a long life so you do not want to take out money often.
How long will my money last? Do your best to take out only 4% of your investment annually. So, for example, you have a saving of $100,000.00, it is safe to spend only $4,000.00 each year. In short, be frugal.
3. Keep your investment portfolio in the market
A lot of retirees make the mistake of being too conservative. There is nothing wrong with that. The issue is if you take out 4% annually from your retirement funds. It is unlikely that a conservative portfolio would produce enough returns that could last you until old age.
The best way to act on how long will my money last at retirement is to invest. Be sure to get sufficient rates so your investment portfolio continues to grow and keep up with issues like inflation and taxes.
4. Know exactly your day-to-day expenses
As a retired individual, it is important that you learn how to handle your basic necessities versus unnecessary lifestyle expenses such as travel and dining outs. Don’t get us wrong, we are not saying that you totally get rid of simple joys like eating in a nice restaurant. If you are asking how long will my money last at retirement, divide your expenses into two accounts: the house account and the lifestyle account. The house account covers all your monthly expenses like meds, electricity, gas, among others. If you still have extra money, you can apply that to your lifestyle account.
Assuming that you will live longer, your retirement money will definitely get smaller. In that case, the best thing that you can do on how to stretch your retirement money is by cutting down on your lifestyle expenses while you continue to cover your monthly house expenses.
5. Resist the temptation of helping your family too much
We understand that you want to spoil your grown-up kids and your grandkids. There is nothing wrong with that. But, in order for you to stretch your retirement money, avoid spending on them more than what you could afford. Besides, your kids are already capable of earning for themselves.
A study done by Merrill Lynch found out that 79% of parents in the USA give financial aid to their adult kids, contributing $500 billion spent annually which is bigger or double the amount that they place in their retirement funds.
Yes, living a long life is what everyone hopes for, but if you do not plan well, it can take a toll on your retirement money. Having said that, plan accordingly so you would have an idea as to how long will my money last at retirement. Let us now delve deeper into the subject matter…
Where Can You Invest Your Retirement Money?
Saving money to live comfortably at retirement is the reason why people choose to invest their money. Finding the correct balance between the return of investments and the risks is the key to enjoy a retirement savings plan. Here are some suggestions on where you can place your money and hopefully, stretch it until you reach your old age:
If you are interested in buying bonds, the idea there is that you are loaning your money to the government, or to the municipality, or to a corporation. The borrower promises to pay you the interest rate when the bond matures and the principal investment or money is given back to you after an agreed timetable. If you are already thinking as to how long will my money last at retirement, then buying bonds is an option for you.
2. Real estate rentals
If you have enough money, you can opt to buy a real estate property for rentals. Be sure to calculate the possible expenses such as the maintenance cost and the possibility of vacancy issue.
3. Immediate annuities
Annuities are more like insurance instead of an investment. The idea of an annuity is to produce income which is exactly what you can do to stretch your retirement money.
As an exchange for a lump sum money, the insurance company guarantees you an income for life after an agreed-upon schedule. But, you have to invest in a stable insurance company.
No one for sure can predict how long they will live. This is the reason why you have to be careful with your money so that it will last you for a long time. How long will my money last depends on variables and how you manage it. With the tips we have shared with you, we hope that you’d be able to manage your retirement money and stretch it until you need it.