The age old question on everyone’s mind is, how long my money will last in retirement. Some might think that they could wave a magic wand and the question is answered. However, the answer to the question is just a bit more complicated. A number of factors affect the length of time that the retirement money lasts. Certainly, this varies from one individual to another. For example, much depends on the age that the individual retires, their savings, and their life expectancy. Here are a few tips and strategies to help determine how long savings might last.
How Long Will My Money Last in Retirement: Determining the source of Income while retired?
First, it is important to determine the best source for retirement funds. These funds should easily cover routine and daily expenses without the individual having to resort to withdrawing extra funds out of their savings fund. The source for most retiree funds are connected with the pension plans that were set up by their employer, government backed funds, and individual retirement funds. All the plans previously mentioned offer the individual a guaranteed income well into retirement. However, other factors still remain. Thus, the question concerning how long my money will last in retirement still remains. Of course, savings help to increase the change that the money will last all through the retirement years. Here are a few things to consider:
Rate of Return – The rate of return on the savings plan directly affects how long money lasts. For example, a large number of retired folks place their money in an ordinary savings account. The rate of return on investment is very low. However, the risk is less than other options. Investing savings in municipal funds is another safe investment that returns more. Stocks and bonds are a bit risky, but the returns are higher.
Withdrawals – Many retirees discover that they are not able to simply live on their pension funds or government check. Therefore, they withdraw money out of their savings on a regular basis. Regular withdrawals help to critically deplete the savings. Thus, reducing the amount of time that the money lasts. It is mandatory that the retiree set up very strict withdrawal rules to follow in order to make their savings last through retirement. For example, never touching the principle, but relying on the interest earned. The account does not necessarily grow, but the principle remains, and the money last through retirement. Here is an example, The retiree has about $100,000 in savings. They are earning 5 percent interest per year on that account. They take out $5,000 per year. They are withdrawing the 5 percent interest earned on the account, and not depleting the principle amount.
Over Spending – Overspending on frivolous items is one way to deplete the savings for retirement. It is important to curtail overspending. Adjust to living on less to make the money lasts. It is important for the retired individual or couple to make a budget. Determine the amount that they are able to live on without depleting savings. Stick to that budget.
The Economy – Keep a close eye on the economy. During high inflation times, expect that it is going to cost much more to live. Expenses might soar. Adjust the cost of living budget to keep costs down.
It is difficult to answer the question concerning exactly how long my money will last in retirement. Certainly, people are living much longer. Many people are living well into their 90s. Therefore, it is important to try to estimate the amount of money that is required for you to live on into the 90s. Calculate the amount to arrive at the figure. View that to consider the time your funds should last.
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