How long will my retirement savings last? This is the age old question that baffles us all. We all work hard to secure our financial future and that of our children’s. And it is not unusual to think about when that well will run dry. In fact it is considered wise to factor in these aspects of your financial pillar. Nothing lasts forever, just like your money, if anything it has this almost magical ability to sprout wings and fly.
The money you put aside into your bank account is typically the sum total of the interest you accumulate over the years, dividends, short and long term capital gains and mind you, these are no exempt from taxation. So if you maintain systematic withdrawals and refrain from arbitrary spending, your money could last longer.
Unfortunately, there is no sure fire way of pinpointing how long your savings will last, neither is there a crystal ball that unveils the future. How long your money will last solely depends on how much or how little you save, what your monthly fixed expenses are and how much you spend on medical and other obligatory expenses.
If you invest in 50% stocks and 50% bonds you can expect an annual average return of about 6%. Albeit, that is just a ballpark. As a rule of thumb, you withdraw approximately 4% of your savings in the first year in order for it to grow and sustain. This way your money will last you at least 30 years if not more. You retirement can last 25 years or more which means that you have to save for over a decade so you can live a comfortable retirement life. You need to create a strategy and invest in the right markets and ensure that your money doesn’t stagnate. That way, you know that your bank balance is built for the long haul. You also have to factor in your taxes and that dreaded inflation rate as well.
Here is a calculator to help get better clarity on how long your retirement savings will last – Calculate how long your savings will last
Let’s look at this hypothetically. Here’s a good example you can draw a parallel from. Dave, a Realtor, decides to retire at the age of 65. He has $500,000 in his savings account which is primarily the money he is going to fall back on for the rest of his life. He decides to withdraw 4%, or $20,000, each year. He now has to use this as a yardstick and increase or decrease his future withdrawal limit based on inflation rates, the market and the value of his investments.
With markets currently volatile, it is imperative that you scrutinize your investment options carefully and avoid putting all your eggs in one basket. Your withdrawal rate will also depend on many factors, some of which you can’t control, for instance, how long you live, your physical health, inflation and market returns, and some which you can control, like the age you choose to retire, and the markets you invest in.
Retirement is a bittersweet phase of life, one which if dealt with wisely, enables you to cruise through the rest of your life in comfort if not luxury. And hence the saying, “Look After the Pennies and the Pounds Will Look After Themselves”. We hope you found this article helpful. Do you need professional advice on this topic? Contact our service professionals at Flagship Financial