There’s one big thing about retirement money that you can’t be sure of: How Long Will My Retirement Savings Last?. Let’s figure out how long you’ll need it.
How Long Will My Retirement Savings Last?
There is no sure way to figure out how long your savings will last after you retire. Many things can affect your retirement savings, such as
- Interest rates
- Inflation Rates
- The returns on your investment
- The cost of living
- Your age, and more.
Still, you can do some simple math to get a rough idea of how long your money will last you in your golden years. Here are the two things you’ll need to make the simple calculation:
Your Total Retirement Income
Your total retirement income includes the savings and income you plan to have. Add up all the money you have saved for retirement plus the annual return on your investments. Don’t forget to add all of your income from retirement. Don’t forget that some government benefits start to come in after a while, so don’t leave them out
Your Annual Expenses
Make sure you don’t forget anything when you add up your costs. Think about your mortgage or rent, groceries every month, insurance, and the occasional “treat yourself” purchase. After all, you’re supposed to enjoy your retirement.
To figure it out, divide your total retirement income (see above) by the total amount you spend each year (two above). The answer is a rough estimate of how many years your savings for retirement will last. There’s no way to know for sure that your savings for retirement will last this long, but it’s a good estimate to help you plan.
Most experts say that, given how long people live today, you should plan for your retirement money to last you about 30 years. If you do the math and get a number less than 30, you might want to save more for retirement or cut back on how much you spend in retirement. It’s important to note that the calculation doesn’t take into account the extra money you could get from investing your savings during your retirement.
Once you have a rough idea of how much you’ll need each year and how much your savings, investments, and retirement plans will give you, you can figure out how much you should take out of your retirement savings each month. The four percent rule is the most often used number here.
How long can you retire on $300,000?
So, let’s say you have $300,000 saved up. If you take out 4% of that amount each year, it should last you about 25 years. That’s if you put it in an account that doesn’t give you any money back. If you took out 4% per year, that would mean you’d get $12,000 each year. Unless you have other income or own your own home, that probably isn’t enough to live on.
Still, your money could last for a lot longer. This is because, if you’re willing to invest or save it, that big amount could grow in value over the time of your retirement. Some savings accounts have guarantees, which means that at least some of your money is “safe.” However, when you invest, there are no guarantees because investments go up and down.
When you put money into a portfolio with a high yield, you’ll get more back than from most savings accounts. In the past, the S&P 500 stock market index has given an average return of 7% per year. That doesn’t mean it will keep giving the same returns, though. The returns could be better or worse, but this has been the average return in the past.
There are a lot of online calculators that let you put in your total savings, how much you take out each month, and how much your portfolio is making on average. Then, they’ll tell you how long they think your money will last. This calculator says that, for example, if you have a portfolio with a seven percent return, you can take out about $1,900 a month ($22,800 a year) and your money will last about 33 years at that rate. Again, this doesn’t take into account any government benefits or other money you might get when you retire.
The more you save before you retire and the sooner you start saving, the more money you’ll have when you retire. We say that the best time to start planning for retirement is now because your money will have more time to grow. Using a calculator for compound interest, you can see that if you had invested $300,000 ten years before you plan to retire and earned an average of 7% per year, your money would have almost doubled. To be exact, you’d have $590,145.41.
How long can you retire on $500,000?
If you have saved $500,000 for retirement and take out $20,000 per year, it will probably last you 25 years. Of course, it will last longer if you invest your money and get a return on it every year or if you spend less each year.
If you have $500,000 saved, you can take out more each year than if you only have $300,000. If you stick to taking out $20,000 a year ($1,666 a month), you’ll take out 4% of your savings each year.
This might be enough money for some people, but if you want to take out more each month, you’ll probably have to use more of your retirement savings or invest that money in the hopes that its value will go up. If you had invested in the stock market (S&P 500) in the past, you would have gotten back about 7% per year. If you use a calculator like this one, you’ll find that you could have taken $3,250 out of your retirement savings every month and had them last for thirty years and two months.
How to make sure your savings last until you retire
Start saving for retirement
Obviously, starting to save now is the best way to make your money last as long as possible. If you already save, you might want to save more! If you start investing early, you’ll have more money saved up for retirement. Put a certain amount of your income into a retirement account every month. If you can, try to save double digits, which means more than 10 percent of your income.
All plans to save money that work start with a budget, so think about what your monthly expenses are and figure out what a reasonable income would be based on your different sources of income and how much you plan to save. If you think that you can live on that budget when you retire, then go ahead! But if you think that budget will make your golden years anything but golden, it’s time to plan.
The best way to get more money in your budget in the future is to spend less now. Now is the time to save money on things like eating out, fancy coffee, that deluxe cat tree house that your cat will ignore in favour of the box it came in, etc. Even though it may be hard to give up things now, think about how happy you’ll be to not have to tighten your belt in 30 years. Enjoy life, but don’t forget to save for your old age.
Quit your job later in life
Another great way to save money? as long as you can, put off retirement. That way, you’ll still be able to make money and can let the interest on your savings grow. It also means that when you do retire, you’ll have more money to spend during those years.
Everyone has a different idea of what a good retirement looks like. Some people just want to be able to take up fly fishing and relax. But for some people, the thought of giving up their job completely can be scary and confusing. In that case, a part-time job as a consultant, teacher, or whatever else can help you. Your skills allow you to do is a great way to avoid existential angst and make more money.
Make your home smaller.
Your family probably won’t be as big when you retire as it was when you were working. If you have kids, they are likely grown up and living on their own. So, if you want to save more money, you might want to sell your house and buy something smaller (and cheaper). In fact, you may want to think about renting instead. You won’t have to pay a mortgage anymore, and you won’t have to worry about repairs or maintenance that can cost a lot of money and time.
Bottom Line
Saving for retirement is important and we should be ready for that event. We should have enough funds in account so we can spend them after retirement. Start making a plan from today and follow the prolific trader.
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