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Updated on Thursday, March 4, 2021
While a number of unpredictable factors — like your health, the rate of inflation and unexpected expenses — can make it hard to pin down exactly how long your money will last in retirement, it can provide some peace of mind to have at least an estimate of whether your savings will cover you in retirement.
Luckily, there are factors that you do have control over, such as your contributions and investment allocation. With these things in mind, our retirement calculator can help you figure out how long your savings could last — and whether you need to step it up to achieve your retirement goals.
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How long will my retirement savings last?
For our calculator to provide the best estimation of how long your money will last in retirement, you will need to provide the following information:
Current age: How old you are now or the age at which you want to make your calculations if that is different from your current age.
Retirement age: The age at which you want to retire.
Additional contribution: The amount you will deposit into the account. You can choose whether this contribution is made monthly or yearly.
Rate of return: The expected rate of growth of your investments. This number is harder to pin down, but folks usually look to the historical rate of growth of the S&P 500 as a benchmark rather than a guarantee.
Compound interval: How often your account compounds interest, which is when your interest earns interest.
Initial savings: The amount your retirement account starts with.
Make your money last with these retirement strategies
Worried whether your money will last long enough after you retire? Luckily, there are a few strategies you can use to help make sure it does. Note that while these strategies can serve as good starting points, they may not work for everyone. You may want to talk to a financial advisor for help figuring out your retirement plan and potentially managing your assets in retirement.
Follow the 4% rule
On its face, the 4% rule is pretty simple. You will withdraw 4% of your retirement savings in your first year of retirement. Then, you will adjust the amount you withdraw each year after that based on the rate of inflation.
While the 4% rule is a common one to follow, it also works under a few assumptions:
- Your portfolio is made up of 50% to 75% equities, or stock.
- You rebalance your portfolio annually.
- Market returns aren’t lessened by fees.
- Stocks return 10.30%, bonds return 5.20% and inflation is at 3%.
While you can still follow the 4% rule without sticking to those four assumptions to the letter, your results may look a little different given those changes. It may help to consult a financial advisor if you plan to follow an adjusted 4% rule (although keep in mind that working with an advisor often costs a fee).
Consider the income floor strategy
The first step in income flooring is assessing how much money you would need to cover your necessities for one year of retirement. Then, you would make sure that you have set streams of income to cover those expenses. This can include Social Security benefits, pension payments, real estate income and annuities.
With your necessities covered by guaranteed funds, you can turn to your investments for more discretionary spending. That way, you won’t get left in the lurch if the market is down.
Try dynamic spending
Put simply, dynamic spending means adjusting your yearly withdrawals in retirement based on the market. So when the market is performing well, you can withdraw and spend more money; when the market is down, you would withdraw less.
To put this into practice, you need to institute some limitations to prevent overspending. Per investment giant Vanguard, retirees who adhere to the dynamic spending rule must set a ceiling and a floor rate. The ceiling is the maximum amount you’re willing to increase your spending in a year, and the floor is the maximum amount you’re able to decrease your spending. You should adjust these rates for inflation, but they can allow you to maintain some consistency in your withdrawals over the years.
Delay taking Social Security withdrawals
You can start receiving Social Security benefits once you turn 62. But if you wait to take those benefits until after your full retirement age (between 65 and 67 depending on your birth year) but before age 70, you can receive delayed retirement credits. These credits increase your benefits by between 3% and 8% annually; again, the exact percentage will depend on your birth year.
For example, let’s say you were born in June 1960. Your full retirement age is 67, but you want to wait to start receiving your benefits until you turn 70 in 2030. In that case, you’d be receiving benefits three years after your full retirement age. Each year, you would earn 8% in delayed retirement credits, and end up with 124% of your primary insurance amount. If you chose to start taking benefits as early as possible at age 62, on the other hand, you would get only 70.42% of your insurance amount.
Delaying your Social Security withdrawals can be a good move if you have enough retirement savings stashed in other accounts like an IRA or 401(k) that can let you ride out retirement until you cash in on Social Security. If you don’t have that safety net, however, receiving Social Security benefits starting at your full retirement age or even earlier might be the better move.
How much money do you need to retire?
Still trying to figure out how much to save for retirement to ensure your money lasts? It’s common to hear that you need a $1 million nest egg, which could be a good number to aim for, but you may end up needing more or less depending on what your retirement might look like.
Here are some more dynamic savings guidelines that you can follow:
- 25x rule: The 25x rule states that you’ll need to save 25 times your annual retirement expenses. This means you’ll need to dive into what your retirement expenses might look like. Your estimate should include everything from mortgage payments, to vacations, to potential hospital bills.
- 10x income rule: Fidelity’s 10x income rule recommends that you save 10 times your pre-retirement income by the time you reach age 67. Of course, this assumes that you’re not retiring until you’re 67. Fidelity’s calculations also assume that you save 15% of your income each year starting at age 25, invest more than 50% on average in stocks over your lifetime and plan to maintain your pre-retirement lifestyle in retirement.This rule can be helpful in that it also lays out how much of your income you should have saved by different points in your life. For instance, Fidelity suggests saving at least one time your income by age 30, three times by age 40, six times by age 50 and eight times by age 60. This strategy may be easier for younger savers than the 25x rule, since it’s likely simpler to multiply your current income than it is to predict your future retirement spending.
- 75% income rule: This plan limits you to spending no more than 75% to 85% of your current income in each year of your retirement. So if you’re making about $75,000 now (and will continue to make about that amount until you retire), you could plan to spend up to $56,250 per year of retirement, if you’re sticking to a spending rate of 75% of your current income. If you assume a retirement of 20 years, you would need to have just over $1.12 million saved for retirement according to this rule.