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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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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.
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.
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:
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).
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.
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.
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.
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:
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