How Long Will My Retirement Savings Last?
Calculating how much you need to save for retirement and how long your funds will last can provide a roadmap for your financial future.
Contributing Writer at Tally
August 19, 2021
A recent study found that 64% of Americans aren’t prepared for retirement. If you’re one of the 36% who has begun to prepare for retirement, one of the questions you are likely asking yourself is, “How long will my retirement savings last?”
Let’s explore how to calculate how long your retirement savings could last, factors that can influence this, and a few things you can do to get on track with your retirement savings. By the end of this article, you’ll hopefully feel more comfortable drafting a retirement plan and budget.
How long will my retirement savings last?
Figuring out how long your retirement savings will last isn’t necessarily as straightforward as it seems. For starters, you might not know how long you need your savings to last. The age at which you retire and your general health conditions are also contributing factors. Perhaps if you could predict the future and know your life expectancy, retirement planning would be a whole lot easier.
As a general rule of thumb, saving for 30 years worth of retirement funds is a smart strategy. There are other factors that influence how long your retirement savings will last, including:
Your cumulative savings at retirement, or the total amount you’ll have saved
Your withdrawal rate, or how much you plan to take from your accounts each month
Your rate of return in retirement, which is largely dependent on which types of retirement accounts you have
The expected inflation rate
Whether you receive Social Security benefits or any other forms of retirement income
Your tax rate at retirementT
here are several contributing factors that go into determining your cash flow once you stop working. Fortunately, there are online retirement calculators that can help you figure out how long your investments will last. Let’s plug in an example:
You’re currently 45 years old, would like to retire at 65, and are hoping to have $750,000 saved in retirement
You’ve paid off your mortgage, car payments, and existing debts and believe you’ll need to withdraw $5,000 per month to live comfortably in retirement
You put your money in a mix of money market funds and mutual funds and expect to earn 4% per year
You also plan to receive $1,000 monthly payments from Social Security
You’re not preparing to earn any other income in retirement
Based on the above information, your retirement savings would last just shy of 28 years. Many advisors and financial calculators recommend you account for at least 30 years of retirement. So, in this case, your retirement savings would not necessarily last long enough.
What factors influence how long retirement savings last?
There are a few factors that determine how long your retirement savings will last. Some things — like your life expectancy — are a bit more challenging to predict or prepare for. For this reason, it’s prudent to plan a nest egg that will keep you comfortable for at least 30 years of retirement.
Another factor that can heavily influence your retirement savings is your rate of return. When you retire, you could pull out your cash and put it into a checking account, however, you won’t necessarily make much money by doing so. You can also consider putting it into a high-interest savings account, or look at other options, such as:
Traditional or Roth IRAs
Real estate investments
Money market accounts
Keeping your money in stocks can be risky due to volatility in the market. You might consider finding a happy medium between earning interest on your funds and risking losing money during a market downturn. The more your money earns, the larger your nest egg becomes, and the longer you’ll be able to live comfortably while retired. A financial advisor can help you determine the appropriate course of action for your financial situation.
One last thing to consider is what you’ll be spending your money on in retirement. There are a few factors that can influence this amount:
Is your house paid off, or do you have an outstanding mortgage loan payment?
Are you paying monthly rent?
Do you have outstanding debt payments, such as those from personal loans?
Do you plan to regularly go to concerts and sporting events with your loved ones?
Would you like to travel or go on vacation?
All of these factors will influence how long your retirement savings will last. They’re questions that can be important to answer before you retire. While things can change and you won’t necessarily be 100% accurate in your calculations, “guesstimating” can ensure you’ll have enough money in retirement.
What can you do to boost retirement income?
If you use a financial calculator and discover you don’t have enough saved for retirement, there are a few things you can do to get back on track:
Maximizing your 401(k) contributions. (Note: Even if you don’t have a 401(k), there are still ways to save for retirement)
Setting up auto-pay to a bank account. This can help boost your savings balance because you don’t necessarily see the money being deposited, and therefore, won’t think of it as spending money you can tap into in the short term
Paying off existing debt. Having outstanding debt means paying interest. The sooner you get out of debt, the sooner you can start working toward long-term financial goals like retirement
A few options to help you accelerate your debt payoff plan include:
Some forms of debt, like credit card debt, have compounding interest. This means you could end up paying hundreds, if not thousands of dollars in interest over time. By getting yourself out of debt, you can start to free up cash and use it to plan for retirement.
Starting saving for retirement today
The sooner you start preparing for retirement, the more comfortable your retirement years can be. Even if you only save a couple of hundred dollars per year, this money can grow in an investment account. It’s never too early to start preparing for retirement and having an understanding of how much money you are going to need and how long your funds will last.
You can get a head start on your retirement planning by paying down credit card debt with Tally. Tally is a credit card payoff app that automatically pays down your existing balances in an easy and efficient way.
Learn more about how Tally could help you on your journey toward financial freedom.