How Long Will Your Retirement Savings Last? Learn How to Calculate and Plan

Planning for retirement can be complex and challenging. It's important to consider all the possibilities and calculate how long your savings will last to create the right plan for your needs.
Infographic of a person looking at a calendar for retirement savings

Saving enough money for a comfortable and stress-free retirement is a big concern for many individuals. Are you wondering where your current financial situation stands today? Learn how to calculate the length of time your savings should last during your retirement. This knowledge is the first step to understanding if you need to make changes. Once you know, you can take control of your finances and your future.

Determine Your Retirement Age

Your retirement age is one of the first things you need to determine to calculate how long your retirement savings will likely last. This dictates when you have access to your retirement funds. There are several factors to consider:

  • Social Security retirement age: This is the age you can begin to collect your Social Security retirement benefits. The earliest age is 62, but you receive a reduced benefit amount. Waiting until your full retirement age, calculated using your date of birth, gives you the full benefit you are entitled to.
  • Age for 401(k) withdrawals: Sometimes, you can start to withdraw money from a 401(k) at 55 years old. Early withdrawals can have downsides, so understand the benefits and risks of accessing your money early.
  • Benefit end dates: Your retirement strategy should include continued coverage of important benefits, health care and life insurance. Some employers offer retiree medical coverage if you have worked for the company for several years. Or, you can receive insurance through a spouse or partner. You must know the terms of your employment and benefits to plan accordingly. For example, Medicare eligibility doesn’t begin for most adults until the age of 65, so you need to make arrangements to pay for these necessities if you have a coverage gap.

The average retirement age in the United States is 63, with a retirement length of around 21 years. You can choose to retire earlier or later as long as you are aware of your financial circumstances and needs. 

During your planning stage, try out an online retirement planning calculator to gather some numbers and see how changes affect your finances.  

Know Your Sustainable Withdrawal Rate

Infographic of a man looking at a jar for retirement savings

The recommended withdrawal rate from your savings is estimated at 4% to 5% per year. This is the amount of money you can withdraw every year without running out part way through your retirement. Remember that your sustainable withdrawal rate lowers with a lengthier retirement.

Many factors determine the best withdrawal rate. Some, like your investment portfolio, current savings and preferred retirement age, are things you can control. Others are unpredictable, like inflation, market environment, and how long you live. The 4% to 5% recommendation, adjusted for inflation, works for most retirees, but you should always examine your situation and make changes as needed.

Since no one knows the future, you are better off preparing for all outcomes to the best of your ability. Group retirement expenses in categories and plan how to pay for them. Critical expenses such as food, housing and health care are the most important. It’s best to cover these expenses with predictable sources of income like your pension, annuities or Social Security. This leaves your other types of expenses that are less crucial for your savings to cover. Adopting this strategy gives you more flexibility to stay within your sustainable withdrawal rate. You can consider doing without some things that you like but are not necessary to avoid overdrawing and risking running out of money too soon.

Evaluate Your Income Types and Invest Wisely

Social Security benefits, pensions and annuities are reliable income sources that you can depend on. However, they don’t always add up to enough money to live off of. This is where your investments and savings come into play.

These two types of income rely heavily on external factors outside your control. How the stock market is performing, your interest rates and cost of living can change rapidly. Careful planning and management are required, or you could find that you are running out of money you had earmarked for the future.

If you have investments, it is usually best to carry a good mix to avoid risking too much in any place. A diverse portfolio gives you much more freedom to withdraw some money as needed without risking running out. Your choice of investments between safe and risky ventures also depends on how much you need to rely on your investment income in the future. If you are relatively secure with your other sources of income, you can afford to take some risks and hope for greater returns.

Look for Ways to Save

Make your money last by spending smartly. Create a budget for yourself and follow it closely. You can always splurge on something fun if you spend less than anticipated. You can work part-time in retirement to make money and keep yourself active and involved if you like. Pay attention to your earnings if you choose to continue to work. Your Social Security benefits may decrease if you exceed an assigned income threshold. 

Planning for your retirement years is a challenge. There are many factors to consider and so many uncertainties that make coming up with a plan difficult. Everyone has different needs and preferences, so the best course of action is to follow these guidelines but get personalized advice for your unique situation.

Estimate how long you expect your retirement to last, and then calculate your anticipated income and basic expenses first. Then, you can see how much room you have to make changes and how much risk you are willing to take with your investments. Start planning for retirement as soon as possible. The more time you give yourself, the more actions you can take to correct problems and build an income. This will leave you much more confident that your future is secured.

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