How Long Will My Retirement Savings Last?
After decades of work and effort put into saving, you may be wondering “how long will my retirement savings last?” Thankfully, there are different ways to estimate your retirement income based on the retirement savings that you’re currently saving. Accumulating data from your past performance with saving all the way until you plan to retire, you can roughly determine how much retirement savings you’ll have to work with once you’re ready to enter the world of retirement.
Cumulative Savings
When looking at your retirement savings, you need to look at the cumulative savings balance over the years for all savings accounts to get a full picture of what to expect for retirement. For example, looking at your years ahead before retirement, you need to look at more than how much you’re planning on putting into retirement from your income. You need to also consider what the annual return rate before taxes is on the money that you’re putting away. You also need to look at how much you plan on contributing year over year to retirement savings. Do you expect a raise and consider what your increase in contributions would do for your account?
Considering these several factors can help you get a more accurate picture of exactly how much you need to put into savings for your retirement to have one that is comfortable and worry free.
Key Factors to Consider
Some key factors to consider when asking “how long will my retirement savings last” include what age you plan to retire, your life expectancy, your pre-retirement rate of return, post-retirement rate of return, inflation rate, and annual income increases.
Why These Matter
• Retirement Age: Retirement age matters because it changes what your future results are with how much you gain for retirement through social security benefits. At 67, you get the full benefits when you retire, so generally your monthly spending will increase the longer you wait to retire until 67. Obviously if you keep choosing to work past this age, you will also have more to spend in retirement when you finally decide to start withdrawals.
• Life Expectancy: Life expectancy matters simply because it helps calculations when determining how long you need your investments and savings to last. The more years you’ll be in retirement, the more that you’ll need to comfortably guarantee that you have the funds necessary for your cost of living.
• Pre-Retirement Rate of Return: Your rate of return before retirement looks at what you expect your investments to earn between now and your retirement day. Based on historic returns, you could use an average annual return for a more general calculation, or, if you know your exact numbers, use those for a true estimate of your retirement savings.
• Post-Retirement Rate of Return: Generally, post-retirement rate of return is lower than pre-retirement because when people invest some of their portfolio, it’s generally in lower-risk investments. However, if this can obviously change depending on your financial needs, savings account amounts, social security benefits, etc. So, just make sure to use what specific amount you plan on to get a more accurate estimate.
• Inflation Rate: The rate of inflation can affect how much you have available year after year, but it can also potentially affect your savings and how much interest you gain from those accounts. Because different events can affect inflation rate over time, it’s a little harder to estimate the further out you go, but you can still use the current rate to get a general calculation.
• Annual Income Increase: Before you retire, you’re likely still gaining more purchasing power year over year through annual income increases. The more income that you earn and put toward savings year over year, the more you have to directly invest in your retirement portfolio to contribute toward higher future monthly spending.
Know Your Tax Rate
Because you’re still making an “income” through your retirement accounts and social security, it’s important to know what your tax bracket is and what those tax implications are on your monthly spending in retirement. Thankfully, we can look at last year’s tax brackets that the IRS provided for filing and use those as a measurement for what you would pay during retirement.
Work With Retirement Experts
We know that this is a lot to cover, so, thankfully, there are tools like those provided by Nerdwallet, which have all the necessary calculations provided to make the process simpler. At the Wiser Financial Group, we offer retirement savings guidance, legal or tax advice for savings accounts, and more that can help you determine what to put into such a retirement calculator. When asking “how long will my retirement savings last,” make sure to reach out to the Wiser Financial Group and get an accurate estimate!
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If you’re eager to begin your financial journey, the team at Wiser Financial group is here to help.