How Long Will My Money Last in Retirement?

Do you want to learn how long your money will last in retirement? Are you wondering whether you will be able to live when you retire comfortably? Nowadays, planning for retirement is an essential part of every person’s life.

According to experts in various fields, the sooner an individual starts planning for retirement, the better. Unfortunately, the number of people who find themselves unprepared as they near the end of their career is incredibly high.

Let’s take a look at an example. According to reputable money-saving experts, the best way to live when you retire comfortably is to follow the 70% rule. In other words, you will probably need 70% of your pre-retirement yearly salary to live cozy and be able to enjoy your days as a retired person.

In short, if you are in excellent health, have paid off your mortgage, want to spend time with your family, then 70% of your pre-retirement yearly salary should be enough to live comfortably. 

However, if you are an adventurous type and you won’t be satisfied with taking long walks in the park, spending time with your family, then you might need 100% of your annual income.

Furthermore, activities like renovating your home, traveling to remote destinations might require even more than your pre-retirement yearly salary. Do you think your savings can handle those types of expenses? 

To be honest, the essential question is, how long will my savings last in retirement. Let’s begin with the most common mistake people make. 

Will Social Security Be Enough?

As we mentioned, numerous people find themselves unprepared as they near the end of their careers. Typically, they believe social security will be enough. According to reputable sources and the latest surveys, pension benefits might not be enough for a retiree to live comfortably. 

For instance, in the United States of America, the average social security benefit is rarely enough to cover more than the most basic living needs. Therefore, finding other sources of income in retirement might not be a bad idea. 

However, if you have managed to save during your pre-retirement years, then your savings will likely have to cover the shortfall that you might experience. The big question is: 

How Long Will My Money Last in Retirement? 

Having a plan for your retirement is a must as it will help you achieve a financially secure retirement. Even if you are still building your career or still in your 40ties, retirement should be on your mind. To be precise, the sooner you begin saving money, the more time your wealth will have to grow. By growing exponentially, your savings will help you comfortably live once you retire. 

Further, people who are headed into their post-career years often find themselves wondering how long their money will last. So, let’s take a look at three essential things they should estimate.

Estimate What Your Current Expenses Are

This one should be easy. What are your current expenses? Think of all types of costs in various categories. If it would be easier for you, you could write down all your expenses for the upcoming month. 

Estimate How Your Current Expenses Might Change

Now, here you need to be as realistic as possible. How likely are your daily, monthly, or yearly expenses to change? For instance, you should not worry about commuting costs if you have already paid off your mortgage. 

However, you should think about health care expenses. If you are in excellent health, then you should not worry about this one. But, when you retire, your health care expenses are likely to rise, so you should still bear that in mind. 

Estimate How Do You Want to Live in Retirement

Is traveling around the world on your to-do list when you retire or maybe building the house you always dreamed of? Well, crossing goals or tasks off your to-do list is a great way to stay productive even when you retire. However, you should be honest about how much those activities will cost and take them into account. 

When you estimate the amounts in these three categories, it should be easier for you to figure out how much income you will need to live when you retire comfortably. 

Calculating How Long Your Retirement Savings Would Last

Now, it’s time to learn how to calculate how long your retirement savings would last. For this simple calculation, you would need to know what your retirement savings and income are. 

Moreover, those who are still not in retirement should use an amount as close as possible to the retirement savings they expect to have upon retirement. Now, make sure you add up all your total retirement savings as well as the entire retirement income you have or expect to have. Moreover, don’t forget to include the annual returns. 

Further, as you probably already know what the amount of your (expected) annual expenses in retirement should be, this part is easy. However, make sure you are not leaving anything out—for instance, mortgage payments, rent payments, monthly groceries, insurance payments, etc. Using a program like Microsoft Excel to list all savings, income sources, and expenses will help you with the final calculation. 

Now, to calculate how long your retirement savings would last, you should simply divide your total retirement income by your total annual expenses. The number that you will get is an estimate of how many years your retirement savings will last. Bear in mind that many factors are not taken into account in this calculation. To be precise, your total retirement savings might last longer or less. It depends on how you spend your savings. 

What Do Experts Advice When It Comes To Savings 

Nowadays, the average lifespan is around 30 years. Therefore, the majority of experts suggest that the amount of retirement savings should last you for about 30 years or more. As you have probably already calculated for how long your retirement savings would last, it would be wise to take this experts advice into account. 

For instance, if you get a number below 30, it might be wise to consider what options you have. Do you have time to save more money for retirement? Should you cut down on some of your retirement expenses? Is investing money to generate passive income a good idea? Can I live with a smaller monthly budget and still live comfortably? 

Bottom line

Make sure you are honest about how you want to live in retirement and how much it will cost you to afford your retirement comfortably. Only by doing so will you be able to estimate how long your money will last in retirement.

On the other hand, if you want to learn How to Make My Money Last in Retirement, then make sure you read our next article.