You've spent years working hard and saving for retirement. As you approach this new life stage, it's important to understand how long your savings can support you. Creating a clear financial plan is the best way to enjoy life after work without constant money stress.
When determining how long your retirement savings will last, consider your monthly spending, income sources, investment returns, and taxes. Retirement withdrawal calculators can be valuable tools in this process. They help you figure out a safe amount to withdraw from your savings each year, making it easier to manage your money.
In this article, we'll share practical tips for calculating your retirement savings and staying financially secure.
Retirement calculators offer several features you can use to create a solid plan. Whether you want to withdraw money from a 401(k) or figure out how long your savings will last, these tools can help, answering questions like:
Here are some different types of calculators to try:
Consider implementing these three techniques to use your funds to their fullest potential.
Also known as the safe withdrawal rate, this rule suggests taking out 4% of your total savings in your first year of retirement. Each year after that, you adjust this withdrawal for inflation.
Say you have $1,000,000 in savings. According to the 4% rule, you’d take out $40,000 the first year. If inflation is 3% in the second year, you’d increase your withdrawal by 3%, so you’d withdraw $41,200 that year. This process continues for each year of your retirement.
Dynamic withdrawals allow you to change how much money you take out based on market performance, personal spending needs, and inflation. If your investments are doing well, you may withdraw more than when the market is down. Using this adjustable spending approach instead of set amounts, you can increase your withdrawal rate as needed while having a lower risk of running out of money.
An income floor refers to the minimum amount you can expect to receive from consistent sources like fixed annuities, pensions, and Social Security. These payments stay the same no matter how the market changes and should ideally cover your basic living expenses.
When planning your monthly budget, keep this floor in mind. It’s best practice to fit housing and food costs within this limit — that way, if the market changes or your savings run low, you’ll still have access to basic necessities.
Several factors affect how long your savings will last, and understanding them can help you plan for a stable financial future. Here are a few key considerations.
Your life expectancy directly impacts your savings, as living longer means you'll need more money to cover your expenses. To protect yourself, spread your investments across guaranteed sources of income and growth opportunities.
Options like annuities can provide payments for life, and delaying Social Security can increase your monthly benefits. Also, investing in the S&P 500® index offers growth opportunities for your portfolio. Combining these strategies gives you more financial cushion as you age.
Your spending habits impact how long your savings last. Many retirees follow a “retirement spending smile” pattern: spending more in the early years on travel and hobbies, then less as they settle into a quieter lifestyle. However, costs often rise again due to healthcare needs later in life.
To navigate and control spending, create a budget that includes current and potential future expenses. Save money for healthcare so you have enough when costs rise.
When inflation increases, prices for goods and services increase, so your money doesn’t stretch as far. To keep up with inflation, consider investing in stocks or real estate during early retirement because their value can grow over time. Another strategy is purchasing inflation-protected securities, which are bonds that adjust their value based on increasing rates to maintain your purchasing power.
A solid retirement plan needs regular updates to handle changing life circumstances and unexpected costs. Healthcare can be costly — a typical 65-year-old couple may spend thousands of dollars on medical care. Invest in an emergency fund and consider long-term care insurance to cover future health expenses.
Surprise costs like supporting your kids financially or fixing a broken roof can quickly decrease your retirement savings. An emergency fund and extra insurance can keep your savings safe when unexpected costs arise. When planning for these scenarios, you typically want to set aside enough money to cover 6–9 months of living expenses.
Remember that your Social Security and retirement payments may be taxable. Mixing different retirement income sources and timing your withdrawals can help you keep more of your hard-earned retirement money. Consider investing in accounts that give you tax breaks when you contribute or let you pay taxes upfront so you can withdraw tax free later.
Opening tax-deferred annuity accounts is another excellent strategy for growing your savings. During the accumulation period, you don’t pay taxes on your contributions. This leaves more money in your account to compound interest and strengthen your portfolio.
Stretch your retirement savings further with these money management tips.
Annuities can provide fixed monthly payments for as long as you live, ensuring you have reliable funds for your living expenses. And there are several types of annuities to choose from based on your financial goals.
If you’re looking to use annuities as part of your income floor, consistent accounts like fixed or deferred annuities are great choices. These agreements offer guaranteed minimum returns, so they’re a predictable income stream.
But if you’d like to include annuities in your overall growth strategy, consider investing in variable or fixed index accounts instead. With these contracts, your funds grow alongside the market, offering a higher potential for returns.
The best way to grow your portfolio is by spreading your investments across multiple sources. A well-balanced portfolio typically includes:
Planning for healthcare costs should be a top priority, as medical expenses rise throughout retirement. One of the best ways to prepare for this eventuality is to open a Health Savings Account (HSA) while working.
Contributions and earnings on these accounts aren’t taxed. And as long as withdrawals are used to pay for qualified medical expenses, they’re tax-free. Best of all, HSA funds never expire, and you can take the account with you if you change jobs or retire. So, investing in HSAs means you can save more for future medical expenses.
Claiming Social Security benefits before retirement permanently reduces your monthly payments. For instance, claiming benefits at 62 may reduce your costs by as much as 30% compared to waiting until age 66 or above.
Many people wait until age 70 to claim these benefits because they increase by about 8% each year you delay after reaching full retirement age. Accessing Social Security later in life can significantly boost your monthly retirement income and enhance your financial cushion.
___
SteadyPaceTM is issued by Gainbridge Life Insurance Company (Zionsville, Indiana.)
.jpg)
