How Long Will My Retirement Savings Last?

Note – The following post is the 2nd in a series of retirement education blog posts on Money Q&A and sponsored by USAA. Be sure to check out the 1st article, “Am I Saving Enough for Retirement?”. Like always, all opinions are my own.

If you’re worried that you’re doomed when it comes to retirement, then you might be surprised by how many options there are for supplementing and stretching your retirement income.

Now that you’ve put a great deal of thought and planning into your retirement investing, as you start to look at retirement as it comes closer, now is the time to consider how you are going to start withdrawing your money from your retirement plans. Your withdrawal strategy is one of the most important factors to maintain financial success during retirement.

Taking out too much from your retirement investments can lead to a shortage of funds in your golden years. The last thing you want is to have to go back to work during retirement.

On the other hand, if you aren’t spending enough during retirement, you could see a lower standard of living than you anticipated. You want to be able to enjoy your retirement after all.

However, your retirement plan, and ultimately, the amount of withdrawal you make from your retirement accounts depends on your unique circumstances. That is why you should consider seeking out help from a qualified financial advisor like the advisors at USAA.

It’s essential to understand how long your retirement savings will last after you’ve spent your entire career squirreling the nest egg away. To determine whether your retirement savings will last for the duration of your retirement, you should consider several factors and questions to ask yourself before retiring.

How Long Will My Retirement Savings Last?

Cover the Essentials

One of the most important pieces of advice that financial experts and other retirement planning advisors tell their clients is that you should make sure to cover your non-discretionary expenses (housing, utilities, food, routine health appointments/prescriptions, etc.) with your guaranteed income (i.e., Social Security, pension, and fixed annuities).

By covering essential expenditures with your guaranteed monthly income streams, you’ll never have to worry about whether you have to skip meals or showers during the month to save money if your retirement investment accounts are on the brink for whatever reason. You can always resort to temporary money-saving measures for discretionary expenses like Netflix or dining out, but your housing arrangements, utilities, and food are necessities that should never be at risk for late or non-payments.

Assess Your Current vs. Projected Budget

Your budget during retirement might not go down as much as you’re expecting – in fact, you might spend more money as a retiree than you did when you had a full-time job! The reason for this is you’ll now have more time to spend on hobbies, traveling, dining out, etc. There’s also the question of healthcare and how much you think you’ll spend versus how much you actually end up spending if an unexpected illness or injury occurs.

Since everyone is different, general advice when it comes to budgeting for retirement is that you should never expect your budget to decrease, even if you do plan on downsizing your home and lifestyle. If anything, you’ll want to overestimate how much money you might need each month/year during retirement and calculate how long your current nest egg might last based on that assessment. 

Bengen’s 4% Withdrawal Rule of Thumb

There are huge unknowns when it comes to planning for retirement, but financial advisor William Bengen’s 4% withdraw rate rule offers a good rule of thumb for withdrawals to help you start your calculations. Over 40 years ago, William Bengen, a financial adviser, developed what is now known as the 4% withdrawal rule, which basically states that you should withdraw no more than 4% of your nest egg in the first year of retirement.

Then, withdraw the same amount each year after that with another 4% after factoring in to account for inflation. The 4% withdrawal rule generally dictates that you should be able to maintain this withdrawal pattern for 30 years or more without running out of money.

The main issue with this rule is that it doesn’t account for fluctuating interest rates, skyrocketing healthcare costs for seniors, complex tax laws for different types of investments, and possible lifestyle upgrades or downgrades you may experience during retirement. Nevertheless, the 4% withdraw rule is a good foundation for your retirement planning strategy.

But everyone’s situation is different. Retirement is not a one size fits all experience. Proper retirement planning depends on each person’s unique circumstances. You should customize the rule of thumb for your retirement situation and current tax regulations.

retirement fund

Growing Your Portfolio During Retirement

Rather than focusing solely on making your retirement savings last from the moment you leave the workforce, why not put more effort into setting up new passive income streams and making your money work for you once you’re no longer working? For instance, you can replace your income during retirement with dividend reinvestment plans (DRIPs), which automatically reinvest any quarterly dividends you earn as a shareholder back into your account to maximize your long-term gains.

I also like investing in dividend aristocrats. You can even find a dividend aristocrats ETF to help you invest in the entire category.

You can also grow your portfolio by continuing to invest in an IRA after you’ve retired. Investing in an IRA during retirement (assuming you have some taxable income) is an option for folks who continue to work as part-timers, independent contractors or freelancers while they’re retired, since it’s a requirement for IRAs to be funded by earned income (money from a job, not just your Social Security check reinvested into an IRA).

Additional Income Opportunities

If you want to quit working for someone else but you don’t have enough money to retire on permanently, then there are plenty of freelance gigs and self-employment opportunities for seniors that you could p. For instance, you could make money driving for Uber, Lyft, or a food delivery service; you could also make money with your creative and/or professional skills through online freelance marketplaces like Fiverr.

If you’d rather make money with minimal effort, then you could rent out a room in your home (or your entire home, if you own it) on Airbnb. Renting your home or a room will allow you to meet people from around the world and supplement your retirement income without much work aside from communicating with guests and light cleaning after your guests depart. 

There’s no predicting the markets, future tax policies and costs of healthcare, food, and other ongoing essential expenses. However, following the tips above can help you maximize your retirement spending and saving strategies and decrease the nightmarish likelihood of running out of funds during retirement.

Targeted Retirement Funds

If you’re looking for a single solution for your retirement investments, you may want to consider USAA’s target retirement funds. These target date funds automatically adjust their risk level as your target retirement date gets closer.

The USAA Managed Portfolio® (UMP) Wrap program also offers a professionally-managed, diversified portfolio that can help you build your retirement savings. Speak to an advisor to help you open a UMP Wrap account. With a qualifying level of assets, our portfolios invest in:

  • Mutual funds.
  • Exchange-traded funds (ETFs).
  • Individual stocks and bonds.

After you open your UMP account, USAA conducts periodic reviews to help you stay on track. That’s why talking to a professional like the ones at USAA to get advice is so important.

Tools and Calculators Are a Great Starting Point

Retirement is not a one size fits all experience. The proper retirement planning depends on each person’s unique circumstances.

Find out if you’re on track to meet your retirement goals. To get more details on your retirement planning needs, check out USAA’s advanced retirement calculators. They can help you determine how long your savings could last. You tell the calculators how much you’re saving and how you typically invest. Then, they will show you how much you may need to retire.

You can also discuss your results with a USAA advisor. Tools and calculators are a great starting point. But then an advisor can help make sense of the data – especially if an advisor is free!

USAA Financial Advisors can help you:

  • Review your savings strategy.
  • Determine how long your savings could last.
  • Help protect your savings from market volatility.

Get your retirement review today.

Call 800-531-3392 to speak to an advisor.

How Long Will My Retirement Savings Last?

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