Will your retirement savings last 23 years? That is the big question. How do we use our savings to generate income, and not see our balance go to zero before our blood pressure does. It’s a clear and simple way to define a basic level of financial success in retirement.
Video: Will Your Retirement Savings Last 23 Years?
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Tips to Help Your Savings Last 23 Years
The Primary Reason People Run Out of Money
I’ve been doing this for 23 years, and there is a common theme for those who run out of money. It’s not bear markets or recessions, and we’ve seen two of the worst since the great depression in that span.The one common factor which led to people running out of money was spending too much.
When your withdrawal starts at 5% or more, you increase the risk of running out of money. And the chance of failure increases rapidly as you approach 6 or 7%.
The target number, if you’re wondering is 4%. So when you look at your numbers, focus on that level. In the coming weeks we’ll have a video about how to calculate that.
The Primary Obective is Growth of Income
Growth is important. Remember every year everything you buy costs more. Your income will need to increase as you move through the years. By the time you reach the 23rd year of your retirement, you’ll need nearly twice as much income as you do on day 1.
But modest growth is what you need. The big bear markets in the last two decades may not have been the primary reason people ran out of money. But they didn’t help either.
Distributions from your nest egg amplify the impact of any downturn–even the mild ones like last year. And those withdrawals also make it more challenging for your savings to recover.
Also beware of being too conservative. If your retirement savings isn’t growing, you are going to eat into your princpal faster. As you need more income over time…It makes that problem bigger.
Time is Your Biggest Asset
Delaying retirement can help preserve your retirement savings.
For most of us, our retirement income will come from our savings and Social Security. The more you receive from Social Security the less income you’ll need from your savings.
How do you get more income from social security? you delay your retirement. Retiring early, means discounts to your Social Security benefits.
The same thing can happen with state and private pensions. Retiring early often means less income from those fixed sources.
By waiting, those discounts shrink, and your fixed income increases. And if you delay beyond your normal retirement age, your social security benefits will actually increase. This means your savings won’t have to do as much of the heavy lifting.