How long will your money last in retirement?

How Long Will Your Money Last in Retirement?

Once you are retired, you may spend three or more decades in retirement. Your retirement and its length will depend on your circumstances such as when you leave your career and how long you live. Retirement income can come from a few sources including a state pension, other pensions that were built up during your career, and investments and savings. Before retiring, you must ensure you have enough money from your various sources to live a comfortable life.

How long will my retirement last?

The majority of people underestimate the length of their retirement. Research shows that there is a 50% chance that a 65-year-old man will live until the age of 87. Meanwhile, there is a 50% chance that a 65-year-old woman will live until the age of 90. You could outlive the amount of retirement you have accumulated. Due to this, you may discover you have little money later on in life, causing you to struggle.

It is difficult to know just how much money you will need in retirement. You don’t want to spend your money too quickly because you won’t have enough later on in life. Of course, you don’t want to live frugally and pinch pennies each day. Inflation is another aspect you need to take into account. The amount of money you have now may not be worth as much due to inflation in 10 years.

Inflation’s impact on retirement

The price of goods and services tend to increase over time. If you plan to keep your standard of living at a specific level, your retirement funds need to keep pace with inflation. A state pension rises by a minimum of the rate of inflation per year. If you get a retirement income from a previous employer, the amount of money often increases by the rate of inflation. It may also increase by a set amount every year.

Relying on savings and investments to increase your retirement income can be tricky. You will need to improve the amount you receive from these during retirement. By increasing your income, you can make your money go farther. You will spend your capital gradually by taking more income than what you have in savings and investments earned per year. The longer this occurs, the less money in savings you will possess. This leaves you at a risk of running out of retirement money.

Ways to manage your retirement

There are a few ways to manage your retirement financially. These include:

  • 401K – Between the ages of 59.5 and 72, you can begin withdrawing money from your 401K plan. By the age of 72, you must begin taking money out of the plan. You will need to consider your safe withdrawal rate to ensure you don’t take out too much money each year when supplementing your income. The safe withdrawal rate is the amount of income that can be safely withdrawn from your bank accounts per year without risk of depleting them.
  • Pension – Pensions from a former employer and/or labor union typical begins to be paid out at the age of 65. You will need to decide on whether to take these payments as one lump sum or a series of payments.
  • Social Security – You can begin collecting Social Security at 62. Your monthly benefits will be reduced permanently if you do. If you hold off on collecting your Social Security benefits, your monthly payments will increase. Once you reach the age of 70, the benefits max out. Once you reach 70, there is no reason to delay taking your Social Security.
  • Investments and Savings – You are able to withdraw income from a non-retirement account at any age. There are no RMDs to be concerned about. You should time withdrawals to synchronize with your other sources of income.
  • Income fund – 5% income from property secured investments

Working during retirement

Working during retirement can affect the benefits you receive from Social Security. Once you reach full retirement age and make more than a specific amount of money, you Social Security benefits will decrease each month by $1 for every $2 you earn.

By the time you reach the age of full retirement, your Social Security benefits will decrease by $1 for every $3 you earn according to a specific limit set by the IRS. The money that decreases isn’t lost permanently, however. Upon reaching retirement age, Social Security recalculates your financial benefits and increases the amount to make up for the withheld money.

What is secure income?

Secure income is the regular income you rely on for the remaining years of your life. You are likely to have some secure income in retirement already. State pensions are guaranteed for life. A retirement income from a former employer also counts as secure income.

You may need to increase your secure income. You could top it up by using some of the secure income to purchase a lifetime annuity. A lifetime annuity is an insurance policy in which you pay a lump sum and are then guaranteed regular income for the rest of your life regardless of how many years you live. You can ensure the income increases over time. This prevents its value from decreases due to inflation. Lifetime annuities are secure and there is no worry of them running out.

What is flexible income?

You may have enough secure income for retirement. If you do, you may decide not to touch your pension. You could take a flexible income or lump sums from the pension when you need the money.

Your pension has the chance to increase, but there is a risk that your investments may decrease in value. If you use your pension pot to provide you with income, you may have to lower the amount of money you withdraw from it. All of the savings and investments you have can be affected in the same ways.

Although you can withdraw a flexible income from these areas, you need to be aware of how much money you take out to ensure it lasts. Savings and investments may not last as long as you planned. In addition, you may not earn as much as expected. In these cases, you will need to reduce your amount of income to prevent running out of money.

Expert Contributor:

Zanthe Alexander Bentley is a Property Secured Investment finance veteran with over 25 years’ wealth management experience advising both family offices and institutions on their corporate finance requirements including capital raises (debt & equity), restructurings and M&A activities. He has significant experience in investment management and investment banking and spent nine years at UBS focused on convertible bond arbitrage and equity derivatives.

Prior to getting involved in Asset Management he expanded a small Spanish brokerage from a handful of staff in Barcelona to a diversified brokerage company with over 150 personnel spread across 9 countries, transacting deals from High Grade to High Yield Fixed Income and Loans; Structured Products through to exchanged traded equities.

After taking time to focus on family office activities in Asia, Zanthe-Alexander now leads an ambitious zero-leveraged fund providing exceptional growth and income to Sophisticated Investors.

Zanthe Alexander Bentley Twitter: https://twitter.com/BentleyZanthe