Calculator

How long will my savings last in retirement?

Most Americans tend to view retirement as some distant vision no matter how young or old they are unless they are well into the late stages of their career.

At that point, no matter how well prepared or not they might be, anxiety can creep into the equation as they realize the significance of having enough savings for retirement so that they can enjoy it and not end up outliving their assets.

Until that point, the “here and now” tends to capture their focus, which while understandable, can lead to serious problems later.

Among the major questions that are commonly asked by many individuals and couples is, “How much should I save to retire.” This is often followed by the question, “How long will my savings last in retirement.” Another often asked is, “How long will $1 million last in retirement.”

While critical questions to ask, the bigger one is, “How am I going to make my ideal retirement happen?”

The answer to that question is actually straightforward – create a plan and start saving now. Keep doing so if you haven’t already, no matter your current age or what you’ve accumulated so far.

Start Saving Early

No doubt you’ve often heard that you should start monthly savings early. That the earlier you create a plan and start saving, the more likely it will be you can retire with confidence, enjoy your golden years and live without the fear of outliving your assets.

If only it were that easy…

It’s not just a matter of discipline. Life gets in the way of our best-laid plans and can take us on an odyssey that is far from what we envision or want.

This can range from health issues, our kids, jobs, struggling to pay the mortgage, the necessity to have multiple cars in the family that is financed, and much more.

As you have surely experienced, it always seems that just about the time you think you have it under control, a new emergency pops up, or a new type of expense emerges.

That’s life and its many curveballs.

The net result for the majority of Americans is the fact they end up just struggling to keep their heads above water and dealing with their most immediate needs, putting aside little to none for retirement.

In fact, a significant number of people in their 40s, 50s, 60s, and beyond have no savings for their retirement, according to a National Institute of Retirement Security report. They estimate that approximately 40 million U.S. households have no savings for retirement.

No Action Leads to Trouble

Unfortunately, saving nothing can lead to serious issues in the very years you are hoping to slow down and enjoy life, the grandkids, some travel, and trying some new things you weren’t able to do when you and your spouse we constantly busy and putting everything else first.

Not saving even a small amount on a regular basis each month starts the ball rolling in the wrong direction. This is then compounded by not looking at your situation, and either on your own or with a financial advisor or retirement planner, putting a plan in place.

Think about it, you take time to plan and put aside funds for trips, the kid’s sports and braces, myriad activities, college, etc., but not toward how you will live out your life in the future when you no longer wish to work, or can do so.

That failure to plan and to fund, even modestly, will inevitably lead to financial stressors in your golden years that you don’t want to face. You can find yourself robbed of both enjoyment and relaxation when you need it most, after a lifetime of work. Worse still, this can bring on serious anxiety and health issues at a time when your mind and body are less able to deal with such stress.

Smell the Roses

On the flip side of not planning and saving is that taking things to the extreme. Living too frugally and not enjoying the roses along the journey can rob you of life and enjoyment during your journey.

Simply saving every last penny is not a recipe for happiness and it is not sustainable…nor is it the best approach.

As with those who don’t save, the key is balance. Have a plan and save according to the plan.

Whichever path you’ve taken till now, it’s essential to start saving some regularly, but not completely austerely and in a manner where you have no enjoyment – it should be a balance.

But don’t just start saving some arbitrary percentage until you retire. Instead, create a plan, which will give you perspective on how much you need to save.

Your plan should include everything, from your current savings, how you live currently (standard of living), job, age, health and/or issues, goals and desires in retirement, what you hope to leave for family, organizations, charitable causes, and more.

Income Sources

Aside from the income from your job, you should think about alternative sources, ranging from Social Security benefits and earning money from part-time or side gig jobs. Even income you can earn after retiring, such as performing consulting work for your employer or others on a part-time basis or turning that hobby you’ve enjoyed for years into a real business.

When considering your Social Security benefits, it’s important to remember that while you can take them out earlier, doing so will result in reduced payments. Holding off until you reach the age of full retirement, which for many is 67, will increase your life benefit payments.

Another consideration is working longer than you might have planned. This is an opportunity to add to your savings and take full advantage of compound savings for a longer period while avoiding drawing down your retirement fund a bit longer.

You can also benefit from some expenses either being reduced or altogether eliminated, such as those associated with raising kids, commuting costs, the home mortgage and car payments, etc.

Added Expenses

While some expenses may go down, you can expect your healthcare costs will likely go up – perhaps significantly. There’s also the issue of long-term care, which many simply skip and hope they won’t need, which is a big risk.

One last thing in terms of monthly spending and expenses that might be new is that you now have time you didn’t have in the past. As such, travel can cost you more as it’s normal to engage in it more often. Even if just infrequent short stays and doing so nearby, it adds up. And you might want to try out new things so as to avoid sitting around the house all the time, so you might be looking at other types of expenses not previously incurred.

Planning Tools

It should be apparent there are a lot of considerations. It can’t be stressed enough that engaging a financial advisor or retirement planner for at least a consultation would be prudent. They can ensure you are working in the right direction and provide invaluable insight that can serve you well even if you don’t use them on an ongoing basis.

Whether you use a professional or go it on your own, you can help yourself by performing some easy tasks and research. Start by looking at your current bills, health, spending, other obligations, lifestyle, salary, goals, and dreams.

From there you can take advantage of the great tools and information available here at Oak Harvest. They can help you start to get a grip on your financial situation right away. And you will be that much more informed if and when you do see a financial advisor or retirement planner.

Calculators in particular are a great resource, as they can quickly and easily provide you with insightful and invaluable information.

When it comes to the question of how much in savings you will need to retire, the Oak Harvest Retirement Savings Calculator is a great tool to start with.

It allows you to run an array of scenarios that can help you gain perspective on what you will need to save and for how long when it comes to funding your retirement.

How Much You’ll Need

Determining what you will need in retirement isn’t an easy matter and can only be based on the here and now – things change.

But you can begin to make some educated assumptions based on the information you know now. A good starting point is how you seek to live in retirement. If you’ve saved diligently starting young and your investments have done well, you may be able to live it up in retirement.

On the other hand, you may need to live more soberly if you’ve not saved.

Travel is a big thing once you are retired and have the time to do so. In order for you to travel extensively you will certainly need more funds available in your retirement to be able to prudently do so. If not, you can still enjoy life, but it may be lower-key, vacationing closer to home.

Be sure to consider normal things you like to do, such as movies, splurging on the grandkids, dining out, charitable giving, and more. And you have to assess how active you wish to be, especially if you or your spouse have health issues

Another good test is comparing how you envision your retirement against how you live currently, especially when it comes to costs. Doing so will provide some context.

In addition, you need to have some foundational information to work from. Ask yourself these questions:

• How much do you have saved
• How much do you make now
• Are you able to cover current monthly expenses without taking on more debt or are you living beyond your means?
• How long can you work if you need to do so for an extended period
• How’s your health – can you continue to work

This information can help you ascertain what you might need in retirement to maintain whatever standard of living you are hoping to achieve. And in turn, determine how much you will have to save regularly (monthly or annually) to achieve your goal.

Scenarios

Age 40

Both you and your spouse turn 40 this year. You collectively earn $220,000, but you’ve only managed to save $25,000 in your IRAs and another $37,000 in your 401(K).

While your costs for kids, saving for their educations, a new home, and other big-ticket items tend to usurp most of your combined bring home pay each month, you both decide you are going to tighten the belt and save as much as possible so you can retire at 60 with $1,000,000, aside from your social security benefits.

To make that happen you will have to contribute $1,700 each month to your savings, assuming a 5.5% average annual return on investment.

Age 50

You’re married and 50 with a spouse age 48, and you both plan to retire when you turn 65. You have a combined salary of $150,000. You’ve been saving for some time and have a $255,000 retirement portfolio.

Your goal is to retire with $1,500,000 aside from social security benefits and your annual contributions will be based on the figure necessary to reach your goal, which will be contributed annually to your SEP IRA. You are conservative and expect to earn 4.5% on your investments.

To reach your goal you will have to contribute $3,483 each month in your SEP IRA, which is under your limit, allowing you to do so.

Age 60

You’re divorced and have an annual salary of $135,000. You have $175,000 saved for retirement, own your home and don’t have any debt, so you now want to maximize your annual investment into your retirement portfolio consisting of both qualified and non-qualified accounts. Your goal is to retire in 7 years with $1,000,000 and you expect to average 5.5% in returns on your retirement savings.

To reach your goal you will need to contribute approximately $6,060 each month. If you can afford to do so you will be able to retire at age 67. If not you may have to reduce your retirement target accordingly or work longer.

Additional Considerations

When using the retirement savings calculator you should run many scenarios. Doing so will empower you to get creative in terms of your present thoughts and probably even get you thinking out of the box.

Additionally, it should inform you as to how even modest increases in annual savings can make a big difference in your retirement.

That said, as previously mentioned, the scenarios listed don’t take into account your tax situation, as well as your health and life expectancy, other money you might have or will receive, issues that might arise in retirement, etc.

Remembers also that there exists a full arsenal of products/tools available that are designed to do specific things, like providing lifetime income, death benefits to pass on to a spouse, and much more. And there are strategies involving trusts and taxes that can provide significant savings (thousands to tens of thousands), further enhancing your retirement portfolio, and potentially your retirement.

Lastly, while you might not have used a retirement planner or investment advisor in the past, or even if you did but don’t now, you need to rethink that decision. It should be clear by now that there are many moving parts when it comes to planning for retirement, ranging from the age you plan to retire, what you will need, -costs you need to consider (e.g., increased healthcare costs), planning a monthly/annual budget in retirement, which retirement accounts to pull from first, tools or products that are available (example – Fixed Index Annuity with lifetime income benefit), as well as tax strategies that can make a huge difference, and much more.

The bottom line, there is too much on the line, too much room for error, and frankly, it is not a time to suddenly decide to go it alone unless absolutely necessary.

If possible, you should consider consulting and possibly working with a retirement planner or financial advisor, as they can guide you when it comes to addressing all the various considerations, and do so in a manner that will help you maximize your eventual retirement.