How Long Will Your Money Last In Retirement?



By Declan Yin // in Finance


Once you are retired, you can spend three decades or more in retirement. Your retirement and its duration 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 accrued during your career, and investments and savings. Before you retire, you need to make sure you have enough money from your various sources to live a comfortable life.

How long will my retirement last?

Most people underestimate the length of their retirement. Research shows that there is a 50% chance that a 65-year-old man will live to be 87. Meanwhile, there is a 50% chance that a 65-year-old woman will live to be 90. There is a chance that you can outlive the amount of retirement you have accumulated. Because of this, you may find that you are low on money later in life, causing difficulties for you.

It is difficult to know how much money you will need in retirement. You don’t want to spend your money too fast because you won’t have enough later in life. Of course, you don’t want to live frugally and pinch pennies every day. Inflation is another aspect that you must take into account. In 10 years, when you take into account the inflation, the amount of money that you have now may not be worth as much then.

The impact of inflation on retirement

The price of goods and services tends to increase over time. If you plan to keep your standard of living at a specific level, your retirement funds must keep up with inflation. A state pension increases by a minimum of the inflation rate per year. If you get retirement income from a previous employer, the amount of money often increases based on the rate of inflation. It can also increase by a certain amount each year.

Relying on savings and investments to increase your retirement income can be difficult. You will be required to boost the amount that you receive from these during retirement. By increasing your income, you can take your money further. You will spend your capital gradually taking in more income than you have in savings and investments earned per year. The longer this happens, the less money in savings you will have. This leaves you at risk of running out of money for retirement.

Ways to manage your retirement

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

  • 401K: Between the ages of 59.5 and 72, you can start withdrawing money from your 401K plan. At the age of 72, you should start withdrawing money from the plan. You will need to consider your safe withdrawal rate to make sure you don’t take out too much money each year by supplementing your income. The safe withdrawal rate is the amount of income that can be safely withdrawn from your bank accounts per year without the risk of depleting them.
  • Pension: Pensions from a former employer and / or union start to be paid at the age of 65. You will need to decide whether to accept these payments as a lump sum or a series of payments.
  • Social Security – You can also start collecting Social Security at the age of 62. If you do, your monthly benefits will be permanently reduced. If you stop collecting your Social Security benefits, your monthly payments will go up. Once you reach the age of 70, the benefits are maximized. Once you turn 70, there is no reason to delay taking your Social Security.
  • Investments and Savings: You can withdraw income from a non-retirement account at any age. There is no RMD to worry about. You must schedule withdrawals to sync with your other sources of income.
  • Income fund: 5% of income from investments with a property guarantee

Work during retirement

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

By the time you reach full retirement age, your Social Security benefits will decrease by $ 1 for every $ 3 you earn according to a specific limit set by the IRS. However, the money that decreases is not lost permanently. When you reach retirement age, Social Security recalculates your financial benefits and increases the amount to make up for the money withheld.

What is a secure income?

Secure income is the regular income that you depend on for the remaining years of your life. You will likely already have a secure income in retirement. State pensions are guaranteed for life. Retirement income from a previous employer also counts as safe income.

You may need to increase your insurance income. You can top it up by using part of the secure income to buy a life annuity. A life annuity is an insurance policy in which you pay a lump sum and then you are guaranteed a regular income for the rest of your life, regardless of how many years you live. You can ensure that income increases over time. This prevents its value from decreasing due to inflation. Lifetime annuities are safe and you don’t have to worry about running out. Investment in property also considers secure income for retirement, because it secures & property price growth over time . You can check the estimate of the future value of your property with a house price calculator .

What is flexible income?

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

Your pension has the potential to increase, but there is a risk that your investments will decrease in value. If you use your pension fund to provide income, you may need to reduce the amount of money you withdraw from it. All the savings and investments you have can be affected in the same way.

Although you can withdraw flexible income from these areas, you need to be aware of how much money you take out to make sure it lasts. Often savings and investments do not last as long as you might have planned. Also, you may not earn as much as you expected. In these cases, you will need to reduce your income amount to avoid running out of money.

About the author, Declan Yin

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