How Long Will My Retirement Investments Last in 2022?
***Disclaimer – I’m not a financial advisor, just a normal guy with financial success. The information shared here is purely for educational purposes only***
That my friend is actually a very loaded question; there are many things that need to be unpacked first before you can determine what the right answer is. The generic answer is it depends. It depends how much money you would like to live off of (your lifestyle), if you want to live off of $50,000 a month, your portfolio will have to be much bigger than someone who wants to live off of $10,000 a month or $5,000 a month.
How Much Do You Need Every Year?
So the first thing you really need to determine is how much money you are going to spend and how much you will need to live off of your retirement. If you have other source of income, you may not have to be as reliant on your retirement.
Let’s throw out some examples. If you have a cool one million dollar saved ($1,000,000) and you want to live on $80,000 a year, you can theoretically break even in your investment if the market is growing at 8% per year on average and its 100% stocks. But since most people don’t do 100% stocks in retirement, it’s more typical to see 60/40 split (60% stock, 40% bonds) to lower the risk of market fluctuations. If you get 8% return on stocks and 3% on bonds, you will get an average yield of 6% or $60,000 a year. So you’re down $20,000 a year.
But that’s not too bad at all, that means your money should theoretically last you 50 years! We do know that real live don’t always pan out like the math however, so you want to leave yourself some wiggle room in case of curve balls being thrown at you by reality. So most expert actually recommend living off only 4% of you retirement per year. So if you still want to live off of $80,000 a year, then it’s much safer to have two million dollars ($2,000,000) in retirement.
Do You Have Other Income Sources in Retirement?
You can certainly have other income sources to supplement your retirement investments. For example, if you get $2,000 a month from social security checks, that’s an additional $24,000 a year at your disposal. So you may just need a little over 1 million dollars to be able to live off of $80,000 a year.
You may also have rental incomes that can supplement your retirement or have part time retirement jobs such as consulting, side hustle, or online freelancing gigs, or royalty payments from products you’ve previously created etc. etc. The point is there’s many ways to retire and come up with the type of retirement life you are looking forward to, you just have to make sure you’ve built towards that in your younger days.
It’s probably never really too late to start saving for retirement, unless you’re just a couple years out and realize you have zilch saved up for retirement. Even then, you can still invest in your retirement. But you will likely have to postpone your retirement for a while. I would say it’s never too early to start saving for your retirement!
How Can You Make Your Retirement Savings Last Longer?
There is no one fit for all formula to make sure that your retirement nest egg will last for as long as you hope for, especially if it’s not planned well. My advice on this topic, over-save and under spend even in your retirement so you won’t have to worry about running out of money if you live longer than anticipated.
Nobody, I mean nobody, not the market experts, economists, 100 year experienced investors etc etc can tell you exactly how the market is going to behave far into the future. Nobody can predict what the market is going to do next week, let alone next month, or next year. Some market experts can give you some idea on what it might do, but not exactly how much return you can expect for example.
The best thing you can do is to protect yourself from the worst case scenario such as a recession or a big market downturn, like the COVID-19 pandemic in 2020 when the stock market dropped 30-40% before bouncing back.
For example, if you figure you need one million dollar ($1,000,000) in retirement, try to save 1.5 million or two million dollars. Once you reached your goal for your nest egg, try to spend less than you need or want. So if you want to live off of $80,000, try to figure out a way to live off of $60,000-$70,000 a year. By building in safety net for yourself and trying to stay away from having to activate those safety net, you’re doubly protecting your long term financial health in retirement.
Retire Gradually
Another thing you might consider is to fade into retirement instead of an all or nothing retirement. This may not work for all fields of work, but maybe try asking your company that instead of working full time, if it’s possible to work 15-20 hours a week instead. This way you’ll still have some income while drawing a portion of the rest of your living expenses from retirement (provided you are over 59.5 years old or have additional brokerage accounts).
Once you are comfortable with how the retirement nest egg is working for you and your semi-retirement life, you can then proceed to the next phase which is complete retirement from full time work. By semi-postponing or full postponing your retirement, you gave your retirement investments more time to grow. More time to grow for investments are always a huge positive (unless you happen to hit a market downturn).
In Conclusion
There is no one way to skin a cat (so to speak, sorry for the analogy for animal or cat lovers), so you may want to consult with your financial advisor or someone who’s very good with numbers to see if your calculations make sense. Over-save and underspend is a good bet to make it last longer though.
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***Disclaimer – I’m not a…