How long will my retirement savings last?
The 4% rule of thumb is useful as a starting point to determine how long your retirement savings will last
By doing a little math you can estimate your own retirement income needs
How long you plan to retire has a real impact on how long your money will last
You’ve spent your working life saving for retirement. Now it’s time to spend some of that money. But how much? After all, you don’t want to outlive your retirement savings.
It’s safe to say we spend a lot more time figuring out how we’re going to save for retirement, than how we’re going to withdraw those savings. Here are some tips that may help.
The 4% rule
In the 1990s, financial planner William Bengen used historical data to determine that, as a rule of thumb, for most people, withdrawing 4% of their retirement nest-egg each year would allow them to enjoy a steady income for 25 to 30 years.
However, there are some things to remember about the 4% rule:
- You’ll still have to pay income taxes from this annual amount
- You may need to adjust for the annual inflation rate (how much goods and services increase in price each year)
- It doesn’t consider investment returns on your remaining retirement savings
For many people, the 4% rule will be more like a guideline. Some years they may withdraw more, some years less, depending on their plans and lifestyle.
Total retirement income
Total annual expenses/
Number of years money will last
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
The length of your retirement matters
While the average Canadian retires at age 63.5 according to Stats Canada, some people choose to work longer. If you continue to work until you’re 70, that’s 6.5 fewer years of retirement you need to save for, or more money you can spend annually during retirement.
That said, if you want to retire at age 60 or even 55, you may need to plan for 35 years of retirement or more. That may mean you need to save more for retirement or spend more frugally.
Now that you know more about how long your money may last in retirement, you may want to contact your advisor to:
Create a retirement spending plan to calculate your expenses
Determine how much retirement income you can expect from the government
Calculate your total retirement savings
Learn about options for drawing an income from your retirement savings that may help you not outlive your money
This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.