How long will my money last in retirement?

As you approach retirement, you're likely wondering whether what you've saved is enough to last. It's a good question to ask and an important one so that you can have confidence in your retirement plans.

Whether your savings are enough to last comes down to how much you spend each year in retirement, your life expectancy, how you invest your savings and how much income you have from other sources, such as Social Security, a pension or part-time employment. Here are some tips to help ensure you have enough to last through retirement:

Plan for a long life expectancy

Thanks in part to improved medical care, people are living much longer than they did in the past. As a starting point, we recommend men plan to live to age 91 and women plan to live to age 93, adjusting as appropriate for known medical conditions and family history. Depending on when you retire, that could mean your money has to last 25 or 30 years.

Start smart with your withdrawals

How much can I take from my investments?

Our initial withdrawal rate guidance below can serve as a good starting point as to whether your investment portfolio can sustainably meet your retirement spending goals, assuming you live until 92 and you increase the amount you withdraw each year by 3% for inflation.

As an example, if you plan to retire in your late 60s with $1 million in retirement savings, our withdrawal rate guidance suggests you could take $35,000 to $40,000 from your investment portfolio in your first year of retirement and increase the amount 3% each year with 80 to 90% probability your money lasts to age 92.

Keep in mind that the amount you withdraw from your portfolio plus your other income sources must cover both your spending needs and taxes. If the amount your investments can support doesn't align with your goals, your Edward Jones financial advisor can help you determine if you need to make some adjustments to your strategy.

*Withdrawal rate guidance is based on estimates of the probability of different portfolio allocations lasting to age 92 and assumes withdrawals increase by 3% annually for inflation. We assume the portfolios have a mix of cash, fixed income and equities. Expected returns based on long-term capital market expectations for cash of 2.9%, fixed income of 3.6% to 6.1%, U.S. stocks of 6.8% to 8.3%, and international stocks of 7.68% to 9.0%. We also assume an annual fee of 1%. Withdrawal rates can include the withdrawal of principal. If preservation of principal is a high priority, you may need a lower withdrawal rate. In general, the higher your withdrawal rate, the greater the risk your money may not last throughout your time horizon.

What withdrawal rate makes sense for me?

There's no one withdrawal rate that works for everyone. In deciding what makes sense for you, you'll want to consider the following:

• Longevity: The longer you expect to live, the more conservative your withdrawal rate should be. In fact, if you're planning to live beyond 92, you'll likely need to start even lower than the more conservative end of our guidance.
• Spending flexibility: The lower your spending flexibility in retirement, the more conservative your withdrawal rate should be.
• Portfolio reliance rate: The more you rely on your investment portfolio for retirement income, the more conservative your withdrawal rate should be, especially if your spending flexibility is limited.
• Asset allocation: Our guidance assumes a diversified portfolio of stocks and bonds. If your portfolio is overly aggressive in stocks, or if you own mostly fixed-income investments and cash, the guidance does not apply.
• Legacy goals: The more you want to leave to your heirs, the more conservative your withdrawal rate should be.

Maintain appropriate diversification

Even if you retire, inflation doesn’t, which has important implications for how your money is invested. Some people shift most of their money to fixed income and cash in retirement. We believe this is a mistake. To help you meet rising costs in the future, growth investments should remain a part of your investment portfolio.

However, market declines, particularly those early in retirement, can jeopardize whether your money will last throughout your lifetime. Consequently, as you transition toward retirement, we believe a more balanced allocation between equities and fixed income is important to balance the need to keep up with inflation while being sensitive to market risk.

Consider an annuity

An annuity* can provide a guaranteed income stream for life, regardless of how the market performs or how long you live. This can help provide a minimum floor for your income in retirement along with your Social Security benefit and reduce your reliance on your portfolio. Of course, like any investment, annuities have trade-offs to consider. For example, depending on the terms of the contract, the income payment may not increase with inflation, and annuities, in general, are subject to liquidity constraints.

Prepare for potential risks in retirement

Risks are unavoidable, but you can prepare for them. A well-rounded retirement strategy should incorporate expectations for longevity, market volatility and inflation. You should also prepare for higher health care expenses, including long-term care, and potential financial emergencies.

Already retired?

If you're already retired, here are some additional strategies to help you make the switch from saving to spending.

How we can help

Talk to your Edward Jones financial advisor today about how you can create (or refine) your strategy to help make sure your money lasts throughout retirement.