Federal Reserve data shows that the average savings in the United States at retirement age is only $255,200. So if you find yourself with $400,000 in assets at retirement age, congratulations! You are doing much better than average. But how long will your money last? The answer depends on your investment allocation, spending habits and other income streams. Here are some resources to help you determine your available assets and desired expenses so you can live the retirement you want on $400,000.
A financial advisor can help you create a financial plan for your retirement needs and goals.
How to determine your assets and available income streams
Knowing what you have at your disposal has a huge impact on how long you can reasonably expect your money to last. Any source of income you can have when you retire will reduce the amount you need to take out of your portfolio. Sources of potential income can include:
In addition to your $400,000 in retirement accounts, you may also have assets that can be used to supplement your income at a later date. Assets can be:
The equity you have in your home that can be refinanced to lower your mortgage or sold to buy a smaller home in an area with a lower cost of living to lower your expenses.
Other real estate that can be sold or rented, such as vacation homes.
A second vehicle that can be sold when your household no longer needs two after retirement.
Recreational equipment such as travel trailers, ATVs, snowmobiles, and boats can be sold or rented when not in use.
A thorough inventory of your assets can help you determine where your values lie and discover new income streams. You may want to keep your family’s winter cabin until your youngest graduates. Determining what you want to sell and when can help you plan your current and future expenses.
If you are ready to be matched with local advisors who can help you achieve your financial goals, start now.
Determine your desired expenses
You’ve worked all your life and now it’s time to reap the rewards. While you want to make sure you’re taken care of in the future, you also need to enjoy what you’ve worked for.
The reality of getting older is hard to face, but there may come a time when you can no longer climb into a gondola to row around Venice, or go white water rafting. The time to complete your bucket list isn’t when you’re in a wheelchair in your 90s, but when you finally have the time, money, and health to enjoy it.
Spend a little, but track what you’re spending and make sure you’re doing it for what’s really important to you. Balancing your desires for a rich life in your 60s shouldn’t come at the cost of not being able to afford home care in your 80s.
Traditionally, financial advisors agree that the average retiree should replace 80% of their pre-retirement income with savings and Social Security benefits. But new research from the University of Michigan Retirement and Disability Research Center suggests that retirement spending is declining over time at all socioeconomic levels.
You should still keep money aside, but you may not have to expect to spend 80% of your pre-retirement income each year you retire.
Safe withdrawal rate
It can be difficult to determine a safe withdrawal rate of your investments for long-term use. Expert opinions vary, but a generally accepted safe withdrawal rate follows the 4% rule, which was established based on the Trinity study published in 1998.
The rule essentially states that you can withdraw 4% annually from a well-diversified retirement portfolio, adjust your 4% each year for inflation, and expect your money to last at least 30 years.
Using our $400,000 portfolio and 4% withdrawal rate, you can withdraw $16,000 annually from your retirement accounts and expect your money to last at least 30 years. For example, if your Social Security checks are $2,000 a month, you would have a combined annual income of $40,000 at retirement.
That may not be enough for your current lifestyle, so you may need to consider adjusting your priorities and spending. If it’s not possible to adjust your expenses, you may need to liquidate assets, develop rental income, or find meaningful part-time work.
If you withdraw too much from your portfolio at the beginning of your retirement, your investments will not be able to grow and your available wealth will be significantly affected at the end of your retirement. While you can expect to spend less later on, you still want to be careful. By working with a financial advisor, you can see the individual impact of taking on large portfolios on your long-term financial health.
It boils down
If you never spend your money, $400.00 will last indefinitely. The trick isn’t determining how long you can retire with $400,000, but how best to spend your $400,000. The more you spend now, the less you will have later. The less you spend now, the more you wish you had enjoyed the fruits of your savings while you still had the vitality to do it.
No one can tell you exactly where your values lie, or when your time is up. Only you can know which regret you will feel most acutely – the regret of not saving or the regret of not spending.
Retirement planning tips
A financial advisor can help you create a financial plan for your retirement needs and goals. SmartAsset’s free tool pairs you with up to three vetted financial advisors serving your area, and you can interview your advisor matches for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you want to know how much money you’ll have when you retire, SmartAsset’s free calculator can help you estimate.
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