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How many years will your retirement last?

Have you even considered this?  If not, let me briefly give you some information to chew on…

What do you plan to do during retirement? Travel? Watch cars drive down your street? There is nothing wrong with either but one costs more than the other. We have all seen the Fidelity commercial, “What’s your number?”  I hope you have one because Zig Ziglar had it right:

“If you aim at nothing, you’ll hit it every time.”

How much “salary” are you anticipating living off of in retirement?  What will your expenses be?  These are very fair questions that you can and should be thinking about TODAY – even if you are in your 20’s or 30’s.  Will your home be paid off?  These are important questions.  So please allow me to give you some facts.

There is no way to provide ALL the facts single blog post. But what I can do is give you readers some ammunition to work with subject to a few parameters:

  1. The figures presented are in present day terms. Meaning you will need more when you retire. They do not reflect what you will actually need 30 years down the road when you retire. Think of how much a Big Mac was in 1960 compared to how much it is today. Because of inflation, you will need much more when you actually retire. These figures are demonstrated in a different post.
  2. The parameters are subject to the following:
    1. The S&P was founded in 1957. Since its founding, there are two primary stock measures to calculate a long-term rate from – the S&P and the DJIA.

The year the S&P was founded, 1957, the S&P has averaged an 8.055% year over year return. The DJIA has averaged 7.725%. I will use the more conservative DJIA to plot our investment projections.

Before you read any further, “guesstimate” two things:

  1. When would you like to retire? Now we know how many years we have left.
  2. What is your current net worth?  Is this composed mostly of investments, savings, or your home?

Do you know and track these things?  Now you have taken the first step, the following chart demonstrates some things to consider when determining the length of your retirement and how much you need to make it…

Retirement Exhaustion Calculation

From reading the chart above, you can see that at rates of return of 7.725%, $300k in savings, and only $20k in annual spending, you should be able to earn more than enough return on investment to sustain this level of spending in perpetuity (forever).  However, with only $2ook in savings and spending at $20k in retirement, your funds will only last roughly 19.9 years.  Just marginal annual spending increases substantially effect the length of time your retirement will last…

Choose wisely…  You do not want to be in the yellow…

How long will it last...

Savings results based upon $400k in retirement savings at 7.725% return and various annual spending

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