How do I calculate how long my money will last?
12 August 2006SmartMoney has an easy calculator up that will help you figure out the answer to that question for your retirement. It’s a little backward in that it really tells you how much money you’re going to be able to USE each year rather than how long it will last – but you can use it to answer the question. The calculator assumes a 7% return and 3% inflation, which is probably about right by your retirement years (given that you have to be in more conservative investments). I ran the numbers a few times just to test it out, seeing what it would take to be able to withdraw $50,000 a year:
Assume you think you’ll live to age 80, or 15 years after retirement. You’d need to have about 600,000 a year saved up to have 50,000 a year in income.
If you think you’ll live longer, to 90, you need about $800,000.
If you want close to absolute safety and want to plan to live to be 100, you need $1,000,000.
But then, nothing is sure in the world – an economic crisis could make that money worth a lot less, technology could make you live a lot longer, or you or someone in your family could have an emergency that forces you to spend a bunch of money. I always recommend erring on the safe side of having more money than you think you need.
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