A key to making your money last is knowing how much it costs to live the way you like.
A key to making your money last is knowing how long it has to last -- a guesstimate, at best. A 65-year-old today has a life expectancy of about 20 years, according to government tables. But these are average figures. Lots of people live longer, so it's smart to plan a buffer into your retirement years.
By the time you hit retirement, you should have a pretty good handle on how much money it takes to live the way you like. The old rule of thumb that retirees can live on 70% to 80% of preretirement income doesn't work for everybody.
Retirement spending, especially in the early years when you're active and healthy, often pushes a budget above preretirement levels. Travel expenses may go up. Medical-insurance costs may soar if you retire when you are too young for medicare and you have no employer-provided retiree health benefit.
Other expenses may go down. Job-related costs will disappear, including the portion of your salary you're now shoveling into retirement accounts. Your mortgage payments may end, too. Will you drop or cut back on life insurance?
Once you have a target of how much you'll need each year, consider the resources you have. Although social security is likely to be remodeled in the future, current and soon-to-be retirees are still in the catbird's seat. To find out how much to expect, get an estimate of your benefits from the Social Security Administration. You'll also need to figure how much you'll get from company pensions you racked up in various jobs over your career.
Can You Afford to Retire?
In a blow to the old precept that says never invade principal, plan to cash out of certain investments over time to add to your spending pool. Why strain to keep the nest egg intact for your heirs if it means struggling through your retirement? The key is how deeply you can dip into assets each year without depleting the pool too quickly.
That's where the table comes in. Use it to see how long your money will last, assuming a certain rate of withdrawal and a certain rate of return on your investments. Or to put it another way, see how much of your assets you can spend each year.
By the time you hit retirement, you should have a pretty good handle on how much money it takes to live the way you like. The old rule of thumb that retirees can live on 70% to 80% of preretirement income doesn't work for everybody.
Retirement spending, especially in the early years when you're active and healthy, often pushes a budget above preretirement levels. Travel expenses may go up. Medical-insurance costs may soar if you retire when you are too young for medicare and you have no employer-provided retiree health benefit.
Other expenses may go down. Job-related costs will disappear, including the portion of your salary you're now shoveling into retirement accounts. Your mortgage payments may end, too. Will you drop or cut back on life insurance?
Once you have a target of how much you'll need each year, consider the resources you have. Although social security is likely to be remodeled in the future, current and soon-to-be retirees are still in the catbird's seat. To find out how much to expect, get an estimate of your benefits from the Social Security Administration. You'll also need to figure how much you'll get from company pensions you racked up in various jobs over your career.
Can You Afford to Retire?
In a blow to the old precept that says never invade principal, plan to cash out of certain investments over time to add to your spending pool. Why strain to keep the nest egg intact for your heirs if it means struggling through your retirement? The key is how deeply you can dip into assets each year without depleting the pool too quickly.
That's where the table comes in. Use it to see how long your money will last, assuming a certain rate of withdrawal and a certain rate of return on your investments. Or to put it another way, see how much of your assets you can spend each year.
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