How long will your retirement savings last? A question easy to lose sight of. After all, we are busy climbing the Mount Everest of retirement by earning and saving as much as we can. All to reach the FI/RE summit.
Asking ourselves how long our savings will last is just as important as FI/REing in the first place. What is the point of it all if we run out of cash and have to go back to our 9 – 5 jobs? No one wants to be in that boat!
How long will your retirement savings last? The traditional route…
The $1 million cushion has long been hailed the magic number for a safe and comfortable retirement. For how long will depend on a few variables though. Mainly, cost of living and supporting income such as social security.
Traditionally, retirement begins in your early 60s. From then on, you retirement cushion of $1 million + social security income needs to last for an average of two decades. Your standard of living, including where you live, plays a big part.
The idea during traditional retirement is that you will be depleting your retirement savings slowly and steadily over the years. The state you will live in can make a big difference regarding how long your retirement stash will hold out.
Top 5 Retirement States
Mississippi 26 years, 4 months
Arkansas 25 years, 6 months
Oklahoma 25 years, 2 months
Michigan 25 years
Tennessee 25 years
Bottom 5 Retirement States
Hawaii 11 years, 11 months
California 16 years, 5 months
Alaska 17 years
New York 17 years, 1 month
Connecticut 17 years, 4 months
Choosing Mississippi or Arkansas over Hawaii and California will make your retirement savings last more than twice as long. Yes, living in Hawaii sounds awesome. Who wouldn’t want to call these beautiful islands their home? But, not running out of money must rank higher than tropical scenery.
Other ways to make your retirement savings last longer are social security income or side hustles. If you, for example, can turn a hobby into a part time, low-stress side job, you could deplete your retirement savings at a slower pace. And this way either make them last even longer or afford to live in a more expensive state.
How long will your retirement savings last? The FI/RE route…
For the rest of your life, IF!
If you are aiming to retire earlier than 65 like so many of us, the traditional route will not work. Just imagine retiring at age 40 and running out of money by 65. Who wants to go back to work in their 60s? So besides living in a state with low cost of living, what else can be done?
The goal is to accumulate a large enough retirement fund, so the investment gains alone can cover all expenses. This way, you will never have to touch your actual retirement stash. For example, if you can live on $40k a year and your retirement stash returns 4% investment gains, $1 million would be your goal to retire.
Who can guarantee 4% returns? No One! But, based on historical results, it is a relatively safe bet. Over the last 55 years, only once did the stock market dip below 4% (darn 1965). So, all you have to ask yourself is how much money you will need to cover your expenses. every year Divide that number by 0.04 and you’ve set your goal!
What about you? What is your retirement goal? Will you take extra precautions such as moving to a different area to ensure your retirement stash will last a life time?
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