Many people just throw up their arms in frustration, confusion and worry regarding the question. Will your retirement savings last? They seem to have no idea whether their savings will last through retirement or not. There are so many variables to think about. It’s really difficult to know if they will have enough money to live comfortably during their retirement. Like all problems of this complexity it is important to break them down into smaller pieces. For example first focus on your income. How much income will you have and where will that income come from. Your income will come from several sources.Â A pension from your company, old age pension from your government, and income from any savings that you may have.
Next focus on your expenses. What expenses do you have now, what will you have in the future and what expenses are under your control where you can make decisions with regards to how much you spend. Once you have this information you can begin to assess whether you will have enough money to last through retirement.
Will Your Retirement Savings Last
Let’s look at income and expenses in a little more detail.
Make a list of all the potential income sources that you have. This would include government pension, company pension that you may participate in, income from savings, and income from Business or rental income that you may have. With regard to savings, Many financial advisors recommend that you only withdraw a maximum of 4% each year. This will provide a conservative approach to ensuring that your savings will last through your retirement. If your savings increase through appreciation then your 4% withdrawal rate will increase as well. once you do the calculations you can quickly determine whether your total income will be sufficient for your retirement as compared to your current income or you still need to be working. If not you may want to increase your savings, or work longer.
Add up all of your expenses in much the same way as you did your income. First of all identify the fixed expenses for things like mortgage, rent, utilities and communications such as cable TV and telephone. You may also have insurance payment or payments for a variety of things that will last for some period of time. The next set of payments or expenses that you should look at is your discretionary expenses. This would include food, clothing and entertainment as well as vacation travel.
The last group of expenses or expenses associated with things like weddings, emergencies, repair and maintenance to your home and any other major expenses that may crop up during retirement years. You may want to budget for those in advance.
Once you understand your income level, and your expenses during retirement you can then analyze both to make adjustments according to the lifestyle that you would like to live. You may have to generate more income to maintain your lifestyle or conversely you may need to reduce your expenses in some areas to live in the manner that you feel comfortable. The decision is up to you.