The “How long will my money last?” question is a common one that doesn’t have a simple answer.
It’s pretty typical to think, “I have, say, $1 million saved, and since I generally spend X number of dollars a month (or year), my money will last “this” long. That means, if I only live 15 years, and if I’m lucky and don’t have any big health issues, then I should be okay.”
I want to discourage you from looking at your retirement needs this way. Instead, I want you to think of the duration of your retirement as something that will be endless. You have no idea how long you are going to live, or how much money you are going to need, so there’s absolutely no reason to risk living uncomfortably 20 years from now because you budgeted your life thinking it would take you 15 years to spend $1 million.
IF you view your retirement as something that is going to last forever, then, by extension, your savings principal has to last forever, as well. And if your savings principal must last forever, then it isn’t necessarily the amount of money you’ve accrued, it’s what you do with the money you have that matters most.
You retire, but your work isn’t done.
Imagine your retirement as the continuation of your asset accumulation stage of life. True, you may not be working 9-5, but now you have a proxy (your savings and investments) going to work for you.
Ideally, when you retire, you’re working with a credentialed advisor to position your hard-earned savings to earn the income that supports you in the lifestyle you’ve determined you want.
You might wonder: “Yeah, but shouldn’t “X” numbers of dollars be enough?”
It should, but it usually isn’t. Here are 5 reasons why the old school thinking of just saving “X” number of dollars for retirement no longer applies, and why you need to work closely with someone who can help make your savings keep earning income long after you’ve retired.
1) Lifespans are increasing at an incredibly fast clip.
Modern medicine is keeping us alive and healthier longer than ever. If you merely divide your current expenses by your current (or projected) savings, you’re at risk of falling victim to one of the biggest fears of many retirees: outliving your savings. (40% of Americans over the age of 50 say that running out of money is their #1 retirement fear.)