There’s no getting around the fact that there’s a retirement savings shortfall in America. Perhaps even worse, many Americans aren’t even aware of the state that they are in.
According to the Schroders 2025 U.S. Retirement Survey, a whopping 62% of respondents admit that they have no idea how long their savings will last. To some degree, they can’t be blamed. No one knows with any certainty how long they will live or the exact investment returns they will earn.
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Since these are two important factors in how long retirement savings will last, it can admittedly be hard to come up with a precise determination. But not being able to perfectly forecast the duration of your retirement savings is a far cry from having no idea how long your savings will last.
Here are some of the variables that you can estimate to keep you in the ballpark.
To start your calculation, first account for all of your sources of retirement income. Depending on your personal situation, these might include a pension, 401(k) plan, IRA, personal savings, annuities, or even a part-time job or side gig.
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Determining how much money you’re going to spend is one of the critical variables of retirement planning. Fortunately, it’s also the one you have the most control over.
The general rule is that you should budget between 70% and 80% of your pre-retirement spending after you retire, but this estimate can vary greatly from person to person.
If you plan on living the high life after you retire, more power to you! But be sure to bump up your estimated expenses to get a more accurate reading as to how long your money will last.
Whatever the shape your nest egg takes, you’ll want to invest it if you plan on extending its lifetime.
If you simply keep your retirement savings in a bank account, you could run through that money quite quickly. But if you invest it and earn a 4%, 5%, or even 6% annual return, your money could last you years longer.
Imagine you plan on spending $60,000 per year in retirement and have $20,000 per year coming in from Social Security and pensions. This means your personal savings, including your retirement accounts, will have to make up that $40,000 annual shortfall.
If you have $320,000 in savings, that money will run out in just eight years if you don’t earn a return on it. But if you can generate a 5% return annually, your money will last more than 30 years.