Ensure Your Money Lasts

published 1 April 2003

The key question for most retirees is, "Will my money last as long as I do?" This table from Taking Charge of Your Retirement, by Deena Katz, will help you with the answer by showing you how long a pool of assets will last depending on the earnings rate of the pool and how much you withdraw each year. The table assumes that your initial withdrawal increases each year to keep up with an inflation rate of 3%, the historical average.

Here is how to get ready to use the table:

Calculate your annual income shortfall. Begin by adding up annual expenses. The table does not take taxes into account, so factor them in by adding the estimated amount you'll owe -- on interest, dividends and taxable withdrawals from retirement plans -- to your expenses.Now subtract social security and pension benefits and other steady income you receive. A married couple can combine data. (If you're still on the job, estimate what you'll receive when you retire.) The difference is your shortfall.
Add up your nest egg. This is the total you have (or expect to have) in IRAs and Keogh, 401(k) and other company plans. Add any other savings designated for retirement, including any cash you expect to pocket if you sell the family home.
Divide the income shortfall by the total of your investments and multiply by 100 to find your withdrawal rate.For example, if your nest egg is $700,000 and you have a shortfall in annual retirement expenses of $29,000, divide $29,000 by $700,000 and multiply the answer by 100. The result -- a bit over 4% -- is your withdrawal rate.
Then find 4% in the left column and read across the row to see how long the pool will last at different earnings rates. For example, if your pretax rate of return is 7%, your assets will last more than 50 years.And that's great news.It means you can afford to improve the quality of your life. You could start with a 5% withdrawal rate ($35,000 instead of $29,000) and still expect the money to last 36 years, assuming a 7% annual return.

How Long the Money Will Last (in years)

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Withdrawal	Rate of Return
1%	2%	3%	4%	5%	6%	7%	8%	9%	10%	11%	12%
12%	7	8	8	8	8	9	9	10	10	11	12	13
11	8	8	9	9	9	10	10	11	12	13	14	15
10	9	9	10	10	10	11	12	13	14	15	17	19
9	10	10	11	11	12	13	14	15	16	18	21	26
8	11	11	12	13	14	15	16	18	20	24	30	*
7	12	13	14	15	16	18	20	22	27	36	*	*
6	14	15	16	18	19	22	25	31	44	*	*	š
5	17	18	20	22	24	29	36	*	*	*	š	š
4	20	22	25	28	33	42	*	*	*	š	š	š
3	25	28	33	39	*	*	*	*	š	š	š	š
2	35	40	50	*	*	*	*	š	š	š	š	š
1	*	*	*	*	*	*	š	š	š	š	š	š