Retirement: How Many Years Should You Prepare For?, by Aaron Steele

The goal of every retiree or any individual planning retirement is to enjoy and do whatever they want without running out of money. Unfortunately, that’s the most challenging aspect of retirement planning, as you have no idea how long the money you have in your retirement account will last.

Since you can’t possibly determine how long you’ll live, it’s hard to ascertain the number of years to plan for retirement. But of course, some data gives the average life expectancy, which can help you get an idea of how large your retirement nest egg should be.

How Many Years of Retirement Should You Plan For?

As mentioned above, it’s quite challenging to estimate the number of years an individual will live after retirement. According to J.P. Morgan and data showing the probability of men or women aged 65 and above living to specific ages, people in these age ranges have the following probabilities.

  • A man who is 65 and above has a 79% chance of living until age 75, while a woman within the same age range has an 86% chance.
  • The chances of living up to age 80 are 63% for men and 73% for females.
  • There’s a 44% chance of a man to make it to age 85, compared to women at 58%.
  • Making it to age 90 is 23% likely for men, while women have a slightly higher chance of 34%.
  • Men have a 7% chance of reaching age 90, compared to 14% for women.
  • There’s a 1% chance of a man celebrating his 100-year birthday, and 3% for women.

Since there’s a 25% chance that you may live up to age 90 (both men and women), it would be ideal to plan for 25 years in retirement (25 years after you retire at age 65). 

This will affect your retirement planning for the following reasons.

  • You’ll need to plan far ahead if you live to age 95 or above 100 years old.
  • Consider the impact of inflation within the 25 years, as it might mean having to make higher withdrawals to meet your expenses.
  • Inflation has eroded one-third of the value of Social Security, thereby reducing the purchasing power. So you may be more reliant on the savings in your retirement account.

To address these factors and prepare for 25 years or more of retirement, you need to adopt a safe withdrawal strategy. With the right approach, your money will last you for your entire lifetime, even if you become a centenarian. 

There are several strategies you can adopt. You can withdraw 4% in your first year of retirement and increase the amount based on inflation annually. 

How to Ensure Your Money Lasts

Choosing a withdrawal method when in retirement will help you better manage your available cash. However, deciding on the ideal method beforehand will clarify the amount you need to save. For instance, if you opt for the 4% rule, you can determine how much you need to save monthly or annually to meet up to 25 years or more of expenses.

If your annual expenses total $40,000, you need to have $1 million in your retirement account before retirement. So whether you have 5 or 20 years before you retire, take some time and research your options. 

Picking a suitable withdrawal strategy is an essential part of your retirement planning. The best way to ensure you have enough for the rest of your life is to choose a withdrawal method and build your retirement account around that. 

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