How Long Will My Money Last in Retirement?

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  • Your retirement needs will vary based on the age you retire, your life expectancy and the different expenses that you face in retirement. So, there's no one-size-fits-all solution for retirement planning.
  • Many experts recommend aiming for around 80% of your pre-retirement income.
  • It's important to find a safe withdrawal rate based on the amount of money you have saved and your long- and short-term retirement goals.

If you're lucky, your retirement will last for many years and be filled with family, travel and lots of new experiences.

But as you plan for your life in retirement, inevitable questions arise. How much income will you need and how much money should you save to hit that target? How can you anticipate how long your savings will last? And how can you tell if you're on track to reach your goals?

Unfortunately, there's no magic answer that fits every retiree. Even the most carefully considered retirement plans are somewhat of a guessing game because there's no way to know how long you might live after retiring. You also can't anticipate your medical needs or the other post-retirement expenses you might face.

Many retirement planners suggest being prepared to spend about 80 percent of your highest pre-retirement income per year after leaving the workforce. Most people live another 10 to 20 years after retirement, so it's important to think about the long term when planning how much to save.

To reach the 80% goal, experts suggest setting aside at least 15% of your annual pre-tax income for retirement. For example, if you earn $50,000 per year, it's a good idea to put around $7,500 per year toward your retirement savings. In this example the goal would be to end up with $40,000 in savings for every year spent in retirement.

The amount you save may also be adjusted depending on whether you will be receiving additional retirement income such as Social Security benefits or a pension.

What sources of income will you have in retirement?

During retirement, your earnings will be replaced by alternate sources of income. These might come from government programs or from your own retirement planning. Common sources of income in retirement include:

  • Social Security. Social Security is a government-administered insurance program that acts as the main source of income for many retirees. Throughout your career, part of your income is paid toward Social Security taxes. In return for these contributions, Social Security benefits replace a portion of your income when you retire. The amount of money you receive each month depends on your previous earnings, as well as the number of years you spent contributing to the Social Security program.
  • Pension. Some retirees will also enjoy a pension plan, also known as a defined benefit plan. A pension is a retirement arrangement in which an employer agrees to pay an employee a certain amount of money each month for the rest of the employee's life. These payments are like a thank you for the employee's many years of service. The monthly amount depends on the employee's years of service and their salary prior to retirement. Pensions are much less common retirement options today than they were in years past. Check with your human resources department to see if your company offers pension plans.
  • 401(k). Unlike pensions, many employers today offer a 401(k) retirement savings plan. In 2022, you can contribute up to $20,500 of your pre-tax income to the plan if you're under age 50, and up to $27,000 if you're aged 50 and older. You may want to take advantage of a 401(k) plan, especially if your employer offers a matching contribution. The retirement income that results from employer contributions is essentially free money and can really add up over time.
  • Individual Retirement Account (IRA). An IRA is a retirement savings plan that allows you to contribute up to a maximum amount of money each year. In 2022, you can make combined contributions of up to $6,000 to one or more IRA accounts if you are under age 50, and up to $7,000 if you are aged 50 and older. Depending on your income and other circumstances, some or all of your contributions to an IRA may be tax-deductible. It's also important to note that there are several types of IRAs—including traditional, Roth and SEP—that each have different requirements and tax implications. You can open an IRA account with your bank or investment management firm, and the money you save will be available in the form of distributions once you reach age 72 (70-½ if you reach 70-½ before January 1, 2020).
  • Other income. You might also have other miscellaneous sources of income, such as brokerage accounts, traditional savings accounts and certificates of deposit.

Withdrawing money in retirement

When determining how long your money will last in retirement, it's important to think about the rate at which you will withdraw your funds. Retirees should aim to find a safe withdrawal rate, meaning a percentage of your savings that you can withdraw each year of your retirement without running out of money.

As with all retirement planning, the exact answer will vary from person to person. However, experts generally recommend withdrawing no more than 4% to 5% of your savings in the first year of retirement. In the years that follow, adjust your withdrawal amounts to account for external factors such as inflation or fluctuations in the stock market.

Also, be sure to consider how your personal goals in retirement may affect the rate at which you withdraw money. For example, many people aim to travel or pick up a new hobby during retirement. If your intent is to travel while you're still in good physical health, you might choose to withdraw more in the years shortly after you retire and reduce that amount as your travel tapers off.

How can you better prepare for retirement?

Your retirement plan will continue to evolve along with your career, so be sure to keep tabs on your progress. If you're unsure of where you stand or find yourself falling behind your savings goals, consider these strategies to help keep your retirement savings on track:

  • Build your savings steadily and stay up to date on your progress. Saving for retirement is a marathon, not a sprint. If you aren't saving money already, it's important to start as soon as possible to give your savings time to grow. If you are saving, be sure that you monitor your progress so that you can stay on track.
  • Take advantage of employer-sponsored retirement plans. Employer-sponsored retirement benefits such as 401(k) matching can be powerful savings tools. If you have access to a 401(k) account, be sure to take full advantage of employer contributions and other benefits.
  • Make a list of your goals for retirement and the funds needed to get you there. When are you hoping to retire? What do you want to do in your free time? Will you be funding your retirement from your income alone or are you planning with a spouse or partner? Keep a list of your answers to these and other retirement questions and revisit them regularly. Having a defined idea of how you'd like to spend retirement—and how those goals change over time—will help guide your planning process.
  • Don't forget to update your plan as you age. Planning for retirement as a single person with no children will look very different from planning for retirement with a spouse and kids. As you enjoy major life events such as getting married, having children or starting a new career, be sure to update your retirement plan accordingly.

Your life and career are ever-changing, and your retirement plans should be as well. Once you master the basics of building your savings plan, it's equally important to check your progress regularly and adjust where needed. Don't be afraid to update your plans from time to time so that you can feel confident that your savings will last throughout retirement.

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