How Long Will Your Retirement Nest Egg Last? (You’ll Be Surprised)

As you may know, the average person has not saved very much for retirement.

For this newsletter however, we are going to assume that those who read it have diligently saved and will have $500,000 in savings by the time they retire.

This is meant to get you thinking about how long a saved-up retirement nest egg will last. Here’s a hint: not as long as you think.

If you are 65-years old and have saved $500,000, and you want to withdraw $30,000 a year from the account, how long will it last?

With NO Growth and a $30,000 withdrawal, you run out of money at age 79.

With a 3% rate of return and a $30,000 withdrawal, you run out of money at age 82.

With a 6% rate of return, and a $30,000 withdrawal, you run out of money at age 90.

This should scare you. A 65 year-old couple has a 45 percent chance -- almost 50-50 -- that one of them will survive to age 90.* There’s a 25% chance that a 65-year-old man will live to 93; a 25% chance that a 65-year-old woman will live to 96; and for a couple 65 years old, there’s a 25% chance that the surviving spouse lives to age 98.**

Do you know what kind of investment risk historically you’d have to take in order to generate a 6% average rate of return over time?

If we look back only 12 years, you’d have to risk a stock market loss in excess of 20%.

What happens if the year you retire you sustain a 20% loss instead of a 6% gain? Then you’d run out of money at age 83 (assuming all future years generated a 6% rate of return).

What is a guaranteed income for life worth?

The age-old debate in the financial services industry is whether it’s better to have clients invest their money in a properly balanced mix of stocks, bonds, mutual funds, etc. while in retirement, or they should be using “guaranteed income for life” annuities for some or a good portion of their money.

It’s a difficult discussion. When you use fixed annuities, you get a “guaranteethat you will never run out of money.

Using my example, if you put $500,000 in the best guaranteed income annuity for the life of both spouses (meaning it will pay until both spouses die), the couple could receive an annual income of about $28,000 for the rest of their lives.

When you invest in stocks/bonds/mutual funds, etc. the upside growth potential is much higher, but the chances of a stock market crash are very real.

When you couple the danger of a stock market crash with the chances that you or a spouse will live well into your 90s, it makes for a very compelling reason to strongly consider looking at guaranteed income for life payments when planning for retirement.

You give up potential for growth, but you get to sleep at night knowing that you will never run out of money no matter how long you live.

So, I’ll ask the question again, what is a guaranteed income for life worth?

If you would like to discuss fixed products that will guarantee you an income for life and whether they may fit into your retirement plan, please feel free to email us at info@twpfinancial.com

* https://www.cbsnews.com/news/living-too-long-is-a-risk/
** https://www.usatoday.com/story/money/columnist/powell/2016/10/05/life-expectancy-actuaries-live-die-retire-retirement/89407296/
Past performance is no guarantee of future results.