How Long Will $400k Last in Retirement?

Data from the Federal Reserve shows that the median savings in the United States for those in their 70s is $436,144 ¹ . That means if you have $400,000 at retirement, you’re very close to the mark. However, how long will this money last? The answer all depends on your investment allocation, spending habits and income streams. When making your retirement plan, these considerations can help you determine if you can live the retirement you want on $400,000.

A financial advisor can help you determine when to retire based on your retirement needs and goals.

How to Determine Your Assets and Available Income Streams

Your overall assets and income streams will largely impact how long you can reasonably expect your retirement funds to last. Every source of retirement income will reduce the amount you need to withdraw from your portfolio.

There are multiple ways to create multiple income streams.

• Social Security benefits
• Pensions
• Part-time income
• Rental income
• Royalties
• Dividend income
• Interest income
• Inheritances
• Profit from a business sale or property sale

In addition to your $400,000 retirement savings, you may also have assets that can be used to supplement your income at a later date, including these.

• Home equity. You can refinance your home’s equity to reduce your mortgage. You can also sell the property and purchase a smaller home in an area with a lower cost of living, reducing your overall expenses.
• Real estate. Other real estate properties, such as vacation homes or second homes, may be sold or rented.
• Vehicles. You may consider selling a second vehicle if you will no longer require two for retirement.
• Recreational equipment. Recreational equipment, such as boats, travel trailers, ATVs and snowmobiles, may be sold or rented when not in use.

Taking stock of your assets can help you identify new potential income streams, enabling you to better plan for your retirement expenses.

Determine Your Desired Expenses

You’ve worked your entire life, and now it’s time to reap the rewards. While you want to make sure that your future self is cared for, you also need to enjoy what you’ve worked for.

The realities of aging are hard to face, but there may come a time when you can no longer climb into a Venetian gondola or strap in for a whitewater rafting trip. The time to complete your bucket list isn’t when you’re reliant on a wheelchair in your nineties, but when you finally have the time, money and health to enjoy it.

Splurge a little, but track your overall spending to ensure it’s spent on what truly matters to you the most. Balancing your desires for a rich life in your sixties shouldn’t come at the cost of being unable to afford the cost of home health care in your eighties.

Traditionally, financial advisors have agreed that the average retiree needs to replace 80% of their pre-retirement income with savings and Social Security benefits. However, newer research from the University of Michigan’s Retirement and Disability Research Center suggests that retirement spending declines over time across all socioeconomic levels ² .

You still need to keep money set aside, but you may not need to anticipate spending 80% of your pre-retirement income every single year of retirement.

Find a Safe Withdrawal Rate

It can be difficult to determine a safe long-term withdrawal rate for your investments.

Expert opinions vary, but the 4% rule is widely accepted among experts and retirees alike. This involves withdrawing 4% annually from a well-diversified retirement portfolio and adjusting your 4% withdrawal for inflation each year. With this, you can usually expect your money to last for at least 30 years.

Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. With estimated monthly Social Security checks of $2,000, you will have a combined annual income of $40,000 in retirement.

This may not be enough to fund your current lifestyle, so you may need to adjust your priorities and expenses. If readjusting your expenses isn’t possible, you may consider additional income streams, such as liquidating assets or developing rental income streams. You may also find meaningful part-time work.

If you withdraw too much from your portfolio at the beginning of retirement, your investments won’t have room to grow, and your retirement assets will be impacted significantly. While you can expect to spend less later on, you should still be careful.

Working with a financial advisor can help you understand how today’s large portfolio withdrawals will affect your financial health in retirement.

Tips for Making Your Retirement Savings Last Longer

Planning for retirement is crucial to ensure financial security in your golden years. However, stretching your retirement savings requires strategic planning and informed decision-making.

These five steps for retirement planning can help.

Create a Detailed Budget

Making a comprehensive budget is essential for effectively managing your retirement savings. By tracking your expenses and income, you can identify areas to cut costs and allocate funds more efficiently. This proactive approach helps prevent overspending and ensures your savings last longer.

Diversify Your Investment Portfolio

Diversifying your investments can protect your savings from market volatility. By spreading your investments across various asset classes, such as stocks, bonds and real estate, you reduce the risk of significant losses. A well-balanced portfolio can provide steady growth and income throughout your retirement.

Delay Social Security Benefits

Delaying your Social Security benefits can significantly increase your monthly payments. For each year you delay benefits past your full retirement age, your benefits increase by a certain percentage. This strategy can provide you with a higher income later in life, helping your savings last longer.

Consider Part-Time Work

Working part-time during retirement can supplement your income and reduce the need to draw from your savings. This additional income can cover daily expenses, allowing your retirement funds to grow or remain intact for future needs. Plus, part-time work can provide social interaction and a sense of purpose.

Review and Adjust Your Withdrawal Rate

Regularly reviewing your withdrawal rate is crucial to maintaining your savings. A common rule of thumb is the 4% rule, but personal circumstances may require adjustments. By carefully managing your withdrawal rate, you can ensure your savings last throughout your retirement.

By implementing these strategies, you can make your retirement savings last longer and enjoy a financially secure retirement. Remember, the key is to plan, stay informed, and make adjustments as needed to align with your financial goals.

How an Advisor Can Help Create a Lasting Retirement Plan

A $400,000 nest egg can support a comfortable retirement, but only with the right strategy in place. A financial advisor helps you build a plan that balances income, growth and protection so your savings go as far as possible.

Withdrawal Rate

The first thing an advisor will address is how much you can safely withdraw each year. The commonly cited 4% rule suggests withdrawing $16,000 annually from a $400,000 portfolio, but that figure alone is rarely enough to live on. An advisor will look at your full income picture, including Social Security, pension and total assets, to calculate a safe withdrawal rate that meets your actual needs without depleting your savings too quickly.

Social Security

Coordinating your withdrawal strategy with Social Security is one of the most impactful moves an advisor can help you make. If $400,000 can cover expenses in the early years of retirement, delaying Social Security even a few years could significantly increase the monthly benefit for the rest of your life. This increased benefit considerably reduces the long-term pressure on your portfolio.

Investments

An advisor will also help you invest your savings to balance income and growth. Keeping too much in cash or low-yield instruments protects against short-term losses but leaves your portfolio vulnerable to inflation over a 20- or 30-year retirement. A well-structured allocation ensures your money continues working for you throughout retirement, not just in the early years.

Tax Efficiency

Tax efficiency is another area where an advisor can stretch your savings further. Strategically sequencing withdrawals across taxable, tax-deferred and Roth accounts can reduce your annual tax burden and leave more money in your pocket each year. Over a long retirement, those savings compound into a meaningful difference.

Healthcare Costs

Healthcare costs are among the most unpredictable expenses retirees face, and they deserve a dedicated place in your plan. An advisor will help you budget realistically for Medicare premiums, supplemental coverage and potential long-term care needs so that a large medical expense does not derail an otherwise sound strategy.

Bottom Line

Determining how long $400,000 lasts in retirement is a crucial consideration for anyone planning their financial future. The longevity of your retirement savings largely depends on several factors, including your lifestyle choices, healthcare needs and investment strategies. Ultimately, careful planning and regular reassessment of your financial strategy are essential to ensure your retirement savings last as long as you need them. By staying informed and adaptable, you can better navigate the complexities of retirement planning and enjoy a financially secure future.

Retirement Planning Tips

• A financial advisor can help you create a financial plan for your retirement needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you want to know how much money you will have by retirement, SmartAsset’s free calculator can help you get an estimate.

Photo credit: ©iStock/South_agency, ©iStock/staticnak1983, ©iStock/Luke Chan