At some point, everyone considering retirement has to ask themselves how long their money will last once they are retired. For example, if you’re wondering what it means to have $100,000 in savings, there’s a straightforward way to find out by evaluating several key items.

To be clear, there are many factors that affect how long your money will last. What it means to retire on $100k will depend on how you manage and spend that money. Talking with a Certified Financial Planner® can help you answer the question of how to make retirement money last.

Rate of Return

The rate of return on your retirement funds will necessarily have a significant influence on how long your retirement savings will last. This is the first item on our list: this is one of several key factors that will necessarily determine how to make your retirement savings last. Answering this question may take some time and careful analysis. If you have a 401(k) and you’re asking, “how long will my 401(k) last when I retire?” it’s probably a good idea to talk to your employer and get all relevant financials. Talking to a Certified Financial Planner® can also help you to answer that question with greater clarity and specificity.

One thing to keep in mind is that some investments are safer than others, and the profitability of any investment may rise or fall over time. Investments like certificates of deposit (CDs) and government bonds have long been safe, but at present interest rates are low so these are less profitable.

Stocks are subject to market risk and more volatile than CDs or bonds, but can potentially produce higher returns over time. In addition to investing in individual company stocks, you can also consider Exchange Traded Funds (“ETF”s), which are low cost funds designed to mimic the performance of certain market indices, such as the S&P 500. ETFs are a cost effective way to invest in a diversified portfolio without having to buy many individual stocks. What all of this means is that it’s a good idea to plan with both a best-case and a worst-case scenario in mind. A Certified Financial Planner® can help you to determine an investment strategy that matches with your appetite for risk and timeframe for investing.

Sequence of Returns

Another factor to consider is the sequence of returns, that is to say the order in which you experience good, mediocre, or poor returns on investment. This is also called sequence risk: the risk is that you’ll have bad luck early on, when you can least afford it.

Consider a situation in which you retire, and during your first five years all your investments do poorly or mediocre at best. In this situation, you may have to withdraw some of your principal to help cover living expenses. Even if things turned around for you in the five years after that, and all your investments did very well, you’d still be working with a smaller principal than you would have had if things had gone better for you in your first five years.

On the other hand, let’s say that during your first five years everything goes very well for your investments. Without exception, every one of your investments performs in a way that exceeds expectations. These five successful years add to your total wealth, giving you more than enough to live on even as your principal grows.

In the second scenario, you’d be in a better position to weather five years of poor returns on investment. Put simply, it’s easier to weather five bad years after you’ve had five excellent years.

Conversely, the benefit that you’d derive from five excellent years is less if you had five bad years first. This sequence of returns risk can be mitigated through diversification of your investments, and by regularly checking in with your Certified Financial Planner® to ensure you are remaining on your retirement course.

How Much You Withdraw

What it means to retire on $100k will also depend on another crucial factor: how much you withdraw. How much you withdraw on what time schedule determines your withdrawal rate: if you have $100k and you withdraw $5k a year, your withdrawal rate is 5 percent.

The question, then, is what a sustainable withdrawal rate looks like for you. A variety of studies put that number between 3 and 5 percent a year, but this depends on how the money is invested as well as other factors governing its use.

Keep in mind, too, that you will likely need to withdraw more money in some years. Your expenses will likely vary from year to year for a variety of reasons, including healthcare costs, and when you take Social Security will also have an effect.

How Much You Spend and When You Spend It

When you are thinking about the question of how long your retirement savings should last, keep in mind that how much you spend and when also matters a great deal.

Let’s take an obvious example: if you prefer to buy used cars and keep them running as long as possible, your money will last longer than if you bought a new car every few years.

What about housing? Even if your house seems to be in excellent shape now, that doesn’t mean you won’t need to make major repairs at some point, perhaps a few years down.

And let’s not forget healthcare. Unfortunately, this is one area where your expenses may go up in a hurry if you have an unexpected emergency.

Inflation

Inflation is another thing to consider. Rising prices will translate to lower purchasing power for your retirement savings in the future. How much of an impact this will have on you depends not only on how much you have saved, but also depends on your buying patterns.

Many retirees change their buying patterns, purchasing fewer items after about age 75. This means that inflation has less of an effect on them: they are spending less, particularly on travel, shopping, and eating out.

Inflation also has less of an impact on higher-income households: they have plenty of money, and if they have to, they can always make some adjustments to purchasing patterns. Where inflation has a more significant impact is with lower-income households, who have less purchasing power and less leeway to cut their budgets.

Health Care Expenses

Health care expenses are another factor, one we’ve already touched on, that can affect how long your retirement savings will last and what it means to retire with $100k. While Medicare can provide you with significant help, Medicare is not free and it does not cover all health-related expenses.

It’s a good idea to plan to purchase additional health insurance, such as a Medigap or Medicare Advantage plan. While no one can perfectly predict what their health care costs will be, it is a good idea to try to estimate them as best you can. If you assume that they will be high and plan accordingly, you’ll have more leeway if they end up not being so high. That’s a much better situation than the reverse, not planning and then coming up short.

Life Expectancy

Life expectancy is another variable to consider. It’s a good idea to plan for a long life and conserve your resources as best as you can – as with planning for health care spending, this is a better scenario than failing to plan and coming up short. After all, with constant improvements to health care, nutrition, and medications, people are living longer on average.

If you’re married, how you both plan for retirement and what each of your longevity ends up being will also have an effect on the surviving spouse. If there’s a significant age difference, it’s worth making a financial plan for the younger spouse based on their life expectancy.

Conclusion

When you are planning for retirement, there are a number of factors to be considered to determine how long your money will last. What you have saved, your rate of return and sequence of returns will largely determine how much money you have to work with, while your spending patterns will largely determine how long that money lasts when and as you get it.

There is a great deal of complexity and uncertainty involved in planning for retirement, and best- and worst-case scenarios to consider. A Certified Financial Planner® can help you to simplify this complexity, make sense of your financial situation, and see more clearly what your options are and how best to plan.

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