The Most Important Principle to Know About Retirement: How Much Money Can I Expect to Live Off Each Month?

Retirement is one of life’s most significant milestones, and knowing how much money you can  expect to live off each month is crucial to ensuring a secure and enjoyable future. Whether you’re  nearing retirement or just beginning to plan, understanding this principle is key to making the most  of your golden years. This article will help you navigate these important decisions by exploring the relationship between your monthly expenses and the assets you’ve accumulated over the years. 

Before diving in, it’s important to note that the following analysis does not account for Social  Security benefits, pensions, or other potential income streams. These sources of income can play a  significant role in your retirement and should be factored into your personal financial planning. 

Understanding the Basics: Expenses, Assets, and Withdrawal Rates 

To determine how much money you can live off each month in retirement, you need to consider  three main factors: 

1. Monthly Expenses: The amount you plan to spend each month in retirement. 2. Assets: The total savings and investments you have at retirement. 

3. Withdrawal Rate: The percentage of your assets you withdraw each year to cover your  expenses. 

Let’s start by examining a specific scenario. 

Scenario: $3,000 Monthly Expenses and $500,000 in Assets 

Imagine you’re retiring at 65 with $500,000 in assets and expect to live until 90. You estimate that  you’ll need $3,000 per month before social security and or a pension to cover your expenses. Here’s  how this scenario plays out: 

• Monthly Expenses: $3,000 

• Annual Expenses: $3,000 x 12 = $36,000 

• Retirement Duration: 25 years (from age 65 to 90) 

• Initial Assets: $500,000 

• Expected Rate of Return: 4% annually (adjusted for inflation) 

Calculating the Withdrawal Rate 

To cover $3,000 in monthly expenses, you need to withdraw $36,000 annually from your $500,000  nest egg. This results in an initial withdrawal rate of 7.2% ($36,000 ÷ $500,000). 

As financial advisors we often recommend a withdrawal rate of around 4-6% to help ensure your  savings last throughout retirement. A 7.2% withdrawal rate is considerably higher, which raises  concerns about whether your assets will last the full 25 years.

How Long Will Your Assets Last? 

Using a 4% annual return assumption, let’s see how your $500,000 in assets would hold up: Year 1: 

• Starting Assets: $500,000 

• Withdrawal: $36,000 

• Remaining Assets: $500,000 - $36,000 = $464,000 

• Interest Earned (4%): $18,560 

• Ending Assets: $464,000 + $18,560 = $482,560 

Year 2: 

• Starting Assets: $482,560 

• Withdrawal: $36,000 

• Remaining Assets: $482,560 - $36,000 = $446,560 

• Interest Earned (4%): $17,862 

• Ending Assets: $446,560 + $17,862 = $464,422 

Following this pattern, your assets will continue to decrease each year. With a 7.2% withdrawal  rate, your $500,000 could be depleted in about 19 to 20 years—leaving you with a potential shortfall  if you live until 90. 

Exploring Different Scenarios: What If Expenses or Assets Change? 

To better understand how different factors affect your retirement, let’s look at what happens when  you change your monthly expenses or initial assets. 

Scenario 1: $500,000 in Assets

Scenario 2: $750,000 in Assets

Scenario 3: $1,000,000 in Assets

Filling the Gaps: The Impact of Additional Savings

If your assets and expected withdrawal rates suggest that your funds might not last throughout

retirement, additional savings can help fill the gap. Even modest monthly savings can make a

significant difference over time.

Impact of Additional Monthly Savings

Assume you start saving an additional $100, $500, or $1,000 each month at age 55 and continue

until retirement at age 65, with a 4% annual return:

These additional savings can extend the life of your retirement funds, reducing the need for higher  withdrawal rates or allowing for a more comfortable retirement. 

It's Never Too Late 

If you’re feeling uncertain about your retirement readiness, take heart—it's never too late to make a  positive impact on your future. Whether you’re a decade away from retirement or just a few years  out, there are steps you can take to improve your financial situation. Increasing your savings, 

adjusting your spending habits, or making strategic investment decisions can all contribute to a  more secure and enjoyable retirement. Even small changes can add up over time, helping you fill  any gaps in your retirement plan and providing you with greater peace of mind as you approach this  exciting chapter of life. 

The Value of Hiring a Financial Advisor 

The five to eight years before retirement are some of the most critical in your financial life.  Decisions made during this period can have a profound impact on your retirement security. Hiring a  financial advisor during this time can be the key to optimizing your retirement strategy. 

An advisor can help you: 

• Analyze Income Sources: Including Social Security and pensions. 

• Adjust Investments: To balance growth and protection as retirement nears. • Plan Withdrawals: To minimize taxes and maximize the longevity of your assets. • Create a Comprehensive Retirement Plan: Tailored to your specific needs and goals. 

By working with an advisor, you can ensure that you’re making the most of your savings, preparing  for all eventualities, and entering retirement with confidence. 

Please reach out to us at Intermountain Wealth Management if you feel you question whether or not  you have enough to retire. 

Conclusion 

Understanding how much money you can expect to live off each month in retirement is the most  important principle to grasp as you plan your future. By considering your monthly expenses, assets,  and withdrawal rates, and by taking steps to fill any gaps with additional savings or professional  guidance, you can secure a comfortable and sustainable retirement. Don’t leave your financial  future to chance—plan wisely and seek the help of a financial advisor to make the most of your  retirement years. Remember, it’s never too late to make a difference in your financial future. 

Intermountain Wealth Management is a Registered Investment Adviser (RIA). The company  manages several fee-based portfolios comprising various equity and fixed-income investments that may include stocks, mutual funds and exchange traded funds. Intermountain Wealth  Management serves as a fiduciary to all clients. Intermountain Wealth Management is also an  ERISA 3(21) fiduciary. This is not a prospectus or an offer to sell any security. Please read the  prospectus of any investment before you invest. The information included here is intended for  education and information purposes only.

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