How to make your money last in retirement

Generally, when people are asked how they want to live in retirement, they answer with two desires: to maintain their existing quality of life and to avoid running out of money. Access to good medical care goes without saying.

You may feel like you need a crystal ball to predict whether your money will last as long as you need it to, but there are some rules that can help you assess your retirement standing. Those are listed here, but first consider a few of the factors involved.

Starting assets

How much do you have in retirement? Remember to include any IRAs, 401(k) plans, savings accounts, home equity, inheritance, business ownership, etc.

The rate of return

The amount of money you receive from your investments can depend on your asset allocation and individual security selection, as well as your tax situation.

Spending in retirement

How much will you spend during retirement, and will it remain constant or vary over time? This includes essential expenses such as your power bill, and discretionary items like vacations, and depends on your lifestyle choices and health. It's important to make sure you don't go through your savings too quickly.

Guaranteed income sources

Guaranteed income includes the money you'll receive from Social Security, pensions, and sources like annuities, CDs or government-issued securities. Guaranteed income can provide stability and helps reduce the strain on other resources. Everyone needs a retirement income strategy.

Longevity

What is your estimated life expectancy, and are you planning for single or joint lives? Again, this depends on individual health.

Market cycles

If you have assets that depend on positive market conditions, consider the possibility of down markets.

Inflation

With all else being equal, inflation decreases the amount of goods and services you can purchase tomorrow using the same amount of money you have today. Inflation is hard to predict, but it's important to remember that the cost of services such as health care will likely rise in the future because of inflation.

Personal behavior

Will you be flexible enough to adjust your spending behavior and investment preferences over time?

Studies examining these factors have led to some general rules, which can vary based on individual circumstances, on how long your money may last. Using historical returns, these studies show that the probability of your money lasting at least 30 years into retirement tends to be favorable if you:

• Have some exposure to equities in your portfolio.
• Withdraw no more than 4% from your portfolio the first year for retirement spending and adjust the actual dollar amount for inflation each year thereafter.
• Spend less so your money may last longer. If you spend more, the reverse may be true.
• Take less risk with your investments and, all things being equal, your money may run out faster. Live longer than you think and ... oops!

Nevertheless, don't rely on these rules alone. Your retirement plan should depend on your unique circumstances. Keep in mind that good planning is an ongoing process, so you'll need to review and adjust your plan periodically.