How To Be Sure You Won’t Run Out Of Money In Retirement

Make sure you consider these five retirement factors when calculating how much to save for retirement.


Am I saving enough?

– anyone planning for retirement

To answer that question effectively, considered these five factors and their effect on how much you need to save between now and retirement.

Factor 1: Age

Two ages affect your retirement—your current age and the age you plan to retire.

The younger you are and the longer you plan to work, the more time you have to save, invest, and grow your money.

If you started saving for retirement later or are planning to retire earlier than the traditional age 65, you may need to contribute a larger percentage of your income now, because you’ll have less time to accumulate, invest, and grow your savings until retirement.

Immediate Step: I generally recommend saving 10–15% of your gross income to get started with your retirement savings. If you have not reached this minimum threshold, set a goal to increase your retirement savings over the next year to 10% of your household income.

Bottom line: The later you start, the more money from your current income you will need to contribute to retirement and the less you can rely on investment growth to help you accumulate enough savings to sustain your retirement expenses.

Factor 2: Longevity

How long you live once you retire will play a large role in whether or not you outlive your money.

Fifty years ago, most Americans lived about 10–15 years after retiring, which meant their money only had to last a relatively short period of time. Today, people retiring in their 60s are living until their mid-to-late 80s on average. That’s double the amount of time people need their retirement savings to last. Planning to save enough for your money to last potentially three decades is crucial in determining how much you need to save now on an annual basis.

Immediate Step: Begin considering your potential longevity in retirement, particularly if you have parents or grandparents that lived into their late 80s or early 90s, or if you are under 50 today. I recommend planning to save enough now to last a minimum of 20 retirement years.

Bottom line: If you don’t think you can save enough between now and retirement to sustain a 20-year retirement period, you may need to consider alternatives such as retiring later or reducing your lifestyle expenses (discussed below).

Factor 3: Lifestyle Expenses

Part of evaluating how much to save now requires you estimate how much you plan on spending in retirement. Be sure to keep in mind: you may need to sustain that lifestyle for 20+ years. Ask yourself if your current savings rate will allow you to accumulate enough money between now and retirement to produce the income needed to maintain your ideal retirement lifestyle.

If you plan on living the same lifestyle as you do now in retirement:
To estimate the gross annual income needed in retirement in today’s dollars, take your current gross income and remove your savings (and their tax benefits). Keep in mind, in retirement you will likely need to withdraw from retirement accounts, taxed at ordinary income rates, to obtain the net monies you need to live on. Bottom line: You’ll need to factor in the estimated tax on the gross amount to obtain the net income you need.

If you plan to spend more in retirement than you do now:
Maybe you plan on traveling or spending additional resources on other hobbies. If so, you will need to make sure you save enough now to pay for those additional costs.

If you are planning to reduce expenses and live on less than you do now:
Some retirees relocate to places with a lower cost of living, or they plan to pay off their mortgage before retirement so that additional monthly outlay is eliminated. If reducing expenses is part of your plan, make sure you put concrete numbers down and estimate what your lifestyle will cost so you can effectively plan your savings rates now.

Immediate Step: If you are not sure what your lifestyle is going to look like, begin calculating your required savings rates based on your current lifestyle. Assume you will plan to live similarly when you retire; this will give you a good baseline to begin planning. Once you’ve begun saving and accumulating wealth, then you can reevaluate whether you can expand your lifestyle in retirement, or if you may need to look into cutting expenses or working longer. (Check our our Budget Management page for more budget resources including a worksheet.)

Bottom line: If you don’t think you can save enough between now and retirement to sustain your current lifestyle over a 20+ year retirement period, you may need to consider alternatives such as retiring later or reducing your expenses in retirement.

Factor 4: Inflation

Inflation affects retirement planning by making the cost of goods more expensive over time; in other words, the value of your saved dollar decreases. Over your lifetime, this decrease in dollar value can have a significant effect on your retirement planning. Things will be more expensive in retirement, so you will have to save more money now to make up for the increase in cost.

Immediate Step: For projection purposes, I recommend using an inflation rate of 2–3% annually, an estimate based on the last decade of inflation rates. What that means is all your expenses between now and through your retirement will go up 2–3% each year. Inflate your expenses by this rate and ask yourself if your current savings rate is sufficient for this increase in retirement.

Bottom line: A cup of coffee in 1970 was $0.25; in 2019 it was $1.59. Remember, you will need to account for this cost of inflation on your lifestyle expenses when you are making retirement projections, and plan to save enough money to account for the increased cost.

Factor 5: Investment Returns

Make sure you consider not just how much you are saving today, but also how you are investing those monies along the way. Retirement planning relies on investing your savings over decades, and letting market growth help you accumulate enough money to live on in retirement.

Immediate Step: Investing is an area of expertise, so if you are not sure how to invest your money, consult with an investment advisor. For investors getting started, I recommend a straightforward strategy of either a target-date fund or an asset-allocation fund based on your projected retirement date (or risk tolerance). These funds are designed to diversify you based on your time-line and financial goals.

Bottom Line: Successful retirement planning requires not only that you save enough money, but that you also make appropriate investment choices along the way. If you don’t invest in a diversified portfolio designed to earn moderate returns over the coming years, you will have to save a lot more to end up with the same nest egg when your retirement comes.


As the old proverb goes, the best time to plant a tree was 20 years ago. The second-best time is today. Don’t wait to get on track. Planning for retirement now will make it easier and more successful! Don’t get caught playing catch-up with your retirement.

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