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Monday, May 2, 2011

How Long Will Your Money Last?

Running out of money is the number one concern of retirees. The probability of that occurring, and figuring out how much is needed to retire in the first place, has turned into a national past-time with the oncoming so-called "gray tsunami" of retiring baby boomers. At least it has for about 50% of the workforce. Apparently the other half is going to wing it. In any event, there is a neat little calculator for those seeking a ball-park estimate to this question produced by FIRECalc that DIY Investor came across at Free Money Finance.

This calculator starts out very simply and requires a portfolio amount and an assumed spending amount as shown:
 DIY Investor put in the portfolio amount of $1,000,000 and a spending level of $40,000 to test the 4% rule of thumb. Upon clicking "submit," FIRECalc returns a series of paths graphically. The result is that spending 4% on an inflation-adjusted basis would have been successful, i.e. the retiree would not have run out of money, 94.6% of the time based on 111,  30-year periods .

Just this simple step used in conjunction with expected Social Security, and maybe a possible pension, can start to give a retiree a good idea if his or her nest egg is close to being able to produce the desired income. The FIRECalc tool allows for more sophistication, as well, for those wanting to put in their own assumptions. Just click the tabs on the home page:
Note, for example, that you can put in the fees you pay on your investment portfolio, making the investment return calculation more realistic. You also can add Social Security and lump sum payments.

The end result is a graph that shows all the possible paths that gives a nice visual to understand the chance for success based on historical data.

FIRECalc's philosophy is straightforward:

If your retirement strategy would have withstood the worst ravages of inflation, the Great Depression, and every other financial calamity the US has seen since 1871, then it is likely to withstand whatever might happen between now and the day you no longer have any need for your retirement funds.


  1. Every retiree must do this calculation! It is good that there are tools such as this one (excellent find Robert!) to do that for you.

  2. @MoneyCone Thanks. Of these types of calculators I think this is one of the better ones for DIYers.

  3. Great stuff Robert!

    I'm going to link to this one as well.