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Even with modest inflation rates of 2% to 3%, your $40,000 annual withdrawal from your $1 million nest egg won't stretch as far in 10 or 15 years as it did in your first year of retirement.
The problem with giving a general calculation of how long your specific retirement funds will last is that no rule will do this perfectly, including the 4% rule. Some drawbacks to the 4% rule include:
Running some different scenarios through a retirement calculator can help you estimate how long your money should last. Example #1: You have $1 million in savings and earn a 6% annual return ...
The 4% retirement rule doesn't account for investment fees or taxes. Investment fees charged by financial advisors or mutual funds can eat into your returns and shorten how long your portfolio lasts.
To calculate approximately how much interest one might earn in a money fund account, take the 7-day SEC yield, multiply by the amount invested, divide by the number of days in the year, and then multiply by the number of days in question. This does not take compounding into effect.
Your withdrawal strategy affects how long your money will last. For example, waiting until age 59.5 or later to withdraw money from an IRA or 401(k) means sidestepping early withdrawal penalties .
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Ensuring you have enough savings to last through retirement is a major financial goal. But for many retirees, the biggest concern is whether their retirement savings will last that long. Let’s ...