Rate of Return
The rate of return you achieve on your savings and investments will significantly affect the longevity of your money. There are long periods where safe investments (like certificates of deposit and government bonds) yield a good interest rate and periods where interest rates are very low. The same applies to stocks.
Sequence of Returns
When you withdraw money from accounts, the sequence of returns matters, meaning the order in which returns are realized. This is referred to as sequence of returns risk.
Amount Withdrawn
Traditional retirement plans rely on something called the withdrawal rate. For instance, if you have $100,000 and withdraw $5,000 annually, your withdrawal rate is 5%. Much research has been conducted on sustainable withdrawal rates – that is, the amount you can withdraw without running out of money over your lifetime.
How Much You Spend and When You Spend
One of the biggest retirement mistakes people make is underestimating what they will spend in retirement. People forget that they may incur home repair expenses every few years. They forget the need to buy a new car occasionally. They also forget to include major healthcare expenses in their budgets.
Inflation
Things definitely cost more now than they did 20 years ago. Inflation is real. But how much does it impact the longevity of your money in retirement?
Healthcare Expenses
Healthcare in retirement is not free. Medicare may cover some of your medical expenses, but certainly not all. On average, you can expect Medicare to cover about 50% of the health-related expenses you will incur in retirement.
Your Life Expectancy
On average, you can expect to live into your mid-80s. But remember, no one is average. The larger half of people live longer than average. And sometimes, much longer. It’s wise to build your retirement plan assuming that you will live longer than average.
Source: https://www.thebalancemoney.com/making-money-last-in-retirement-2389049
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