How Long Your Retirement Savings Last

Retirement Income

Written by Vid Ponnapalli, MS, CFP®, EA

Vid Ponnapalli is a Fee-Only financial advisor providing Customized Financial Planning, Investment Management, and Tax Services for Busy Professionals in New Jersey, New York City, and across the country.

July 5, 2018

recent CNBC article suggested that a $1 million retirement nest egg doesn’t go as far as you might think. However, few of my prospects/clients – married couples (empty nesters) in their early fifties – argued with me differently. They believed a $1 million Retirement nest egg (in their 401(k)s and IRAs) could sufficiently produce required Retirement Income by following the 4% withdrawal rule.

Neither of them is right – in my opinion. In fact, I believe the question, “is $1 million Retirement nest egg enough?” is quite loaded and the answer is not that simple or straightforward. Amongst other factors, the answer lies in the answer to this more important question – “How much income you would need during Retirement years?”.

Is it $60,000 per year? or $75,000? Yes, you are right – You know it better than I do.

That said, all I want to discuss in this blog post is: Using the 4% rule as a quick “back of the napkin” estimating tool and expecting a reasonable Social Security Retirement benefits, how far someone with a $1 million combined in their 401(k)s and some IRAs can go if their expected Retirement income is $100,000 (gross before any taxes are paid). What are their options to close the income gap in case they fall short? What can they do to boost their Retirement nest egg? Let’s discuss.


Retirement Income following the 4% withdrawal rule

The 4% rule says you take out 4% of the retirement savings in the first retirement year and adjust the withdrawal amount each subsequent year for inflation. If you do this, the rule claims, you have a high assurance that your retirement nest egg will last 30 years. In other words, if you had $1 million in Retirement Savings, following this rule, you would generate a Retirement income of $40,000 per year (inflation adjusted).

Note that the 4% withdrawal rule at best is a rule of thumb – nothing more than an estimating tool or a very general approximation. In fact, in one of my earlier posts, “3 Most Dangerous Myths of Retirement Planning“, I argued this rule is hard to implement in reality – because, to be successful, the rule expects you to stick to the withdrawal plan firmly throughout its implementation – which is usually difficult in real life situations.

Well, that is for another discussion. For now, let’s assume income from Retirement Savings is $40,000 per year.


Retirement Income from Social Security

Social Security benefits typically make up the largest share of retirees’ incomes, and most American families count on this program for Retirement Income. So, how much income you could expect from this source? Well, it depends. It depends on several factors – factors such as how many years you contributed to the system, how much you contributed in each of those years, what age you have started drawing the benefits, and finally how well the system’s problems are managed in future.

That said, it is reasonable to expect that a husband and wife who both worked might have Social Security payments due them starting at say a combined $40,000 per year. In fact, the Social Security Quick Calculator is a great place to start and offers you a more accurate way to estimate how much Retirement income you could expect from Social Security.


Doing the math

Now that we have the estimates from the sources of income, and we know how much we need in Retirement years $100,000 (gross before any taxes are paid), it is time for us to do the math.

To meet the required $100,000 income level, based on the above assumptions, the shortfall is $20,000.

Source of funds Annual income
Retirement account withdrawals $40,000
Social Security $40,000
Need $100,000
Shortfall $20,000



So, how do we close the income gap? What are our options?

In our hypothetical situation, the couple has a $20,000 per year gap between what their retirement savings and Social Security can be expected to provide.  Here are a few ways this gap can be closed:

  • If they have significant assets outside of their retirement savings, perhaps tapping these funds is an option.
  • Perhaps they have one or more pensions in which they have a vested benefit.
  • This might be a good time to look at downsizing their home and applying any excess cash from the transaction to their retirement.
  • If they were business owners, they might realize some value from the sale of the business as they retire.
  • If realistic, perhaps retirement can be delayed for a few years.  This allows the couple to not only accumulate a bit more for retirement, but it also delays the need to tap into their retirement accounts and builds up their Social Security benefit a bit longer.
  • It might be feasible to work full or part-time during the early years of retirement.  Depending upon one’s expertise there may be consulting opportunities related to your former employment field, or perhaps you can start a business based upon interest or a hobby.


Alternatively, try to boost your nest egg. Here are some things to consider

  • Avoid high-cost financial products that often do more to boost the bottom line of the financial salesperson than that of their clients.
  • Likewise, don’t give into the fear mongers peddling financial products like Indexed Annuities or similar products “that can’t lose.”
  • Don’t be too conservative with your investments in retirement. Inflation is a retiree’s worst enemy.
  • On the flip side don’t take on excessive investment risk in an effort to catch up if you feel that you are behind where you need to be.


So, what do you think? Do you know how much you will need during Retirement years?  Do your current savings matchup with your expectations?  If not, now is the time to act and plan. Good luck!

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