HOW LONG WILL MY MONEY LAST?
To calculate the amount of capital you'll need to produce your required level of income in retirement, you will have to take a guess at a real rate of return. The real rate of return is the difference between the rate of inflation and the return you are getting on your investments. If the real rate of return does not change, the time taken to spend a certain sum of money will not change either, provided withdrawals are increased each year in line with inflation. The table below gives two scenarios - one where the real rate of return is 5% per annum, and the other where it is 3%.
How long will $100,000 last at a real rate of return of 5%
| Year |
Real Rate |
Annual Drawings |
| 25 |
5% |
$7,000 |
| 20 |
5% |
$8,000 |
| 15 |
5% |
$10,000 |
| 12 |
5% |
$11,000 |
| 11 |
5% |
$12,000 |
| 10 |
5% |
$13,000 |
How long will $100,000 last at a real rate of return of 3%
| Year |
Real Rate |
Annual Drawings |
| 24 |
3% |
$6,000 |
| 16 |
3% |
$8,000 |
| 12 |
3% |
$10,000 |
| 11 |
3% |
$11,000 |
| 10 |
3% |
$12,000 |
| 9 |
3% |
$13,000 |
For example, assume you want an annual income of $20,000 in today's dollars. You want this income to last for 20 years of your retirement. You think a real rate of return of 5% is achievable. By using the table, you can see how $100,000 invested at a rate of return of 5% will only give you an income of $8,000 per annum. If you want $20,000, which is 2.5 times $8,000, you will need to invest 2.5 times $100,000, or $250,000.
** Please note that these figures are estimates, designed to help you estimate the amount of money you will need for a satisfying retirement.**
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