20 Aug How long will my retirement savings last?

Q. Are there any ways I can, without a financial planner, try to figure out how long my retirement savings will last? I have $899,000 in IRAs (50/50 in bonds and stocks), $178,000 in value mutual funds and $125,000 in cash. I’m 61 and I spend about $65,000 a year. I won’t take Social Security until I have to, and I expect monthly checks of about $1,650.

A. When you’d run out of money is a moving target, so you’re smart to ask the question before leaving your job.

Whatever you do, though, be sure this is something you revisit at least once a year to make sure that target hasn’t moved too far.

There is a common myth that withdrawing 4 percent of your portfolio every year is sustainable for a long period of time, said Eric Furey, a certified financial planner with RegentAtlantic Capital in Morristown.

Furey said this rule of thumb is based on the notion that returns will average 7 percent and inflation will be 3 percent, so the remaining 4 percent can be spent.

“In your situation, you have monthly living expenses of about $5,400 and income of $1,650, so the shortfall of $3,750 needs to come to from the portfolio,” he said. “Based on an asset base of $1,202,000, withdrawing $45,000 is only 3.7 percent, of the portfolio so based on the rule of thumb this would be sustainable.”

But of course there are caveats.

Furey said while the rule of thumb is a good guide, there are two very significant shortfalls – asset allocation and taxes.

As he said, the 4 percent rule is based on the idea that you can achieve a 7 percent rate of return.

Additionally, your IRA account is likely made up entirely out of pre-tax funds.

“What the rule of thumb doesn’t take into account is the government’s portion of the IRA account,” he said. “For example, for every dollar you take out of the IRA, you’ll need to take out an extra 20 to 30 cents for the federal and state government, which increases the percentage you’re withdrawing each year.”

Lastly, Furey said, markets don’t move in straight lines. Again, the 4 percent rule is based on a return of 7 percent, but we know that some years the return may be negative and some years may be very positive.

“The 4 percent rule assumes that during the negative years, you’re able to adjust your living expenses to accommodate the down years,” he said. “A planner may be able to add value to your situation by running what’s called a Monte Carlo simulation, which essentially assumes you retire many times over earning a random return each year.”

Managing your retirement life is a significant undertaking, and Furey cautions you against trying to go about it on your own.

“Partnering with a certified financial planner throughout retirement may increase the likelihood of being able to achieve your goals while also alleviating the stress and headaches that go along with managing finances,” Furey said.

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This story was first posted in August 2015.