Financial depletion in retirement rarely happens overnight. Instead, it occurs over time when spending, inflation, life expectancy, and withdrawal plans are treated as separate concerns rather than parts of a single, cohesive approach. Ultimately, how long your portfolio lasts depends on five interconnected factors, which is why a plan that can adapt generally holds up better than a rigid rule of thumb.
If you’re still sorting out how the pieces fit, start with our overview of retirement planning in South Carolina and come back here for the part about whether the money holds up.
What actually determines how long your savings last
Withdrawal rate, horizon length, inflation, asset allocation, and tax impact are the five key factors that determine your timeline. Reviewing each element individually helps clarify how to align them into a single strategy.
How much you withdraw each year
Measured against the size of your portfolio, what you take out each year does more to set the timeline than anything else on this list. Take less, and the money stretches. Take more, and it doesn’t, no matter how the markets behave.
You’ve probably seen a withdrawal rule of thumb quoted somewhere. Treat it as a frame rather than an answer, because each one assumes a time horizon, a spending pattern, and a portfolio that may look nothing like yours. We take that apart in our piece on safe withdrawal strategies in retirement.
The trade-off is that starting lower leaves more cushion for the bad years while also meaning less spending in your sixties, which for a lot of people are the years they most want the money.
How long the money has to last
Plan to the average, and you’ve funded only part of the likely outcomes. The Social Security Administration’s life expectancy calculator says as much about itself, reporting the average number of additional years a person can expect based only on sex and date of birth.1 Roughly half the population lives longer than that.
Couples have the longer problem, since the money has to cover the second death rather than the first. That generally adds years to the plan, and it can mean a stretch of retirement funded by one Social Security benefit instead of two.
What inflation does to a fixed income
Those extra years are where inflation does its quiet work. A withdrawal that felt comfortable at 65 can feel tight at 80 with nothing about your habits changed, because the same life keeps costing more.
Money you’re drawing down still has to at least keep pace with rising prices. How hard that lands depends on where your money actually goes, since housing, medical care, and travel don’t climb at the same rate.
How the portfolio is invested, and when the bad years arrive
Keeping pace with prices is the investment mix’s job, and in retirement it has a second one. The portfolio has to grow and survive being sold from at the same time, because selling into a decline to pay bills is a different problem from riding one out while a paycheck still arrives.
The sequence in which market ups and downs occur also plays a significant role, which we explore in detail separately. To learn more about how your investment strategy evolves after retiring, read our guide on what happens to your portfolio when you retire.
Taxes and the withdrawals you do not choose
Taxes don’t retire when you do. Pretax dollars from a 401(k) or traditional IRA are taxed when they come out, so part of every withdrawal covers the tax bill rather than the power bill, which means a $60,000 spending need requires a withdrawal larger than $60,000.
Some of the timing isn’t your call either. The IRS generally requires withdrawals from a traditional IRA, SEP IRA, SIMPLE IRA, or workplace plan once you reach age 73 (75 if you were born in 1960 or later), with the first one due by April 1 of the year after you reach RMD age and each one after that by December 31.2 Our article on getting ahead of required minimum distributions covers the mechanics, and what retirees need to know about South Carolina taxes discusses how the state treats retirement income.
What you can still control is which account funds the check, and that changes what you keep. The sequencing question is big enough to deserve its own article, and one on tax-efficient retirement income planning is in the works.
A simple illustration of how spending decisions change the picture
Those five factors are easier to feel with numbers attached. Take growth, inflation, and taxes out of it for a moment and say you retire with $1,000,000 and count no other income. Spend $50,000 a year, and the balance covers 20 years. Spend $60,000, and it covers about 16 years and 8 months.
Ten thousand dollars a year costs you more than three years of retirement. This is a hypothetical example for illustration only, since a real plan has to put inflation, taxes, investment returns, and Social Security on the same page, which is exactly why the question needs judgment on top of arithmetic.
Who should pay the most attention to this
How much that arithmetic worries you depends on your circumstances, and a few of them raise the stakes. If you’re still deciding whether you’re close to retiring, our retirement readiness guide is the better place to start.
- Most of your money sits in tax-deferred accounts. More of each withdrawal is taxable income, so the gross number you pull is bigger than the number you spend.
- You’re retiring before Social Security or Medicare starts. The portfolio carries the weight during those years, which front-loads withdrawals.
- You’re bringing a mortgage or other debt with you. Fixed payments are the spending you can’t trim in a weak year.
- One spouse is significantly younger. The money has to cover a longer horizon than either individual life expectancy suggests.
- You expect to help children or aging parents. Those costs are real, hard to predict, and rarely in the original plan.
- Your health history makes care costs more likely. The Department of Labor notes that over half of people turning 65 can expect to need help with their health or personal care needs at some point.3
Ways to reduce the risk of running out of money
None of these work alone. They lean on each other, so the right combination depends on your situation.
Build the plan around your real spending, not a rule of thumb
Start from your bank statements. Separate the fixed bills like housing, insurance, and utilities from the discretionary ones, then add the lumpy items that never make it onto a budget, such as a car, a roof, dental work, and heavy travel years.
The Department of Labor’s planning worksheets suggest figuring on at least 70 percent of pre-retirement income as a quick estimate of the cost.3 Use that to sanity-check your own number rather than replace it, because a quick estimate can’t know whether your mortgage is gone or what your health costs look like.
Keep withdrawals flexible rather than fixed
Determining your actual baseline expense is only the first step; you must also decide whether that withdrawal amount remains constant each year. Rather than automatically increasing withdrawals with inflation during down portfolio years, a flexible strategy adjusts to market realities. By scaling back non-essential spending during market downturns, you preserve more capital in the account to participate in any subsequent recovery.
The trade-off is that flexibility can take real pressure off the portfolio, but only if your household will actually spend less when asked. A plan built on flexibility nobody accepts isn’t a plan.
Hold an investment mix built for a long retirement
Flexibility buys time, and the portfolio has to be built to use it. Money for next year’s bills and money for your eighties aren’t doing the same job, so they don’t belong in the same holdings. Splitting them lets you fund the next few years from the calm part of the account, so a bad market is less likely to dictate your timing.
The trade-off is that more in stable assets means smaller swings and less working against decades of rising prices. Every mix carries risk, including loss of principal, and where you land depends on your situation.
Keep money set aside for the things you did not plan
A reserve is what keeps a surprise from turning into a forced sale. Paying for an HVAC system out of cash is an annoyance, while paying the same bill by selling into a down market is a dent that doesn’t come back.
Health and care costs are the big version of this, and they’re the one expense most likely to arrive at the worst time. That makes it a decision, not something to hope about, and our article on whether you need long-term care insurance walks through the options.
Coordinate which accounts you draw from
Taxable, tax-deferred, and Roth dollars are taxed differently on the way out, which hands you some control over the tax cost of each year’s income. That control narrows once required distributions begin, so the early retirement years are usually where the coordination earns its keep.
All of it turns on your own filing status, your other income, and the state you live in. This is a coordination problem, not a formula, and it works better with the actual numbers on the table.
Revisit the plan on a schedule, not after a scare
Every decision above rests on assumptions that age. Once a year, hold the plan against what you actually spent, what the portfolio actually did, and what shifted in your family, health, housing, and the tax code. Small, scheduled corrections generally beat large ones made under pressure.
How your spending may change through retirement
Among these assumptions, spending behavior warrants special scrutiny, as retirement expenses seldom remain constant over time. Typically, retirees spend more during early retirement on travel and personal projects, see spending stabilize in the middle years, and encounter rising healthcare and long-term care expenses later on. Assuming a static annual spending figure across a multi-decade horizon ignores the actual trajectory of most retirements. To learn more about structuring your portfolio for consistent cash flow, review creating retirement income from your portfolio.
Mistakes that shorten the life of a portfolio
Most of the damage comes from a handful of habits rather than one bad call.
- Setting this year’s withdrawal off last year’s returns. Spending the gains as they arrive removes the cushion meant to fund the years when returns disappoint.
- Planning only to the average. A plan that stops at average life expectancy could leave possible remaining years unfunded.
- Calling a recurring cost a one-off. A roof, a car, and a major dental bill aren’t emergencies. They’re expenses with long intervals.
- Carrying high-rate debt into retirement. Those payments remove the flexibility the plan needs in a weak year.
- Letting the plan go stale. Spending, health, and tax law all move, and a plan that never updates slowly stops describing your life.
For a fuller look at what tends to go wrong locally, read the biggest retirement planning mistakes South Carolina retirees make.
Frequently asked questions
1. How long will my retirement savings last?
It depends on what you withdraw, how many years it has to cover, inflation, your investment mix, and your tax situation, so no single number works without your figures. The arithmetic starting point is your balance divided by what you take out each year, then adjusted for growth, taxes, and other income. A calculator gives you a rough answer, and a plan gives you one you can act on.
2. How much can I safely withdraw from my savings each year?
There’s no universal safe number, because it depends on your time horizon, how flexible your spending is, and how your portfolio is built. The rules of thumb you’ve seen help frame the question rather than answer it, and they can mislead when your situation differs from their assumptions.
3. How long will my retirement savings last with inflation?
Not as long as the same arithmetic without it, because keeping your lifestyle steady takes more dollars each year. Any projection that leaves out rising costs will overstate how many years the money covers. Inflation also compounds, so the gap between the two answers widens the longer retirement runs.
4. What is the biggest risk to my retirement savings?
For most retirees, it’s withdrawing too much early while also living longer than planned, because those two compound each other. Market declines matter most when you’re selling into them to pay bills. Health and long-term care costs are another major factor, and they tend to arrive when flexibility is lowest.
5. When do I have to start taking money out of my retirement accounts?
Generally, you must start taking withdrawals at age 73, or 75 if you were born in 1960 or later, from traditional IRAs, SEP and SIMPLE IRAs, and most workplace plans, according to the IRS. The first required minimum distribution is due by April 1 of the year after you reach RMD age, and every one after that by December 31. Roth IRAs and Roth 401(k)s aren’t subject to these rules during the owner’s lifetime.
Planning that can adapt as things change
A durable strategy relies on identifying your true expenses, establishing a comfortable household withdrawal rate, dividing assets between short-term spending and long-term growth, and choosing the proper account for withdrawals. Because these choices must evolve, ongoing review is just as essential as the initial design.
We will model your spending, pressure-test the withdrawal against weak markets and a long life, and organize the accounts around the jobs they need to do. From there, we coordinate those withdrawals with your tax picture and revisit the plan as markets, health, and circumstances move.
To see what your own numbers say about how long the money may last, schedule a no-cost intro call with our team and bring your spending figures.
Resources:
- Social Security Administration, Life Expectancy Calculator
- IRS, Retirement Topics: Required Minimum Distributions (RMDs)
- U.S. Department of Labor, Taking the Mystery Out of Retirement Planning
Oak Street Advisors, Inc. is an SEC-registered investment adviser with offices in Mt. Pleasant and Myrtle Beach, SC. Registration does not imply any certain level of skill or training. This article is for educational and informational purposes only and does not constitute individualized investment, tax, or legal advice or a recommendation to buy or sell any security. Tax laws and benefit rules are complex and change over time; figures are believed accurate as of publication and should be confirmed for your situation. Please consult your own advisers before acting. Our Form ADV Part 2A is available at adviserinfo.sec.gov.
