How Much Retirement Will $700,000 Buy Me?

If you have $700,000 saved up for retirement, it’s natural to wonder how many years it will last. How long $700,000 will last in retirement depends on post-retirement spending plans, investment strategy and earnings and additional sources of income among several factors, some controllable and others not. For some retirees, a $700,000 nest egg could support a long and secure retirement, while for others that sum might only last a few years. Effective retirement planning requires gaining an understanding of how key elements affect the length of time a given sum will last in retirement. Consider talking to a financial advisor about your situation.

What Decides How Long $700,000 Will Last

A sum of $700,000 will last a varying amount of time during retirement, with the actual result determined by a sizable number of variables. Here are some of the most important factors, along with a brief description of how they affect the outcome:

• Lifestyle, location and spending habits. Some areas of the country are more expensive than others, so location is a key variable affecting how long your nest egg will last. Similarly, maintaining a large home or traveling extensively in retirement can drain an account faster than downsizing and focusing on activities close to home.

• Investment returns. A conservative strategy focused on risk reduction may not generate sufficient income to avoid having to make sizable withdrawals to pay living expenses. That can cause a portfolio to shrink more rapidly than an investment strategy that effectively balances risk and reward to generate more income, conserving principal and allowing assets to keep earning.

• Additional income. Social Security, pension benefits, part-time work and other sources of retirement income can keep a retiree from having to make large withdrawals. That will allow a nest egg to last longer.

• Health-related expenses. Private health insurance premiums and medical bills for unexpected or chronic conditions can add significantly to the need to take money from a retirement account and reduce the time it will be available to a retiree.

• Economic trends. Market declines, excessive inflation and other economic events can have a powerful effect on individual retirees’ ability to make ends meet and how long a retirement nest egg will last.

• Other expenses. It’s particularly helpful to pay off debt before retiring so mortgage, auto loan, student loan and credit card payments aren’t elevating a retiree’s monthly expenses beyond their ability to pay with investment and other income.

Other elements that can also play a role include age at retirement and life expectancy span. For each individual retiree, these factors are likely to be different and produce a different answer to the question of how long $700,000 will last in retirement.

Retiring with $700,000 Examples

To help understand how long $700,000 will last in various situations, here are a couple of simplified examples of couples retiring in different situations:

One couple has somewhat higher than average living expenses, due in part to living in a higher-cost urban area. They have several years to pay on a home mortgage. Their total expenses are $96,000 or $8,000 per month.

Their conservatively invested $700,000 portfolio produces an average of 4% in interest income per year. They retired at 62, as soon as they were eligible for Social Security, which provides them with a combined total of $3,000 per month and have no other sources of retirement income.

To fill the gap between their $3,000 Social Security benefits and their $8,000 in monthly expenses, they must withdraw $5,000 each month from their retirement account. The annual total of $60,000 they withdraw is more than the 4% annual yield from their investments, so in less than 16 years the account will be empty.

Another couple waits until full retirement age at 67 so they receive $4,000 from Social Security, despite having a similar earnings record as the first couple. They also have a less expensive lifestyle, due in part to living in a Midwestern city with a lower-than-average cost of living and have paid off their mortgage and other debts. Their total monthly budget is $6,000 or $72,000 a year.

Their $700,000 is invested somewhat less conservatively and yields 6% a year on average. They withdraw $2,000 a month from savings to cover their living expenses, which is less than the interest on their investments. As a result, in the absence of an extraordinary expense or a long-lived and steep reversal in their investment fortunes, their $700,000 will last them to the ends of their lives and beyond.

Many other scenarios are possible, each potentially incorporating additional elements such as health problems forcing unexpected expenses and part-time employment adding more retirement income. The result can be a wide range of possible outcomes for individual retirees.

Bottom Line

The duration of a $700,000 retirement fund hinges on a multitude of factors, including lifestyle choices, investment strategies, other income sources, healthcare costs and economic trends. Some of these factors are controllable, but others can vary according to random events. Each retiree’s situation will differ, making personalized financial planning crucial.

Retirement Planning Tips

• To ensure your nest egg serves your retirement goals, discuss your situation with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• You can use SmartAsset’s Retirement Calculator to get a better understanding of retirement planning. It considers important elements such as Social Security, post-retirement expenses and investment returns helps you set monthly savings goals.

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