1. How long will I live?
Many people assume 100 years old, some also assume 20 years if you have made to age 65. But if you want to be precise, this blog has several websites could give you the answer.
2. How much do I need?
While different people have different life styles, if we use U.S. average household figures - that will be $49,500 based on U.S. Bureau of Labor Statistics data. Income from Social Security and Pensions for those same households average $25,000, that leaves $24, 500 per year gap.
In reality, for households near retirement, average retirement account savings are about $376,000, based on Investment Company Institute, which represents the mutual fund industry. But even you have $1 million savings, will it be enough?
3. How to spend down savings?
There is a general 4% withdrawal rule, at $1M savings, that gets you $40,000 a year, which should be enough to cover the income gap. However, depending on where you put that $1M savings, if all in stocks, in a bear market, you could be down to half million.
- You could put all your savings in bonds, but it's hard to get 4% return, unless you take high risk approach.
- You could put all your savings in dividend paying stocks, but you will be giving up upside as those stocks tend to be more stable.
- You could spend a portion or all your savings on annuities, while annuities could guarantee you lifetime income, you will be turning ownership of your savings to insurance companies.
- You could put your savings in a balanced portfolio, but it will be hard to achieve consistent 4% payout each year, so you need to consider spending down some of your principal each year.
- You can also work and keep saving, until you couldn't work anymore.
In short, there is no perfect answer, it all depends on your unique situation.