3 Most Important Factors To Making Your Money Last in Retirement
It may seem complicated, but there are formulas to help you match your annual spending with growth in your portfolio.

Probably the biggest single concern of retirees is running out of money. It doesn't seem to matter how much money they have; the thought of not generating any outside income and living for many years off of an existing pool of assets and Social Security strikes fear in the hearts of many mortals.
That's where a financial adviser can help. It's one of our primary jobs. We spend many hours studying and learning about how best to accomplish this goal. I personally find the topic very interesting since many tools and techniques have been developed over the years to better understand this issue.
Some of these tools are nothing but sales pitches in disguise. Others are so complicated that many planners don't even understand them fully (i.e. "Monte Carlo simulations").

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Effective retirement planning is not a "set-it-and-forget-it" discipline either. A financial plan for someone who is in the distribution phase of their lives is one that calls for continuous monitoring and adjustment, as well as attention to the markets, economy and political environment.
Still, all good plans rely on a few key variables:
1. Getting the spending part right.
In a nutshell, how much will you be shelling out each year, both for normal and recurring items and for extraordinary or one-time expenses? Perhaps your plan calls for an annual expense of $15,000 for travel, as you like to visit your children a few times every year and also take one or two personal trips. Then, maybe every three to five years, you plan on a larger expenditure of $25,000 to spend three weeks in Europe.
Annual car expenses, including funds for an unexpected emergency, also must be factored in. You may have a normal expenditure of $5,000 in fuel and maintenance costs and a periodic expense of $30,000 every 10 years to replace a car, for example.
When calculating the lifespan of your portfolio, we look at the net or after-tax withdrawals from your accounts after other sources of income, such as Social Security and pensions, are used.
2. Understanding the total value of your liquid assets.
Liquid just means you can quickly cash in an asset, such as cash, certificates of deposit, money market accounts, stocks, bonds, mutual funds, etc.
3. Correctly estimating the expected growth rate of your investments.
This is after taxes, inflation and investment management expenses. Two of these three variables are within your control—taxes and investment management costs. Tax management can take on a large role in retirement, as asset sales can be timed and gains and losses can be netted against one another, distributions can be timed from taxable versus non-taxable accounts, etc.
Investment management fees should be evaluated and minimized where possible. This includes fees at the mutual fund level and at the adviser level.
As an example, consider a balanced portfolio of 60% stocks and 40% fixed income and cash. The blended return on this portfolio will probably be in the 7% range. Inflation today stands at around 1.1% (but with health care costs being a large factor for retirees, we're going to use 3%). A typical investor will pay somewhere in the range of 1.5% for investment management, so our net growth rate is around 2.5%.
Taxes may bring that down closer to 2%. I am giving you this detail to impress upon you the impact of the various factors on your portfolio, and to emphasize that it truly can be the small things that make a difference.
Ok, so now what? We know the portfolio value, the spending plan and the expected growth rate. How do we find out how long the portfolio will last?
Moshe Milevsky, Associate Professor of Finance at York University in Toronto developed the following simple formula (simple if you have a financial calculator or use a spreadsheet program):
What this says is that the EL, or expected longevity of your portfolio is equal to 1 divided by the expected growth rate times the natural logarithm of the formula in parenthesis. "w" is your withdrawal amount in dollars, "M" your initial portfolio value and "g" is your expected growth rate.
It looks complicated, but it isn't. I built a simple spreadsheet in Excel using this formula, and I'd be happy to send it to you if you would like a copy.
To get an idea of what the output looks like for a $1,000,000 portfolio, Mr. Milevsky provides the following excerpt:
You can quickly see the relationship between net growth rate and withdrawal rate. To go back to my earlier example, let's say you have a $1,000,000 portfolio and expect a 7% growth rate, which after inflation, fees, taxes, etc. is a net 2.5% rate of return. You could take as much as $60,000 a year out if you are a 65-year-old male and be reasonably certain that it will last for your lifetime (estimated mortality for a 65-year-old male is about 18 years, and 20 years for a female of the same age). There are more factors that should be considered, of course, such as the age of your beneficiaries (spouse, children, etc.), life insurance owned, etc., and that's why a complete financial plan is invaluable to make sure no stone is unturned when making such important decisions.
The bottom line is that this simple tool can at least get you started thinking, and maybe give you a little guidance in conversations with your financial adviser. And remember, sometimes small adjustments can have a big impact. Kind of like tools in the world of financial planning—sometimes the simpler tools and concepts are the most effective.
Doug Kinsey is a partner in Artifex Financial Group, a fee-only financial planning and investment management firm based in Dayton, Ohio.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Doug Kinsey is a partner in Artifex Financial Group, a fee-only financial planning and investment management firm in Dayton, Ohio. Doug has over 25 years experience in financial services, and has been a CFP® certificant since 1999. Additionally, he holds the Accredited Investment Fiduciary (AIF®) certification as well as Certified Investment Management Analyst. He received his undergraduate degree from The Ohio State University and his Master's in Management from Harvard University.
-
The Best FSA or HSA-Eligible Amazon Prime Day Deals You Can Shop Now
Double down on savings by taking advantage of these early Prime Day deals that are FSA or HSA eligible. Save on fitness trackers, air purifiers, baby gear and more.
-
Stock Market Today: It's 'All Sectors Go' Ahead of Independence Day
The resilience trade continues to work, even for sectors and stocks with specific uncertainties.
-
Investing Professionals Agree: Discipline Beats Drama Right Now
Big portfolio adjustments can do more harm than good. Financial experts suggest making thoughtful, strategic moves that fit your long-term goals.
-
'Doing Something' Because of Volatility Can Hurt You: Portfolio Manager Recommends Doing This Instead
Yes, it's hard, but if you tune out the siren song of high-flying sectors, resist acting on impulse and focus on your goals, you and your portfolio could be much better off.
-
Social Security's First Beneficiary Lived to Be 100: Will You?
Ida May Fuller, Social Security's first beneficiary, retired in 1939 and died in 1975. Today, we should all be planning for a retirement that's as long as Ida's.
-
An Investment Strategist Demystifies Direct Indexing: Is It for You?
You've heard of mutual funds and ETFs, but direct indexing may be a new concept ... one that could offer greater flexibility and possible tax savings.
-
Q2 2025 Post-Mortem: Rebound, Risks and Generational Shifts
As the third quarter gets underway, here are some takeaways from the market's second-quarter performance to consider as you make investment decisions.
-
Why Homeowners Should Beware of Tangled Titles
If you're planning to pass down property to your heirs, a 'tangled title' can complicate things. The good news is it can be avoided. Here's how.
-
A Cautionary Tale: Why Older Adults Should Think Twice About Being Landlords
Becoming a landlord late in life can be a risky venture because of potential health issues, cognitive challenges and susceptibility to financial exploitation.
-
Home Equity Evolution: A Fresh Approach to Funding Life's Biggest Needs
Homeowners leverage their home equity through various strategies, such as HELOCs or reverse mortgages. A newer option: Shared equity models. How do those work, and what are the pros and cons?