How Much Retirement Income Will Your Savings Provide?

Last Updated Aug 24, 2011 9:14 PM EDT

As you approach your retirement years, you face a critical question: How much income can you generate from your retirement savings? The answer is: It depends on a number of factors, including:
  • The method you use to convert your savings into income. There are three different ways to generate income, each having its own variations.
  • Your age
  • Whether you're married
  • Whether you desire access to your savings for emergencies
  • If you want to leave a legacy to children and charities
Just to give you an idea of the range of possible retirement income amounts, let's take a look at a 65-year-old single woman who has $100,000 saved in her retirement savings accounts. The table below shows the dollar amount of annual retirement income she could generate using various methods. I've also included the percentage of her account balances; you can apply these percentages to your own account balance to generate dollar estimates for yourself. (For the annuities, I assumed she elected a life-only annuity.)

* GMWB stands for guaranteed minimum withdrawal benefit, a type of retirement income solution currently being offered by insurance companies.
Annuity purchase rates are as of March 1, 2011, using annuities priced on the Vanguard website.
Here's the same table for a 65-year-old man. For the annuities, I also assumed he elected a life-only annuity.

Here's the same table for a 65-year-old married couple. For the annuities, I assumed they elected a 100 percent joint and survivor annuity.

The above examples offer just an idea of the amount of retirement income you can generate depending on how you invest it. As you can see, there's a wide range. That's because generating retirement income to last for the rest of your life is part art, part science. There's really no single answer that would work best for your situation; you may want to use a combination of the methods described above. If you want to learn more about the various methods to generate retirement income from your IRA and 401k balances, please read some of the articles at the bottom of this post.

When you're planning for your own retirement, you'll want to do more refined calculations than what's shown above, considering the five factors mentioned at the beginning of this post, and annuity purchase rates that will be applicable when you retire. You might want to use an online retirement calculator to refine your estimates, or work with a financial advisor whom you trust.

You won't regret the time you spend learning how to generate retirement income; it's the foundation of your financial security for the rest of your life!

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.