Will The River Run Dry?

There are many ways to gauge financial well-being, but there’s one measure that is universally relevant, regardless of age or income: will my money last longer than I do? Or stated in more drastic fashion: will I run out of money?

Will the River Run Dry?

The Osbon Labs retirement calculator is a great tool to answer that question. We like it because it doesn’t rely on you being a forecaster of inflation or markets. You simply enter what you know about yourself and your plans. It provides a simple ballpark of your account’s life expectancy.

Let’s look at the pre-loaded example, based on the situation of one of our actual clients. This investor is 51 and plans to retire at 65. She has one million dollars saved, and can add $20,000 to that sum each year. At retirement she plans to draw $200,000 from her account each year.

The bottom portion of the calculator shows when she will run out of money at various levels of expected return. With a 7 percent return after inflation, she never runs out, and as the graph shows, her balance grows, not falls, over time.

On the other hand, with a 0 percent return (holding money in Mason jars), the river runs dry only 7 years after retiring. With a 5 percent return, she runs out of money at the age of 85. Rate of return really matters!

We encourage you to play with the numbers in this calculator to reflect your own situation. (All of the blue shaded fields are enterable.) You don’t have decisive control over how long you live, but you can definitely control when you retire, how much you contribute, and how much you spend. We can help you influence your annual rate of return through asset allocation, cost control and tax efficiency.

Max Osbon – mosbon@osboncapital.com