How Long Will $3.5 Million Last in Retirement?

Determining how long $3.5 million will last in retirement depends on personal circumstances and economic conditions. Individual spending habits, investment performance, and the economic landscape all contribute to the longevity of retirement savings. Understanding these factors is crucial for financial planning.

Understanding Your Retirement Expenses

A retiree’s spending patterns and lifestyle dictate how quickly retirement funds are depleted. Housing often remains a primary expenditure, including property taxes, homeowner’s insurance, maintenance, and association fees. For instance, average retiree households spent around $60,087 annually in 2023, with housing averaging $21,445 per year. Even without a mortgage, these recurring costs represent a considerable outflow from retirement savings.

Healthcare expenses are a significant and often escalating cost in retirement. While Medicare covers many medical services, it does not cover everything, leaving retirees responsible for deductibles, copayments, and services like dental, vision, or long-term care. For example, the standard monthly premium for Medicare Part B is $185.00 in 2025, with an annual deductible of $257. Medicare Part A, covering inpatient hospital care, has a deductible of $1,676 per benefit period in 2025.

Many retirees opt for a Medicare Supplement (Medigap) plan to cover out-of-pocket costs, with monthly premiums ranging from $50 to over $300. Prescription drug costs are another consideration, often covered by a separate Medicare Part D plan, which averaged $46.50 per month in 2025. Beyond these, everyday living costs like food, utilities, and transportation continue. While commuting costs may decrease, travel and leisure activities can become more prominent expenses, requiring careful budgeting to support these lifestyle choices.

The Influence of Investment Growth and Inflation

The duration of $3.5 million in retirement is influenced by how the principal is invested and the effect of inflation. Investment growth allows the fund to generate additional income, reducing reliance on the original capital. A well-diversified portfolio, often comprising stocks and bonds, can continue to grow, offsetting withdrawals and extending savings lifespan.

Investment returns are not guaranteed and fluctuate with market conditions, but historically, growth is important for long-term financial planning. This growth must contend with inflation, which steadily erodes purchasing power. Inflation is the general increase in prices, meaning a fixed amount of money buys less over time.

For instance, the U.S. inflation rate was 2.70% in July 2025, and the Federal Reserve targets a 2% inflation rate. This means if expenses cost $50,000 today, they will cost more in subsequent years due to inflation. Without adequate investment growth, inflation shortens a fixed sum’s lifespan, as retirees need to withdraw increasingly larger amounts to maintain their standard of living. Understanding investment growth and inflation’s impact is key to projecting how long retirement savings will endure.

Calculating Your Retirement Income Duration

Estimating how long $3.5 million will last involves combining expenses, investment growth, and inflation into a financial projection. A basic approach divides total savings by anticipated annual expenses; for example, $3.5 million would theoretically last 35 years with $100,000 annual expenses, without considering growth or inflation. This simple calculation provides a starting point but lacks the realism needed for robust planning.

A more sophisticated guideline is the “safe withdrawal rate,” often exemplified by the 4% rule. This suggests a retiree can withdraw 4% of initial savings in the first year, then adjust that amount annually for inflation, with a high probability of funds lasting approximately 30 years. For a $3.5 million portfolio, this means an initial withdrawal of $140,000. The 4% rule is based on historical market data and assumes a balanced portfolio, typically 50% stocks and 50% bonds, designed for growth and stability.

Financial planning tools and online calculators offer dynamic ways to estimate retirement income duration. These resources incorporate variables such as initial capital, projected annual expenses, anticipated investment returns, and inflation rates. Many advanced tools utilize Monte Carlo simulations, which run thousands of hypothetical market scenarios based on historical data and random variables. Monte Carlo analysis results are typically expressed as a probability of success, indicating the likelihood that funds will last for the desired retirement period. These simulations acknowledge the inherent uncertainties of financial markets over long time horizons.

The Role of Other Income Sources

Beyond the $3.5 million principal, additional income streams can extend retirement savings by reducing the annual amount needed from the investment portfolio. Social Security benefits are a common income source for many retirees. These benefits are calculated based on an individual’s Average Indexed Monthly Earnings (AIME) over their 35 highest-earning years. While the average monthly Social Security benefit was $1,976 in January 2025, the exact amount varies based on work history and claiming age. A portion of Social Security benefits may be subject to federal income tax, depending on a retiree’s “combined income,” which includes adjusted gross income, non-taxable interest, and half of the Social Security benefits.

Traditional pensions, if available, provide a defined and regular income stream, further reducing reliance on personal savings. Some retirees work part-time, providing supplemental income, covering expenses, and allowing their investment portfolio more time to grow without substantial withdrawals. Rental income from investment properties can also contribute to a retiree’s cash flow.

Annuities are another source of guaranteed income. These insurance contracts involve paying a sum of money in exchange for regular payments, either immediately or at a future date. Annuities can be structured in various ways, such as fixed annuities offering predictable payments or variable annuities whose payments fluctuate based on underlying investment performance. By integrating these diverse income sources, retirees can lessen the draw on their $3.5 million portfolio, supporting their lifestyle throughout retirement.