Don't forget inflation when calculating your retirement

— -- Q: My husband and I are 56 and 59, have $1 million and want to withdraw $50,000 a year. Are there calculators that will tell us how long that money will last?

A: If you're looking for free online calculators to help you make financial decisions, check out some tools available at There's a calculator there that will help you with the question you ask above.

You'll find calculators for all sorts of financial questions, including retirement calculators. The Retirement Planner may be of most interest to you.

Before you jump online and start crunching numbers, though, I'll just caution you that you're missing an important variable in your question: Your expected rate of return. You will need to estimate how much you expect to earn on your money during retirement. This is a key factor that will determine how long your money will last.

Let's work through some examples. Say you have your entire $1 million in a high-yield savings account generating 3% annual interest. Crunching the numbers, in this case, tells us you will be able to draw $50,000 (in 2008 dollars) each year for 31 years.

But let's say you're able to somehow get a 4.5% return on your money. With everything else held the same, you would be able to draw $50,000 (in 2008 dollars) every year for 53 years. You can see that just a 1.5 percentage point change in your expected return makes your money last 22 years longer. Big difference.

And here's a neat exercise. Say you get a 5% return on your money. Guess what? At that rate you could take out $50,000 a year (in 2008 dollars), forever.

But, alas, there is one big factor we haven't considered: inflation. Remember that $50,000 in 2008 is very different than $50,000 in 2025. Inflation eats away your purchasing power each year, making your money buy less. Historically, inflation averages around 3% a year or so.

Factoring in inflation changes the picture dramatically. Let's go back to the assumption of 3% annual return on your money. In that case, inflation eats up your entire return. So, you could draw the equivalent of $50,000 every year for 20 years, well below the 31 years in the inflation-free imaginary world we started with.

And going back to your 4.5% example. Here, adjusting for inflation, your money would last 24 years, not 53 years as in our inflation-free example. So you can see why it is so important to consider inflation when calculating this problem.

If you're interested in learning more, there's a handy program called MC Retire from Efficient Solutions ( that helps you think about all the variables simultaneously.

The software, which runs on Windows-based computers, models the best and worse case scenarios for your returns and also factors in inflation. Then, MC Retire goes a step further and factors in tax rates and variability of returns. It uses "Monte Carlo" simulation to see how long your money will likely last. There is a free trial of the software available, so you can try it and get a pretty accurate answer to your question

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at To submit a question, e-mail Matt at Click here to see previous Ask Matt columns.