Matt Cutt, an engineer at Google, was asked the following question regarding domain registration length's effect on SEO and search results:
How much weight does the number of years a domain is registered for have on your ranking?
This was Matt's response (bold emphasis mine):
My short answer is not to worry about that very much. Not very much at all, in fact.
Danny Sullivan had asked about this recently because there were some registrars that were sending around emails...that said "Did you know that Google gives you a bonus in ranking if you register your site for 3 or more years?". Just to clarify, that's not based on anything that we've said.
My short answer is make great content, don't worry nearly as much about how many years your domain is registered for. Just because someone is sending you an email that says "Google does" or even may use this in ranking, it doesn't mean that you should automatically take them at face-value.
What makes a really big difference is the quality of your site, and the sort of links that you have pointing to you, not "Is my site registered for 3 or 4 years, instead of 1 or 2 years?"
So while domain registration length might have an effect on ranking, there are other factors that are much more important, such as quality content and quality back-links.
Personally, if I'm on a very small and tight budget, then I think that the potential benefit of a tiny increase to ranking just doesn't justify the cost, in my opinion. If I'm going to register a domain for 4-5 years, I'm going to do it because I really believe that my website will be around for that long, not because I'm trying to manipulate Google into ranking me higher.