How to Make Your Retirement Savings Last Longer

You finally made it to retirement! After that feeling of relief washes over you, you might start to worry about running out of money. That feeling is totally natural as the future is unpredictable. We don’t know how long we are going to live, what returns we can expect on our retirement savings, different emergencies or unplanned costs that may arise, or world events that could change the course of our lives. Even if you hire a financial advisor and majorly plan, the risk will still be there. There are ways, however, to increase your income and decrease the risk that you will run out of money. This way, you can more freely enjoy your retirement mostly free of stress. 

1. Maximize your Social Security Benefits

Starting to reap the benefits of your Social Security as soon as you turn 62 is very attractive to many people. However, if you start your Social Security too early, it’ll reduce the benefits you get from it when you need it more in the future. Putting Social Security off for a few years can also mean that changes in your cost of living down the line won’t be as drastic. You should think of Social Security benefits as a longevity insurance as you don’t know when you will pass. 

2. Minimize your fixed expenses

If you want your money to last longer, you need to do what you can to decrease your essential expenses such as food, shelter, transportation, insurance, and/or debt payments you still need to make. One way to cut unnecessary expenses is to choose the type of housing that will serve your needs and your financial needs. This can mean just staying in your house. However, it can also mean moving to a house where the taxes aren’t as high, an apartment, or even moving in with your children. This can help to save on utilities and give you more flexibility when it comes to possible medical expenses, home repairs, or a recession in the future. 

3. Have a spending plan

In other words, you should have a budget in retirement. You should set aside a certain amount of money every month for food, taxes, insurance, and fun things like travel or shopping. Doing this can help you better see what you can and cannot afford while in retirement. Not having any plan and just spending freely greatly increases the risk of losing all of your money before you die. It is a common rule that 4% is the minimum target for a withdrawal rate in retirement. For example, if you saved one million dollars, you could withdraw about $40,000 per year, not including Social Security. 

4. Consider some guaranteed income

Today, you can’t just rely on pensions and Social Security to retire. You should also have separate retirement savings set aside to cover necessities like food and housing. Out of these savings, you should have some type of guaranteed annuity income. However, do your research before buying one with high fees. The income should only be a small percentage of your net worth in order to give you a cushion to fall back on. 

5. Don’t forget about inflation

The sad reality of things is that your money is going to be worthless in the future. In other words, things get more expensive as you get older. This in turn will put stress on your spending and your retirement savings. If you plan for this, however, you can make sure that inflation doesn’t deplete your retirement savings. 

6. Remember tax planning

Taxes and tax planning do not end when you stop working. Sadly, tax planning gets even more important and complicated (who knew that was even possible) as you age. If you withdraw that 4% from a 401(k), IRA or brokerage account, it is worth less after taxes and even less than if you withdrew a similar amount from a tax-free ROTH IRA. If you get some advice from a financial planner, they can help you plan on which accounts to pull money from first and make sure that you are getting the most out of what you saved. 

7. Work a few more years

Most people aren’t retiring by forty, fifty, or even sixty like they used to. Times have changed. As long as you’re still passionate and healthy enough to do so, working an extra year and waiting to retire can increase your standard of living in retirement. Your Social Security will be around 8% greater every month by just waiting one more year to retire. In addition, your retirement savings and accounts can grow for another year. It might be best to slowly transition into retirement, working part-time for a little while. 

8. Plan for long term care

It is highly likely that your or your partner will need long term care in retirement. One of you is going to go first, and this not only puts emotional stress on your partner, but huge financial stress as well. Your partner could be left living off of some guaranteed income and Social Security–hardly enough to live a decent life. Long term care is very expensive. Nursing homes are very expensive. Long Term Care Insurance (LTC) can help to pay for about half of the long term care expenses. 

9. Maximize credit card points and miles

By saving up your credit card points and miles, you can help to ensure that you get to travel in retirement without breaking the bank. Things like food and hotels and transportation add up fast. 

10. Invest smartly

If you just leave your money in the bank, you lose money everyday because of inflation. If you don’t invest because you are scared to, you are more likely to run out of money while in retirement. Bank interest is taxed as regular income, so it is less tax-efficient than investing. Bottom line, it would take more years than you have to live for your money to double in your bank account. 

11. Buy your home earlier

If you own a home, it helps to protect against inflation of housing costs and helps to decrease the chances of you running out of money while in retirement. Your home can be a last-minute safety net in other words. Your home will be much more than it is right now in the future and can be a large asset to you. It is most people’s goal to stay in their home and not have to use it as equity, but you have money if you need it. 

12. Think of ways to save without having to cut back

If you look at all of your costs per year, some simple planning can help you save thousands of dollars every year. If you negotiate your recurring bills, you can save a few hundred per month–something that can be a great asset in retirement. 

Resources

https://www.nerdwallet.com/article/investing/7-ways-to-make-your-money-last-in-retirement

https://www.forbes.com/sites/davidrae/2019/09/17/money-last-in-retirement/?sh=43b8cb8e645b

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