To make sure your retirement nest egg goes the distance, you need some careful planning and expert advice.
Every upcoming retiree wants to know how long their money will last in retirement. That’s understandable, since we don’t know how long we’ll live, what our future costs might be and what kind of returns we can expect on our savings.
These four tips will help you structure your retirement fund to make your money last longer in your golden years.
1. Reduce Your Essential Expenses
Lowering your ‘must-have’ expenses can help you withdraw less from your savings, which in turn can help your money last longer. Essential-spending areas to consider cutting back on include:
- Housing: Downsizing to a smaller home if you can reduce or eliminate your mortgage payment and shrink other costs such as property taxes, utilities and insurance.
- Transportation: A two car household can much more easily downsize to one car if the need to be at a certain place at a certain time is reduced. A one car household could keep a safe, reliable, low cost car or potentially even consider dropping the car completely.
- Debt: Eliminating debt before you retire is often a good way to reduce expenses, but consult a fee-only financial planner before withdrawing retirement funds to pay off a mortgage. Such withdrawals can trigger a big tax bill and leave you without enough cash for the future.
2. Living Off Interest
One obvious way to ensure you won’t run your portfolio dry is to live off the interest, dividends and perhaps the capital gains on your investments and preserve the principal. For example, one million dollars in a balanced fund or a balanced portfolio with a 3% annual payout ($30,000) plus a Social Security benefit of $2,000 a month gives you $54,000 a year. If you’re married and you and your spouse each get $2,000 a month in Social Security, you’d have an annual income of $78,000.
Bigger Social Security checks also serve as a kind of longevity insurance. The longer you live, the greater the chances you’ll run through your savings and depend on Social Security for most if not all of your income. It’s particularly important for the higher earner in a couple to delay as long as possible to maximize the survivor benefit that one of them will get after the first spouse dies.
3. Taking Care of Your Health
Many health conditions are associated with inflated medical costs in retirement. Chronic illnesses such as diabetes, high blood pressure, high cholesterol, arthritis and heart disease are the main culprits according to a study by Vanguard and Mercer Health and Benefits. Regular screenings, proper medical care and a healthy lifestyle may help you reduce some of those costs.
If you have a high deductible health insurance plan, you may be able to pair it with a Health Savings Account. Those accounts let you contribute money in a tax-deductible fashion, invest that money tax-deferred, and let you take the money out completely tax free when used for qualifying health care purposes. As healthcare tends to be a huge expense for seniors, the money you sock away in your HSA while you’re younger and healthier can go a long way towards covering those costs.
4. Being Careful with Stocks and Investments
The rate of return you earn on savings and investments will have a large effect on how long your money lasts. There have been extended periods of time where safe investments earned a decent interest rate and periods of time where interest rates are pretty low. Same with stocks; There have been years where stocks provided outstanding returns and years where the returns were about the same as what you would get if you had stuck with safe investments.
Smart distribution of your assets is only part of the challenge. You also need to adopt a strategy to make your income last for the rest of your life. To keep the growth engine running, it’s recommended you use a retirement-income planner with experience in stock market risks and effective tax reduction and inflation protection.
In today′s world, the importance of a well-executed retirement plan cannot be underestimated. You worked hard throughout your career to save the nest egg that will help support you throughout your retirement. By taking advantage of these four tactics, you can help your money stretch that much further.
To create your own personalized Retirement Income Plan, schedule your complimentary strategy session with an expert at CKS Summit Group. We believe professionally managed tactical stock market and non-stock market portfolios can provide healthy, long-term upside growth potential. It can also be very effective at preserving principal while allowing for a high degree of downside risk protection.