5 Tips to Make Your Money Last Longer in Retirement

With average life expectancies rising, one of the main concerns for working Americans reaching retirement is: How can we ensure that we don’t outlive our savings? Here are five tips by Michael Woloshin to make your money last:

Plan ahead

Only 18% of American workers feel “very confident” they’ll have enough money for a comfortable retirement, reports a 2017 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI).

To figure out how much you’ll need to save, begin with estimating how much of your current income you’ll need to replicate in retirement (a good amount for the average American is around 80%). After calculating your current saving and spending, factor in any anticipated changes (e.g., decreased expenses if you pay off your home). Also, remember to include costs for new hobbies and travels in retirement.

Use the modified “4% Rule”

Many people are familiar with the “4% withdrawal rule,” which assured retirees that by holding their annual withdrawals to 4% of their retirement portfolios it would allow their portfolios to last 30 years. However, that advice appears outdated and overly optimistic. A 2013 “Low Bond Yields and Safe Portfolio Withdrawal Rates” report by Morningstar found that the modified “safe” withdrawal rate is 2.8%, and a retiree would be more than 50% likely to run out of money withdrawing 4%.

Consider working a few more years

There are numerous reasons why some experts are advocating waiting a few extra years before retiring.Staying in a job allows you to continue growing your savings and gain returns on investments without needing to use them right away for retirement living expenses. It also can help you delay and boost Social Security and pension benefits. Delaying Social Security until age 70 is beneficial since you will receive an 8% gain every year after achieving full retirement age (FRA), usually 66 for most people today. You can either boost your own benefit or maximize your spouse’s benefit.

Buffer for long-term care costs

Costs for long-term care like a nursing home can be overwhelming these days, with the average nursing home costing around $80,000 per year.A 2016 Cost of Care Survey by Genworth found that the average cost for assisted living was $43,539, home health care was $46,332, and a semi-private room at a nursing home was $82,125. Many insurance policies for long-term care can be costly or have restrictions that may not help as much as they might suggest.

Consider adding an annuity

One of the best sources for fixed, guaranteed income just like Social Security or a pension is an annuity. Annuities aren’t investments; they are a transfer-of-risk insurance product against running out of income in retirement. Typically, retirees should consider allocating a portion of their savings into the right type of annuity to not stress their retirement accounts with too much risk.

Depending on the type of annuity (e.g., immediate, fixed, fixed-indexed or variable) monthly payments are based on your age and interest rates at the time it is set up. Not all annuities are created equally and you should know the differences between each and make sure they align with your goals.

Sources:http://www.kiplinger.com/article/retirement/T047-C032-S014-make-your-money-last-longer-in-retirement.html