close

9 Ways to Not Run Out of Money in Retirement

If you are getting ready for retirement or you are already retired, you need to know how to make sure you have enough money to last for your golden years. Depending on your situation, there may be different approaches to attain your retirement goals. With the right planning and preparation, you can ensure you will have enough money. It’s important to not go overboard on spending after you have retired, or you might find yourself facing financial challenges. Here are nine ways to not run out of money in retirement.

1) Don’t Retire Without Enough Savings

Set realistic retirement goals and know how much you need to have a comfortable retirement. You need consider the increased life expectancy rates when calculating how much you need. During the last 30 years, the life expectancy rates for men in the U.S. has climbed from 70 to 79 while the life expectancy for women has gone from 77 to 83. That means the longer your lifespan, the more funds you will need. Experts indicate that to have a lifestyle that is equal to your standard of living before you retire, you should save at least 10 times your annual salary. If you are wondering which salary, that would be your final salary before you leave. Usually, saving at least 15% of your annual income every year should get you what you need, even if you need to reduce your current living expenses a bit to achieve that.

Advertisement

2) Define What Your Retirement Is

You need to decide if retirement to you means that you aren’t working at all or if it includes having a part-time job. Recent studies have determined that there are numerous people who consider themselves to be retired who are still earning an income from part time work. For some people, retirement means working fewer hours or taking sabbaticals or long breaks periodically. If you view your retirement to be like this, it means the money that you have put away for retirement can stay in the retirement account and continue to grow interest for a while longer. You can achieve this kind of retirement a little earlier than you can a full retirement, which involves absolutely no work to bring in additional income. Make the right choice for you and your needs when it comes to how to retire – either ending employment fully or working some hours every week.

Advertisement

3) Keep Withdrawals at a Minimum

If your withdrawals are too high when you retire, you will run out of money fast. You want your money to last, so you need to be careful with your withdrawals. Often when a new retiree is asked how much they can take out of their retirement plan each year and they come up with a figure that is two or even three times higher than they should withdraw to keep finances in order. In years when the markets aren’t performing well and are down, you’ll want to withdraw less, around 3.5% or in that range. If your portfolio is performing well and markets look good, you can take out some extra cash, around the 4.5% range or a little more. On average, keep those withdrawals setting somewhere around 4%. Remember, sometimes more is less and in this case, it means more money for your future.

Advertisement

4) Get Your Home in Order

You don’ t want to use your retirement funds to pay off your mortgage. Instead of doing that, make sure your home is paid off before you retire. That way, your biggest asset during your retirement years could be a home that is completely paid for and remodeled so you can live comfortably. If you don’t have a mortgage to pay, you can withdraw smaller amounts from your retirement accounts. If needed, you could use the equity in your home for retirement in the form of a reverse mortgage later. If a move is planned for your retirement, make sure you spend some time in the community you plan live in so you can properly acclimate and understand what your living expenses will be. You want to be comfortable and feel at home wherever you decide to live.

Advertisement

5) Find an Objective Financial Planner

While some people are happy with a financial planner, some experts recommend that you get two people involved with your retirement planning to ensure your accounts thrive. With an investment manager and a financial planner, you can get all the details figured out and in order. You want people helping you with your finances that are willing to give you an objective review of your retirement plans before the time arrives. Those decisions that you make in the years leading up to and immediately after retirement could have irreversible consequences and impact your cash flow. As an example, if you make withdrawals that are too large you might find yourself running out of money much earlier than you ever anticipated. You need people who will keep an objective outlook on your financial situations, and have your best interests as their priority.

Advertisement

6) Stay Healthy!

Do everything you can to stay in good health. Your medical expenses can take a major chunk out of your retirement accounts if you start spending extra on health care. If you get proper medical care, exercise, eat right, and follow physician’s orders and take any prescribed medications you can keep yourself on track for just routine care. If you eat whatever you want, don’t exercise and you are obese, you are much more likely to find yourself in a situation where you are facing care for chronic conditions or even costly medical emergencies. A heart attack, for example, could lead to the need for heart surgery and cardiac rehabilitation services afterwards. Paying your co-pays and deductibles can add up to a hefty amount. Plus, you want to stay healthy to enjoy your retirement years. You don’t want to spend them sitting in a chair looking out the window!

Advertisement

7) Maintain an Emergency Account

At one time, it was said retirees could get rid of their emergency cushion. However, you might not have that much flexibility when you aren’t bringing in a regular salary. You could still face a large unexpected medical bill, home repairs, car repairs or the need for a new car, or some other emergency that happens when you least expect it. Keeping an account that has some funds set aside for these kinds of situations during your retirement years can help you keep your retirement funds intact, and give you the funds you need for those unexpected situations we all face in life. How much you need to keep in that emergency account can be disputed, but most financial experts suggest that you have the equivalent of three to six months’ salary put away for the unpredictable events.

Advertisement

8) Consider an Annuity

If you aren’t hesitant about handing over some of your cash to an insurance company, you can benefit from purchasing an immediate annuity. This annuity can provide you with a stream of guaranteed payments throughout the remainder of your life. Many people who are retiring find it beneficial to annuitize part of their savings for retirement so they can generate enough income to pay their regular expenses, such as utility bills, insurance premiums, car payments, and so forth. You know that your fixed expenses will be covered regardless of how the financial market is performing. The cons to making a move to an annuity is that your heirs won’t receive any money you have annuitized and if you aren’t careful you could end up with an annuity that is complicated and has costly fees.

Advertisement

Tags: , , , , , , ,

Story Page