The last thing you want to do is run out of money in retirement. Follow these ten tips to make sure that doesn’t happen.
10. Don’t Retire Too Early
Circumstances can sometimes force us to retire early. But, if you can hold out until you’re 70, you’ll get the largest possible check. That’s because each year you delay retirement, your Social Security benefits increase by about 7 to 8 percent.
If you’re married, only the higher wage earner needs to wait until age 70, Steve Vernon, a research scholar at the nonprofit Stanford Center on Longevity in Stanford, California, said in an article appearing on USA Today‘s website. The other spouse can retire at 66, the current full retirement age for people born between 1943 and 1954. NOTE: Beginning with 1955, two months are added for every birth year until the full retirement age reaches 67 for people born in 1960 or later.
Additionally, if you are at least 62 years of age, you may be able to get spousal benefits from the Social Security Administration, provided your spouse is receiving retirement or disability benefits. You’ll also qualify for Medicare at age 65. Plus, if you’re providing care for your spouse’s child and that child is also receiving benefits, you can receive benefits, too, regardless of your age at the time.
9. Figure Out How Much Money You’ll Need Each Year
Online tools like The Vanguard Group, Inc.’s interactive retirement expenses worksheet can help you estimate your monthly expenses in retirement. You’ll fill in the worksheet by entering your estimated monthly expenses for a number of categories, including food, housing, healthcare, life insurance, transportation and personal care, which includes your hobbies, educational endeavors, and travel/vacation plans. Once you’ve entered all your expenses, you’ll need to click the “calculate” button at the bottom of the page to see your total monthly expenses.
8. Follow the 4 Percent Rule
Many experts suggest following the 4 percent rule to stretch out your retirement funds. Basically, the 4 percent rule, which was established in the mid-1990s, says that you can safely withdraw 4 percent of your savings from your retirement account each year and not have to worry about running out of money. Of course, that depends on how much is in your retirement account to begin with. But, let’s say you have $500,000 in your account. If you follow the 4 percent rule, you would withdraw $20,000 annually. Keep in mind, though, that you would have to make inflation adjustments accordingly.
7. Keep Working
Lots of people continue working after they retire. In fact, it’s one of the best ways to ensure your nest egg doesn’t dwindle. Not only because it’ll supplement your savings, but because the Social Security Administration will recalculate your benefit amount if your earnings for the prior year are higher than one of the years they used to compute your retirement benefit. That means you could earn a higher benefit in the future. Keep in mind that if you retire before you reach full retirement age and you decide to keep working, your benefit amount will be reduced. “If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit… In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit,” the Social Security Administration wrote on its website. Once you reach full retirement age, your earnings no longer reduce your benefits.
6. Start Living Like a Retiree
If you’re fifteen years away from retiring, Forbes recommends that you start living like a retiree right now. In other words, now is the time to start being more frugal. This means adjusting your budget, downsizing your home, reducing leisure travel, driving more efficient cars, and any other ways you can think of to reduce your spending and increase your savings. “Pre-retirees within 15 years of retirement ought to aim to contribute to their retirement fund a minimum of 15% of their earnings annually,” wrote Forbes.
5. Grow Your Assets
You can do this by investing some of your money in the stock market or in balanced mutual funds, which combine stocks and bonds (and sometimes money market accounts) into a single portfolio. You can also buy an annuity from an investment company or a life insurance company. An annuity is a financial product that provides a steady stream of income every month during an individual’s retirement years. Another option is to invest in real estate. While you’ll have expenses like maintenance and repairs, you’ll also have a steady flow of cash from your tenants.
TIP: Although investing comes with risks, you don’t want to invest too conservatively. “Reducing your exposure [to risk-based investments] by too much, too soon could stunt the growth of your capital,” wrote Forbes.
4. Take Care of Your Health
According to Fidelity Investments, the average couple will need $280,000 for medical expenses in retirement. That amount EXCLUDES long-term care! In fact, healthcare is one of the largest expenses in retirement. And, with healthcare costs steadily rising, you need to do all you can to preserve your health. This means eating right, exercising regularly, and getting preventive care. Also, make sure you know all you need to about Medicare and supplemental insurance plans. Lastly, set aside some money for a rainy day, if at all possible. As we age, our chances of facing certain major medical issues–cancer, for example–increases. It would be nice to have a comfortable cushion on which to fall back.
3. Know Your Life Expectancy
While you don’t know exactly how long you’re going to live, knowing your life expectancy can be helpful when it comes to estimating your retirement expenses. Fortunately, there’s a neat little tool called the Actuaries Longevity Illustrator that can help you determine how long you might live. Here’s how it works:
You’ll answer a few questions about your age, gender, if you’re a smoker, and your overall health. The Longevity Illustrator will then produce charts showing you and/or your spouse’s/partner’s probability of living to a certain age, your chances that you’ll live longer than a specified age, and your probability of living for a specified number of years into the future.
2. Be Flexible
Be prepared to adjust to the changes that financial markets and everyday life can bring. For example, if for some reason your retirement savings takes a hit, you’ll need to take action to give your portfolio a chance to recover. This might mean forgoing inflation adjustments or cutting back on the amount you withdraw over the next couple of years. On the other hand, if your savings ends up being bigger than you expected, take a bit of that money and indulge a little. No, you don’t want to run out of money in retirement, but you should want to make sure that you get the chance to enjoy your retirement.
1. Get Help From Others
If you’ve got a strong social network, you can rely on them to provide emotional, psychological and even financial support. Asking your friends for favors–and doing favors in return of course–like lawn care or pet sitting can help you save on expenses you’d ordinarily have to pay an arm and a leg for.
Also, if you have kids, it’s a good idea to let them know what’s going on. Perhaps they can help you figure out your options as well as help you manage your finances.
Did you or someone you know run out of money in retirement? What did you do to get back on your feet? Let us know. Thanks for reading!