How To Make Money Last in Retirement

Health care is expensive, more people are living longer and the market is on a roller coaster. Worrying about running out of money in retirement is not unfounded. But with financial planning, you can get some breathing room, so you can face retirement with ease rather than stress.

Inflation is one reason people think they may run out of money in retirement. If you’re in your late 60s, and you live another 30 years, assuming even a 3% inflation rate, where’s the extra money coming from? Things will probably cost more after 30 years. What can you do?

How To Make Money Last in Retirement

The goal should be to develop a comprehensive retirement plan to help your money last at least until you’re 100. Most people can boost the odds that their money will last as long as they do in retirement using these tips:

Minimize fixed expenses such as food, shelter, transportation, debt payments and insurance. Right-size your housing. Stay in your home, and invite other retirees to live there, too, if this is feasible. Or if you’re in a large home, consider downsizing. Also, if you and your partner are both retired, maybe you need only one car.

Maximize your Social Security benefits. Maybe you’re better off retiring early and collecting a smaller amount. Or waiting later and collecting more may be right for you. Think it through and get professional advice on your choices.

Consider some guaranteed income stream. This can take many forms, such as an annuity. Or maybe you or your partner have a traditional defined benefit plan. In that case, explore options well in advance for making sure the pension will cover the surviving partner.

Have a retirement spending plan. Set aside money for fun stuff like travel or shopping or going out with friends. As a basic rule of thumb, 4% is a good starting point for choosing a withdrawal rate in retirement.

Don’t ignore tax planning. This doesn’t stop when you stop working. Based on your situation, for example, you may have to pay tax on a portion of your Social Security. At some point, you will take money out of an IRA or 401(k) plan, and these withdrawals are taxable. The point is to work on your tax situation with a professional and not to make assumptions.

Phase out work gradually. You don’t have to retire all at once. Maybe the nine-to-five grind is too much, but 15 to 20 hours a week of freelance work is manageable—even enjoyable. Perhaps your old employer would like you to consider consulting a couple days a week with former clients. If health permits, waiting even one extra year to retire can increase your standard of living for the rest of your life.

These are just some general thoughts. Everyone’s situation is different, and your retirement plans are unique. The point is that it’s never too early to discuss your plans with a professional to make sure you’re on track for your dreams.