Share

Liz Weston: Make your money last in retirement

Share

Many people worry about running out of money in retirement. That’s understandable, since we don’t know how long we’ll live, what your future costs might be and what kind of returns we can expect on our savings.

There are several ways, however, to boost the odds that your money will last as long as you need it. Among them:

REDUCE YOUR ‘MUST HAVE’ EXPENSES

Lowering your fixed expenses — shelter, food, transportation, insurance, utilities and minimum loan payments — can help you withdraw less from your savings, which in turn can help your money last longer. One powerful way to reduce expenses is to downsize to a smaller home if you can reduce or eliminate your mortgage payment and shrink other costs such as property taxes, utilities and insurance. Getting rid of a car could save you nearly $9,000 a year, which is the average cost of car ownership according to AAA. 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.

KEEP EARNING

Trending:
Prince Harry Named in Major Sex Trafficking Lawsuit Against Rapper

A study for the National Bureau of Economic Research found that delaying the start of retirement from age 62 to age 66 could raise someone’s annual, sustainable standard of living by 33%. Even if you can’t continue working full time, income from a part-time job or side business could help you withdraw less from your savings.

MAXIMIZE YOUR SOCIAL SECURITY

Most people will live past the “break-even point,” where the larger checks they get from delaying the start of their Social Security benefit will total more than the smaller checks they bypass in the meantime. More importantly, though, bigger Social Security checks 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.

CONSIDER BUYING GUARANTEED INCOME

Many retirement experts say it’s a good idea to have enough guaranteed income to cover your basic, must-have expenses. If those expenses exceed what you expect to get from Social Security and traditional pensions, consider buying additional guaranteed income by purchasing an immediate annuity. Unlike other types of annuities that can be complicated and expensive, an immediate annuity can provide a stream of income for life in exchange for a single lump-sum payment upfront.

CHOOSE A SUSTAINABLE WITHDRAWAL RATE

Big withdrawals or bad markets at the start of your retirement can dramatically increase the risk you’ll run out of money. Financial planners typically recommend that people take no more than 4% of their nest egg in the first year of retirement, increasing the withdrawal by the inflation rate in subsequent years. That means a retiree with $200,000 in retirement savings could withdraw $8,000 the first year. If inflation is 3%, the retiree would add $240 (3% of $8,000) and withdraw $8,240 the second year, and so on. People who retire early or who want to be more conservative might start at 3% rather than 4%, or skip inflation adjustments in years when markets are bad.

GET GOOD TAX ADVICE

Your tax situation can become more complicated in retirement, especially if you were a good saver. You could be thrown into a higher tax bracket by required minimum distributions from retirement funds that typically must start at age 70 1/2. The higher income also can cause more of your Social Security to be taxable and raise your Medicare premiums. Sometimes it can make sense to start distributions earlier or to do Roth conversions to reduce future taxes. The math involved can get intense, so consult an experienced tax pro.

Related:
Former MSNBC Host Chuck Todd Furious After Network Hires Former RNC Chair Ronna McDaniel

PROTECT YOUR HEALTH

Many chronic health conditions are associated with higher medical costs in retirement, including diabetes, high blood pressure, high cholesterol, arthritis and heart disease, according to a study by Vanguard and Mercer Health and Benefits. Some health risks are beyond our control, but regular screenings, proper medical care and a healthy lifestyle may help you reduce some of those costs.

_______________________________________

This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

RELATED LINK:

NerdWallet: 8 ways to increase Social Security benefits http://bit.ly/increase-social-security-benefits

The Western Journal has not reviewed this Associated Press story prior to publication. Therefore, it may contain editorial bias or may in some other way not meet our normal editorial standards. It is provided to our readers as a service from The Western Journal.

Truth and Accuracy

Submit a Correction →



We are committed to truth and accuracy in all of our journalism. Read our editorial standards.

Tags:
Share
The Associated Press is an independent, not-for-profit news cooperative headquartered in New York City. Their teams in over 100 countries tell the world’s stories, from breaking news to investigative reporting. They provide content and services to help engage audiences worldwide, working with companies of all types, from broadcasters to brands. Photo credit: @AP on Twitter
The Associated Press was the first private sector organization in the U.S. to operate on a national scale. Over the past 170 years, they have been first to inform the world of many of history's most important moments, from the assassination of Abraham Lincoln and the bombing of Pearl Harbor to the fall of the Shah of Iran and the death of Pope John Paul.

Today, they operate in 263 locations in more than 100 countries relaying breaking news, covering war and conflict and producing enterprise reports that tell the world's stories.
Location
New York City




Conversation