With increased longevity through healthier lifestyles and medical advancements, many Americans are concerned about the possibility of outliving their retirement savings. Here’s how to proactively align your retirement planning with the growing life expectancies of today’s retirees.
Americans are living 30 years longer than a century ago according to The Longevity Project and the Stanford Center on Longevity. If you finally made it to retirement, or you’re right around the corner, you are probably faced with concerns of how long your hard-earned savings will last you.
The good news (asides from living longer!) is that there are ways to determine how far you can stretch your savings. Here are a couple of tips in making your retirement money last longer.
Retirement Calculators
Although a more generic approach, financial calculators are a great first step in helping determine how long your funds will last given regular withdrawals.
Online retirement calculators are good for determining how much you need to save to provide a more sustainable income for your lifetime. The most effective and useful calculators let you model different retirement scenarios, taking into account the variables that can affect how long your money will last so that you can save and invest accordingly.
It would be hard – if not impossible – to find one, best retirement calculator that would work for everyone’s situation. However, they can help craft a savings plan, measure your progress, and forecast scenarios based on adjustments to an input. Benefits of using certain online calculators could include:
- Availability: You’re only a click away from the guessing game if you start using an online calculator.
- Retirement Savings Timeline: Financial calculators can give you a general idea of how much income you might have in retirement or how much you need to save to retire at a specific time.
- All-in-One Performance: You can use calculators to find out solutions of simple calculations to complex equations such as savings growth, asset allocations, IRA eligibility, Roth IRA conversions and more.
- Time-Saving: Calculators could help resolve your issues quicker than without, thus, you can save time.
- Ease of Use: The other advantage of online calculators is that they are mostly user-friendly.
See how long your retirement savings will last given your monthly income and expenses with our online, and free financial calculators here.
Minimize Fixed Income Expenses
According to Debt.org, household debt in the U.S. was a record $14.6 trillion for the first quarter of 2021, which seems like a lot of debt and it is. When you want to make your money last longer in retirement, you should first consider minimizing your must-have expenses. These are the things that you really can’t go without such as food, shelter, transportation, and even expenses like debt payments and insurance.
Right-sizing your housing could be a good way to help cut back on fixed expenses. This will help save on utilities, and cut back on expenses while living on a fixed income. This will also give you the most flexibility if you do get hit with some financial adversity. Say some major medical expenses, home repairs, or even a pandemic-led recession.
Most people’s incomes will drop in retirement, and you may have to reassess your expectations and habits to ensure that you won’t run out of money.
Have a Retirement Spending Plan
A spending plan is like a budget, where you set aside money for leisure activities like travel, shopping, or going out with friends. Having a robust spending plan will help you establish what you want to be able to afford in retirement. From there, a financial planner can help you figure out what type of nest egg will be needed to support your dream retirement.
Not having a plan for retirement income, or even just a spending plan, at the beginning of your retirement can greatly increase the risk of running out of money as you age. The overspending of many current retirees has been hidden by the bull market of the past ten years.
As a basic rule of thumb, 4% is considered by many to be a good starting point for choosing a withdrawal rate in retirement. For example, if you wanted $300,000 of income in retirement, you would need around $7,500,000 in retirement assets to generate the desired income.
Investment Planning
If you need to boost your retirement saving’s longevity to supplement Social Security and other sources of guaranteed income, an investment portfolio should be high on your list.
Investing should be easy – just buy low and sell high – but most of us have trouble following that simple advice. There are principles and strategies that may enable you to put together an investment portfolio that reflects your risk tolerance, time horizon, and goals. Understanding these principles and strategies can help you avoid some of the pitfalls that snare some investors. This is where hiring a financial planner could help.
Match Distributions for Appropriate Accounts
Retirement withdrawal strategies can be applied across a variety of investment vehicles: 401(k) accounts, IRAs, annuities and life insurance, among others. However, each investment has its own withdrawal rules that can and should affect how you treat money in that account. There are no limitations on withdrawals made from a 401(k) after age 59½, and by using money from these accounts first, it can allow Social Security benefits to be deferred and grow until age 70.
If someone has both traditional and Roth accounts, they need to be smart about where they pull their money. A Roth account is that income in that account is not taxed, let that money grow as long as it can in a tax-free environment. However, if someone has reason to believe their tax bracket will be lower later in retirement, using money from a Roth account first may make sense.
All these factors mean retirement distribution strategies can be daunting for many retirees to navigate. However, with professional guidance, selecting the right combination of methods can help ensure retirement accounts don’t run dry.
Final Words
Understanding your finances is critical when it comes to retirement planning. Especially when trying to figure out if your savings will last you. Due to rising lifespans, retirement planning should include determining time horizons, estimating expenses, calculating required after-tax returns, and so much more.
Whether your retirement is decades away or just around the corner, the retirement income advisors at Johnson Wealth and Income Management can provide you guidance every step of the way. Together, we will make a plan to help determine how long your retirement income will last during your retirement years.
Contact us here today to learn more.
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