People are living longer and longer, which may cause you to wonder, is making money last through retirement possible? With careful planning and saving, you can build a big enough nest egg to see you through a 30 to 35 year retirement. Here are some tips to help you devise a winning investment strategy that will enable you to enjoy your golden years.
6 Tips on Making Money Last Through Retirement
1. Determine How Much Money You’ll Need in Retirement
You’ve probably heard that you should save 15% of your pre-tax income for retirement. But depending on how much money you want to spend in your golden years, that may not be enough. The key to making your money last through retirement is to accurately calculate your future expenses.
Although your current expenses are a decent starting point, your spending is likely to change when you retire. In general, retirees spend more on healthcare and less on things like transportation, food, clothing, and entertainment.
It can be hard to predict how your budget will evolve as you age. But try to imagine what your ideal lifestyle looks like. Is it your lifelong dream to travel the world, or would you rather have a quiet life in a small town? Research the costs of those activities and factor them into your retirement expenses.
Make sure you include a little wiggle room in your budget too. It’s better to overestimate and give yourself a cushion than it is to underestimate and run out of funds.
Once you’ve calculated the annual income you think you’ll need in retirement, you can plug that number into a retirement calculator. It will tell you exactly how much money you’ll need to save and invest per month to prepare for your golden years.
2. Plan to Ease Into Retirement
If you’ve never calculated how much money you need to save per month to hit your retirement goal, you might feel overwhelmed by the results. Depending on your current income and expenses, you may not be able to set aside that much money.
But that doesn’t mean you’re out of options and will never be able to retire. You can plan to ease into retirement by dropping down from full-time to part-time work. Covering part of your living expenses will enable you to stretch your savings further, making money last through retirement.
You can also use applications that would help you plan your retirement. Here are some apps.
| App | Fees and Minimum | Best for: |
|---|---|---|
| Betterment | 0.25% per year no account minimum | Saving for retirement |
| Ellevest | $1-$9 per month no account minimum | Retirement especially for women |
| Personal Capital | Free | Planning retirement |
3. Maintain the Ideal Asset Allocation for Your Age
If you invest your money too conservatively, it may not grow enough to support you during your retirement. That’s why it’s important to maintain the right mix of assets. As a general rule, the percentage of stocks in your portfolio should equal 100 minus your age. So if you’re 35, 65% of your portfolio should be in stocks and the rest in bonds and cash.
4. Look Into Long-Term Care Insurance
It’s estimated that half of all Americans who make it to age 65 will need long-term care within their lifetimes. A private room in a nursing home currently costs over $100,000 per year. So if you need others to take care of you during your retirement, you could easily burn through your nest egg.
That’s why it may be worth looking into long-term care insurance policies that will cover your nursing home stay. Some life insurance policies can also help you pay for long-term care by allowing you to use the death benefit while you’re alive.
5. Keep Several Years of Living Expenses in Cash
As you head into retirement, it’s essential to have several years of living expenses in cash and bonds. If the market crashes after you leave the workforce, you don’t want to be forced to sell your stocks at a loss. Having some liquid cash on hand will enable you to pay your bills without dipping into your investment portfolio.
6. Follow the 4% Rule
You’ve probably heard of the 4% rule, which states that your retirement portfolio will last for 30 years if you only withdraw 4% of it annually. Some experts say that you can up that number to 4.5% and still be safe.
But if you limit your withdrawals to a conservative 4% of your portfolio, you’ll have a better chance of making your money last through retirement so you’re comfortable in your golden years.
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.
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