- A long life is a gift – but the longer you live, the longer you need your retirement savings to last.
- Some strategies to stretch your savings include continuing to earn income, planning not to drain your savings too quickly, and knowing exactly how much it costs to live.
- Visit Business Insider’s homepage for more stories.
What if you live to be 100?
It’s not out of the question.
According to the Centres for Disease Control and Prevention, the average American can live 78.6 years. If you are in good general health and take care of yourself, you may very well live much longer.
And while that means more time with family, more time to see the world, and more time to finish your great American novel, it also means you’ll need enough retirement savings to last for decades.
No matter when you plan to retire, the best thing you can do to build savings is to start today (or yesterday, if you can manage it). But once you’re getting close to retiring, there are a few strategies you can use to stretch the savings you have:
1. Keep earning money, even if it isn’t at your primary job
Increasing your working years can have a significant influence on how long your money lasts.
“Even if you can’t continue your current position, consider doing something to bring in money, such as a part-time gig at Uber or contract work,” David Barson, a certified financial planner and the president of Barson Financial Planning in San Mateo, California, said. Even a small amount of income can have a large influence on how long your retirement savings last.
2. Plan not to drain your retirement savings too quickly
Barson said one of the greatest determinants of whether your investment portfolio will last until you reach 100 will be how much you take out for spending. If you expect to live until 100, you want to take out as little as possible.
“Try to take out 3% to 4% of your investment portfolio annually,” he said. For example, if you have $US100,000 in your portfolio, it’s a good idea to take out between $US3,000 and $US4,000 each year.
Note that while 3 to 4% is a good guideline to start with, you’ll want to customise your withdrawal strategy to best suit your savings and your lifestyle.
“Despite proven success for retirees, the 4% rule been criticised as an over-generalized strategy,” Business Insider’s Tanza Loudenback reported. She added: “Depending on the age you retire and the frequency, size, and type of investments you have, you may require a bigger or smaller nest egg. The earlier you save and invest, the more time your money has to grow and compound. The further out you are from retirement, the more risk your investments can take on, too.”
3. Keep your retirement portfolio in the market
Retirees often make the mistake of getting too conservative, Barson said. The problem with this is that if you’re taking out 3 to 4% of your investment portfolio annually, it’s unlikely that an especially conservative portfolio would generate enough returns to last until you’re 100.
“Your goal is to make sure you get adequate rates of return so your portfolio grows quickly enough to keep up with inflation and taxes over time,” Barson said.
4. Know exactly how much it costs you to live
As a retiree, it’s vital to get a handle on your basic living expenses versus your lifestyle expenses, which may include dining out, entertainment, and vacations. Barson recommends having your income (pension, Social Security, and investment withdrawal) deposited into a “house” checking account to cover your monthly living expenses. The remainder of your income can be deposited to a “lifestyle account.”
“If you live longer and your portfolio becomes smaller, you can cut back on the lifestyle expenses while continuing to cover the living expenses and stay in that 3% to 4% range,” Barson said.
5. Resist the urge to help your family more than you can afford
Of course, you love your family and want to help them out. However, spending too much on your kids and grandkids could put your own retirement at risk. “Keep in mind your kids have the ability to make a living while that gets harder for you the older you get,” Barson said.
Plus, Loudenback reported that kids are most expensive in college and beyond. She cited a 2018 Merrill Lynch survey that revealed 79% of US parents provide financial support to their adult children, contributing to $US500 billion spent annually – double the amount they contribute to retirement accounts.
While living a long life is an incredible gift, it can also take a toll on your finances if you don’t plan accordingly.
- Read more about saving for retirement:
- 3 expenses to avoid if you want to retire in 10 years
- 5 things to do by 50 to make sure you can retire when you want
- 3 ways your office 401(k) gives you more money than you realise
- 4 healthcare costs in retirement no one warns you about
Business Insider Emails & Alerts
Site highlights each day to your inbox.