Among all the thousands of people we talk with in our office, in our seminars, and on the radio, the single biggest fear most retirees have can be boiled down to one simple question: will I have enough money to live a decently comfortable life? There’s no shortage of articles filled with advice on how to make certain you don’t go broke in retirement – but too often we find these well-meaning “experts” are answering the wrong question, because money alone will absolutely not guarantee that you’ll be able to live the way you want in the future. We have a far more comprehensive approach to the question which we’ll share in just a moment.
Make Your Money Last by Spending Less
Meanwhile, we’ve run across yet another article about how to make your money last, this one written by financial columnist Liz Weston. We found this article here on the Money website, promising seven ways for retirees to make their money last. “Many people worry about running out of money in retirement,” writes Weston. “That’s understandable, since we don’t know how long we’ll live, what our 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.” She follows with what seems to be a good if somewhat basic list of tips to stretch your dollars. Let’s take a look.
- Reduce your ‘must have’ expenses. This sounds simplistic, but it’s good advice, and many retirees ignore it: start by spending less, especially on fixed expenses like housing, food, transportation, insurance, utilities and debt. Liz Weston says this process might include downsizing to a smaller home “if you can reduce or eliminate your mortgage payment and shrink other costs such as property taxes, utilities and insurance.” Another idea: get rid of a car and (according to AAA) you could save nearly $9,000 a year. Also, whenever possible, eliminate debt before you retire.
Make Your Money Last by Earning More
- Keep earning. “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 percent,” Weston writes. “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. This topic comes up frequently, including in our blog article from earlier in July. For most retirees, delaying benefits until 70 is the best strategy. “The longer you live,” says Weston, “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. Financial advisers may disagree on the topic of annuities, but for many retirees the idea of having sufficient guaranteed income to cover your basic expenses is alluring. However, make sure you do your homework: some annuities are quite complex and come with hefty fees. An immediate annuity typically provides income for life in exchange for a single lump-sum payment. If you’re considering an annuity, we suggest talking with an objective financial planner who can prepare a financial dashboard that will help you evaluate your situation.
Make Your Money Last with the Right Financial and Medical Advice
- Choose a sustainable withdrawal rate. Once you turn 70 ½, you’ll need to start withdrawing from any tax-deferred retirement accounts including 401(k) and 403(b) plans. But, here again, do your homework. Fail to take out your RMD (Required Minimum Distribution) on time and you’ll face severe tax penalties. Take out too much and you’ll deplete your savings too rapidly. As Liz Weston says, “Financial planners typically recommend that people take no more than 4 percent of their nest egg in the first year of retirement, increasing the withdrawal by the inflation rate in subsequent years.” However, she adds, early retirees and conservative savers “might start at 3 percent rather than 4 percent, or skip inflation adjustments in years when markets are bad.” Your financial dashboard can help you find the right strategy.
- Get good tax advice. “Your tax situation can become more complicated in retirement, especially if you were a good saver,” says Weston. Required minimum distribution amounts from retirement funds can trigger higher taxes on Social Security income and even raise Medicare premiums. “The math involved can get intense, so consult an experienced tax pro.” Here’s where the right advice really helps you save money.
- 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,” Liz Weston writes. “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.” Stay healthy and you’re likely to spend less.
Make Your Money Last with a Truly Comprehensive Retirement Plan
To reiterate the suggestion we gave above, we think the best way to approach the question of making your money last in retirement is to sit down with a trusted financial professional and have them prepare a financial dashboard. It’s the most powerful tool we’ve seen to help you gauge your financial health as you plan for your future. Contact us and we can refer you to the right person to help you. But as Rajiv Nagaich urges, you absolutely must take a much wider view than to focus merely on your money – because retirement is about much more than money, and money alone is no guarantee that you’ll experience the kind of retirement you’re hoping for. Housing will also be a key consideration, as will medical coverage as part of your retirement strategy. You may need to set up a legal framework to protect your loved ones and your assets while allowing you to access the care you need. Finally, since aging is a family affair, your family has to be in the picture. Is there one approach that blends all these together into an effective retirement strategy?
Fortunately the answer is yes: it’s called LifePlanning, and only the professional team at AgingOptions offers it. We invite you to invest just a few hours and find out more by attending a free LifePlanning Seminar with Rajiv Nagaich, and allow Rajiv to open your eyes to retirement planning that accomplishes all you need to achieve the retirement of your dreams. You’ll find a calendar of currently scheduled seminars here on our AgingOptions Live Events page – then simply register for the free seminar of your choice. It will be our pleasure to meet you at an AgingOptions LifePlanning Seminar. Age on!
(originally reported at http://money.com)