How Long Will My Money Last? Never Outlive Your Nest Egg With These Simple Tricks

If you are turning 65 today, the odds are that you will live until you are at least 84. Those special birthdays are great news for people who are excited to stay active and share in life’s significant milestones for their children and grandchildren, but they also come at a cost. When the average Social Security benefit is just $1,503 a month, it has never been more critical to enter retirement with a plan that makes sure that you do not outlive your nest egg. 

Consider the Big Expenses

Large, unplanned expenses are one of the leading reasons why retirement plans fail. While surprise expenses can spring out of nowhere, everyone knows that healthcare costs are high and unavoidable. Healthy retirement-aged couples can expect to spend nearly $400,000 on healthcare costs throughout their lives and will likely need an additional $182,000 to cover long term care costs.  

You can tackle the challenges of significant, unplanned expenses by creating a realistic budget. Sitting down with a retirement adviser can open your eyes to some costs that couples often overlook. Are you retiring on a tight budget? Now is the time to consider whether working a few extra months makes sense because it lets you purchase long-term care insurance, pay off debt, or afford a supplemental Medicare plan. 

If you need an added benefit to delay retirement for six months, consider that a short delay in your retirement date affects your standard of living as spending the last 30 years saving 1% more of your income. There are always alternative options to consider, such as taking out an SBL or Home Equity Line of Credit.  Having the ability to tap into home equity to avoid withdrawing from your tax-advantaged accounts can give you some latitude when you need to address those significant expenses without jeopardizing your retirement. 

Time the Market

Yes, you did just read that you should time the market when entering retirement! Market timing gets a bad reputation from day traders and penny stock chasers. Still, retirement experts agree that retiring into a falling stock market can create significant risks for retirees because it forces retirees to withdraw more money than they otherwise would from their retirement accounts. Combining a falling stock market and ordinary retirement expenses can lead to the failure of the best-laid plans thanks to the “sequence of return risks.” 

You may not control the market, but you can control how it impacts your retirement planning. If you sense a storm on the horizon, consider pushing back your retirement date by a few months. The extra time will allow you to save a bit more for retirement, will let you gather information about the market, and will give you time to reassess your plans in the event of a significant market drop. If you are still years away from retirement, you have options to help you reach retirement such as buying a low-fee variable annuity through a broker to create a fixed income stream. You can slow your discretionary spending in downtimes and rely on the annuity to meet your day-to-day expenses. When the market roars back, as it always does, you can shift back to withdrawing from your 401(k), IRAs, or 403(b).

Know Your Numbers

Responsibly retiring is all about knowing your numbers, and there is no more critical a number in retirement planning than the “safe withdraw rate.” A safe withdraw rate tells you how much of your nest egg you can remove every year without risking running out of money. The most widely accepted safe withdraw rate is 4%, meaning that a retiree can withdraw up to 4% of their assets every year without jeopardizing their financial health.

To understand how the 4% strategy works in real life, consider a retiree with $1 million in invested assets on the day they retire. They can withdraw up to $40,000 during that first year of retirement without any worry. Assuming an ordinary inflation rate of 2.5% and typical market performance, they can withdraw up to $41,000 in their second year of retirement. This process repeats itself throughout retirement. 

Conservative retirees can add in a layer of added safety with a bond ladder. Retirees using this strategy maintain bonds with maturity dates between six-months and three years into the future. If the market crashes, they rely on the maturing bonds to cover their expenses to leave their investments alone.

It Is Your Retirement!

Simple math tells us that a 25-year-old can retire with a million dollars by doing little more than investing about $185 a month. Planning for significant expenses, timing your retirement date, and understanding how much of your money you can withdraw are essential steps to take to make sure that you never outlive your retirement nest egg.

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