Outliving your money is a scary thought. That’s why a top goal in retirement planning is making sure your money lasts as long as you do.
Assessing your retirement income is the first and most common way to start. But going over your investments, retirement accounts and other income sources is just the beginning to figuring out how to keep your long-term finances long term.
Here are four things to consider for making your retirement money last:
How long will you live?
It’s the million dollar question. And it’s probably one you can’t answer, at least definitively. But you can make an educated guess based on your family history and longevity calculators.
If your biological relatives lived well into their nineties, then chances are you’ll do the same. It’s not determinant, but it is a good place to start. Take it a step further and plan for retirement income to cover years beyond your family’s average life expectancy, just to be safe.
Longevity calculators can provide a bit of insight as well. For example, the Actuaries Longevity Illustrator estimates how long you’ll live. The calculations are based on your age, gender, smoking habits, and your own assessment of your general health.¹
If you don’t want to know the specific numbers, you can always consider a more general age range; for example, the Social Security Administration (SSA) says that about a quarter of today’s 65-year-olds will live to at least 90.²
Maximize Social Security
You can minimize your retirement income by deciphering the best time to receive Social Security distributions, because the amount you receive depends on your age.
The longer you delay Social Security benefit claims, the more money you’ll receive. You can start at any point between the ages of 62 and 70. When you reach full retirement age — which depends on your year of birth — then you’ll receive 100% of your benefits. Delaying your claim beyond that adds 8% in extra money every year up to age 70.
The SSA gives an example of someone turning 62 in 2017 (with a full retirement age of 66-and-2-months) having a monthly benefit of $1,300.³ Collecting SSA benefits early at age 62 would reduce the monthly benefit 25.8% to $964 because they’d be receiving the benefits for a longer period of time. But delaying benefits to age 70 increases the monthly benefit to $1,698, or 76% more than it would have been at age 62 — a $734 monthly difference. And remember, these benefits last as long as you live.
Visit ssa.gov to see how much you can get in Social Security distributions when you retire.
Working into retirement, even just part-time, can help you meet living expenses as you wait to claim Social Security and tap into your retirement savings.
By working longer, you can reduce the number of years you’ll need to use your retirement nest egg. If you’re receiving Social Security benefits, working could reduce your benefit amount during that time if you have not reached full retirement age, but they’ll increase later when you stop working.
In 2017, workers who haven’t reached full retirement age but are receiving Social Security benefits will lose $1 in benefits for every $2 earned over $16,920, according to the SSA.⁴ Once you reach full retirement age, your SSA benefits will no longer be reduced.
Set a Budget
There are some expenses you can’t avoid: food, medical care, utilities and property taxes. Others are optional, such as travel and transportation, and some expenses may no longer exist, like a mortgage if you’ve paid off your home (here’s hoping!).
Whatever your expenses are, you should consider figuring out your average monthly costs and how you’ll pay for them in retirement. One rule of thumb is to withdraw 3-4% from your nest egg.
If you’re having trouble fitting everything into your budget, you may need to make some changes. A drastic example would be housing, which is likely to be your most significant expense if you haven’t finished paying it off by retirement. You could lower it by downsizing to a smaller home or moving to a place that has a lower cost of living.
A Money Coach who is a Retirement Specialist can walk you through the possibilities and help you create a realistic budget that takes your retirement goals into account.
Don’t Go It Alone
If making retirement funds last long enough seems like a daunting task, you don’t have to work it out all by yourself.
If you have a plan for funding retirement long-term, that’s awesome! Now it’s time to make sure you took everything into account.
The bottom line is that a Money Coach can help you consider the risks, talk through different factors, and make sure you feel confident about the longevity of your future income sources. Call 888-724-2326 today.
¹“Welcome to the Actuaries Longevity Illustrator.” Actuaries Longevity Illustrator, n.d., http://www.longevityillustrator.org/. Accessed 4 Oct. 2017.
²“Calculators: Life Expectancy.” Social Security, n.d., https://www.ssa.gov/planners/lifeexpectancy.html. Accessed 9 Oct. 2017.
³“When to Start Receiving Retirement Benefits.” Social Security Administration, January 2017. https://www.ssa.gov/pubs/EN-05-10147.pdf. Accessed 4 Oct. 2017.
⁴“Retirement Planner: How We Deduct Earnings From Benefits.” Social Security Administration, n.d., https://www.ssa.gov/planners/retire/whileworking2.html. Accessed 4 Oct. 2017.
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