Two things most people care a lot about are their money and their health. They usually don’t give much thought to their health until they lose it. So, in general, it’s the money. The bad news is that in retirement, we get to focus on both.  

The biggest worry we have in retirement is running out of money. This worry is understandable because as we age, we inevitably get to a point where we can no longer work or no longer want to work. If we still need cash, we have a severe problem. The majority of Americans are woefully unprepared for this event. A recent survey found that 40% of older Americans’ only source of income is from their Social Security during retirement. Here are a few ways to be sure to retire with enough and make what you save last longer.

retirementHow much do I really need?

As a simple rule of thumb, when you retire, you want to have a stream of income that is at least 90% of what you were making in your last year of full-time work. The idea is that you will be spending about 80% of your previous year’s budget during retirement. With the 90% rule, you will be able to account for taxes and inflation. This rule does make the critical assumption that you will not be increasing your spending in retirement, which some people do when they decide to buy an RV, boat, condo at the beach, or a trip around the world. These kinds of discretionary purchases can throw your numbers out of whack quickly. It also assumes that inflation stays as it is and does not count your social security in the calculation.

So how can I make what I have last longer?

  • Make your Investments work – in this era of chronically low-interest rates, very few people will accumulate enough assets to live off guaranteed investments like Government bonds and CDs. Contrary to conventional wisdom, most people approaching retirement will be forced to have a far more aggressive investment posture than previously thought. This is probably the most important decision you can make. Find an investment advisor who knows how to make you money- and you trust. Do your due diligence. You cannot afford to make mistakes at this point in your investment horizon.
  • Create a Budget (and Keep to It) – When working, you set up a budget to save for retirement; however, now we need to do the same for your retirement. If you know your income stream and expenses, you can determine what you can spend each month and keep to that amount. Plan on a minimum $1000 emergency every year, and if you don’t have an emergency, then save the $1000 for a $2000 emergency next year. Keep saving an emergency fund until you reach at least $4000 in savings as 25% of households have an emergency each year, with an average cost of $3500. This way, you can be sure that you can be prepared for whatever can happen in the future.
  • Reduce your fixed expenses – Anything that you can remove from your budget that is a fixed cost is an easy solution. If you move to a smaller home that is cheaper to maintain, for example, then your utilities, insurance, taxes, maintenance, etc., will all go down. 
  • Plan for taxes – If you know they are coming, they will never be a surprise.
  • Choose your Social Security Age Wisely – When you begin receiving your Social Security can hugely affect the total you receive in your retirement. If you are at full retirement and will incur no tax penalties for taking your Social Security, then taking Social Security and using it proactively on investments is the most effective plan.
  • Work a bit longer – Just one year of work and savings can make the difference between a stressful and comfortable retirement. You can also pick up part-time work to slow the drawdown while remaining active without incurring any tax penalty.
  • Live A Healthy Lifestyle But Plan For Long Term Care – The better your health in retirement, the less you need long-term care. However, you should still plan for long-term care with insurance or a prepayment, as long-term care can be expensive.  
  • Negotiate Your Bills – Once a year, call your cable, internet, credit card, insurance, and other companies and see how much of a discount they will provide. Often your call will be well worth it as many of these companies offer programs to existing customers to keep them happy with the service.
  • Get Points – There are multiple different options with credit cards to build points for hotels, air travel, cashback, and more. By paying off your credit card balance every month, you can begin to accrue points to help reduce costs.   

The Bottom Line

Making minor adjustments to your life can save you hundreds or even thousands of dollars in the long run, but in this era of low-interest rates, the returns on guaranteed investments will not suffice for the majority of us. Most people will need to invest aggressively throughout their entire retirement to ensure that they don’t run out of money. Finding an investment advisor that can grow your nest egg without taking huge risks is the most important decision most investors can make.

Reducing lifestyle expenses will also reduce the stress of money worries that many people have in retirement. Always be aware of your spending, and keep to your budget, and plan for emergencies. Being intentional about your retirement in these ways will allow you to enjoy yourself without having to worry about if your money will last.

If you’re pondering this situation, whether to invest all at one, please feel free to reach out to me at Chase Thomas and I’ll be happy to discuss it and possibly show you better strategies to accomplish your goals.