One of the most common questions I get asked by people thinking of retiring is, “What do I need to do to ensure I won’t run out of money in retirement?” If you’ve asked this question, you have reasons to be concerned: Healthcare is costly, most people live longer, and inflation has eroded purchasing power. The list goes on and on. If you haven’t asked this question, you either have a ton of money or are in for a rude surprise later in retirement.
Proper retirement planning cannot completely eliminate the risk of running out of money in retirement, but it sure can make it much less likely. More importantly, it can allow you the financial freedom to get more joy during your retirement versus spending the next 30 years stressing out that you may or may not go broke as you age. Knowing you can afford that bucket list trip will make it more enjoyable.
Many people worry about running out of money in retirement. That’s understandable as we don’t know how long we’ll live, our future costs, and what kind of returns we can expect on our investments and savings. At this point, we don’t even know what tax rates will be next year, let alone 20 years down the road. (With the expiration of the original Trump tax plan at the end of 2025, there will surely be tax changes coming this year or next).
There are several ways, however, to boost the odds that your money will last as long as you do in retirement. Here are my 15 favorite ways to help your money last forever in retirement.
1. Keep An Eye On Lifestyle Inflation
I recently spoke with a couple on vacation who said their amazing stay at Awasi in Chile’s Atacama desert would ruin their retirement travel budget. The luxury stay was a splurge, but now they were spoiled and would need to rethink how they travel in the future. Not all examples of lifestyle inflation are this obvious. Sometimes, things just cost more over time, or perhaps we go up a notch or two every time we get a new car.
To be clear, I’m a huge fan of lavish travel spending. However, depending on your income, you may need to cut back on other areas to avoid having your travels cause you to run out of money in retirement.
The bottom line is that what’s necessary for survival and what entails an absolutely fabulous retirement are likely not the same thing. Keeping your core must-have expenses to a minimum will make it much easier for your money to last in retirement. I am not saying you have to cut out everything else, but there is a big difference between planning to spend a ton of money traveling in style for months on end compared to driving a luxury car while wearing designer duds with no money left over to go out and show off your fabulous outfits.
Minimizing your fixed expenses gives you the most financial freedom regarding spending. The more financial freedom you have, the easier it will be to make your money last in retirement.
2. Don’t Ignore The Costs Of Inflation
What may seem like a great retirement income at 62 will probably feel like you are living paycheck to paycheck at 92. Prices on things you need to buy go up over time. Ignoring this fact will greatly increase your odds of running out of money before you run out of life.
Have you ever spoken with someone who told you how cheap something used to be? The increase in prices is called inflation. If you are retired for 30 years, inflation will significantly reduce your buying power over time. With just three percent inflation, something that cost $10 at age 62 would cost over $24 at age 92.
3. Spend More On Your Health Now To Protect Your Retirement Income
Being healthy and happy isn’t always cheap. However, being a patient in our sick-care system is even more expensive. Making healthier choices today can reduce your out-of-pocket healthcare costs in retirement. They can hopefully also help you increase your healthspan as you age. I’m going out on a limb to say the healthier you are in retirement, the more you will be able to enjoy your golden years.
As a fiduciary financial planner, I will point out the obvious downsides to making healthier choices today when it comes to running out of money. Making healthier choices today will, on average, increase your longevity and healthspan.
Increasing your longevity, aka living longer, increases your chances of running out of money in retirement. The longer you live, the longer your money has to last. Increasing your healthspan will also likely increase the amount of money you want to spend in retirement. If you are feeling good, you are more likely to want to get out and do things versus being confined to the couch and watching reruns on TV.
Personally, I’m willing to take the risk of being healthier and happier, extending my lifespan and potentially straining my retirement savings. Of course, I’m also planning my retirement savings to last past age 100, so I should be good.
4. Optimize Your Social Security Benefits For Maximum Retirement Income
If you are lucky enough to retire early, claiming Social Security may make sense for your retirement plan. If you are still working, you may find a good amount of your Social Security benefits clawed back, depending on your ongoing income. For most retirees, the longer you can wait to claim Social Security, the more helpful it will be in maintaining financial freedom in retirement.
I get it; beginning your Social Security benefits at age 62 is just too appealing to many future retirees. A check every month from the government for doing nothing? Can I get it now? Sign me up.
Claiming Social Security on the early side has some significant downsides. It will significantly reduce the income you get now and the money you receive in the future. It also means smaller cost-of-living adjustments later in life when you may desperately need them. Will you need those extra pennies more at age 62 or 92?
Increasing your longevity and healthspan is excellent for your retirement happiness. However, the longer you expect to live, the greater the odds you will run out of money in retirement. The money has to last longer. My great-grandfather lived to age 99, and I plan on a decades-long retirement. Don’t worry. My retirement is also decades in the future.
Think of your Social Security benefits as longevity insurance. That money is an income stream you can’t outlive. The government even increases your benefits (via cost-of-living adjustments over time).
5. Have A Fab Spending Plan For Your Retirement
If you hate budgets, you aren’t alone. I’m not talking about budgeting here. Your spending plan is a way to ensure you have money for the things that matter most to you.
This is where we set aside money for exciting stuff like extended travel, luxury shopping, or going out with friends. You prioritize setting aside money for the things that matter most to you. On the flip side, budgeting is where some financial know-it-all tells you that you will die poor after buying your favorite coffee concoction at Starbucks.
Your robust spending plan will help you establish what you want to be able to afford in retirement. From there, a fabulous financial planner like me can help you determine what type of nest egg will be needed to support your dream retirement.
Not having a spending plan for your retirement income at the beginning of your retirement can greatly increase the risk of running out of money as you age. Your overspending may be hidden behind a run-up in the stock market. While I’m optimistic, it is unrealistic to expect 20%-plus returns, as we saw in 2023 and 2024, every year of your retirement. The longer it has been since the last market correction, the closer we are to the next one.
6. Don’t Ignore Tax-Planning Strategies To Increase Your Retirement Income
Proactive tax planning doesn’t end when you retire. In many cases, tax planning in retirement may get even more important and complicated. If nothing else, do tax planning to avoid increases in your Medicare premiums and to avoid the Medicare surtax on investment income. Remember, it’s not how much retirement income you have but how much of it you get to keep.
Here are some time-planning questions to consider before retirement: How will I manage my required minimum distributions? Are there any tax strategies to help avoid healthcare expenses from devouring my retirement income? Don’t forget to consider what your Medicare premiums cost. How much of your Social Security income will be taxed? Where should you plan to draw your retirement income first? Should you use the Roth IRA first or last? These are retirement-planning questions that a proactive CPA or certified financial planner can help with. Answering them will help you keep more of your hard-earned money.
7. Have Tax Diversification On Your Retirement Assets
If all your retirement income is derived from a pension or 401(k), your options to minimize taxes are limited. Ideally, you would have some tax-free income, such as distributions from a Roth IRA. Investing in a nonretirement account is also beneficial when you have budget-busting expenses like that bucket list trip, new roof, or grandchild’s wedding.
8. Work A Bit Longer Before Retiring
A few good things happen when you work just a bit longer. First, you have more time to save a bit more money for retirement. Second, your existing retirement assets have more time to benefit from the magic of compound interest. Third, your Social Security benefit grows every month you delay claiming benefits. Fourth, the later you retire, the fewer years you need to fund your standard of living from your retirement accounts.
I’m also a big fan of slowly transitioning out of the workforce. If you can take a new role with less responsibility or more vacation time, you may find a work/retirement combo quite appealing.
9. Be Sure To Continue Investing
If your fear of investing causes you to stop investing, it will almost invariably bring about the result you are most worried about. That is running out of money in retirement. While interest rates on high-yield savings accounts have peaked recently, they are still well below the historical average of the S&P 500.
While you may feel that investing in the stock market is risky, an intelligent investing plan will reduce your chances of running out of money as you age.
10. Assume You Will Need Long-Term Care
Have a plan to pay for long-term care and then hope you don’t need it. Also, see tip No. 3 – make healthier choices now. Either way, statistically, the odds are enormous that at least one-half of a married couple will need long-term care in retirement. Often, one spouse will require care first, which significantly strains the family’s finances, if not depleting them completely. Then, the widow (or widower) is left living off any guaranteed income they might have and Social Security.
Long-term care is expensive. In places like Southern California, a private room in a nursing home can easily run $110,000 per year or more. Some parts of the country are a bit cheaper, but others are more expensive. Even cheaper locales will break most retirement budgets.
11. Maximize Credit Card Points And Miles
Please tell me if this sounds amazing. A 70-plus-year-old gay couple I work with (plus their two kids) just took an amazing Gorilla trek and African safari. This trip is something I’ve added to my bucket list for sure. It got even better when I heard they used points and miles to all fly first class from LAX to Africa. That resulted in them saving over $60,000 on flights, unforgettable memories with the family, and a happy financial planner.
This couple also used a spending plan to ensure they had money to pay for the rest of the trip without ruining their retirement income plan. Safari lodges, permits, food and tours add up when traveling. I’m a big fan of spending fabulously on things that bring you joy and cutting wisely in places that don’t.
All the money they saved with miles and points was money they didn’t need to withdraw from their retirement account, and the benefits were tax-free. They also used a credit card with great earnings for travel spending, which got them well on their way to enough miles for their big family adventure.
12. Buy Your Home Early
If you want to be a homeowner, the benefits are bigger the early you begin owning real estate. If nothing else, the longer you’ve owned a home, the easier it is to pay off your mortgage.
Even at today’s mortgage rates, I’m not a huge fan of rushing to pay off your mortgage. I plan to have one, at least throughout my working career. I purchased my first home in my 20s. That early purchase allowed me to move into a house I had only dreamed of in my 20s.
The point is that owning a home is a hedge against the inflation of housing costs and an extra layer of protection against running out of money in retirement. The downside is property taxes and maintenance.
If you enter retirement and can live off your assets while owning a home, you can think of your home as a bit of longevity insurance. For example, I created a financial plan for a 70-year-old widow, expecting her assets to run out at around 100 years old. Even the possibility of ever running out of money freaked her out. Then, I gently reminded her that her home in Palm Springs would be paid off in a few years. The current value is a few million dollars, and it’s safe to assume it will be worth much more in 30+ years when she hits 100. We weren’t even using this large asset as part of her retirement income plan.
13. Reduce Your Home Expenses
Over the past 20+ years as a financial planner, I’ve seen quite a few people go from expecting to die in their homes to looking to reduce the hassle of homeownership in retirement. Reasons for this change include the cost of maintenance and wanting to live somewhere different.
Right-sizing your home is a wise way to cut back on fixed expenses and maintenance costs. This might even mean staying in your (bigger) house and living like the Golden Girls in retirement. This will help you save on utilities and hopefully bring some fun and friendship into your daily life.
This will also give you the most flexibility if you face financial adversity, such as major medical expenses, home repairs or even a recession.
14. Consider Some Guaranteed Income
People didn’t really need to do much retirement planning when they had a large pension, Social Security and a modest standard of living. If you were wealthier, you had other assets to subsidize your fixed income. Few people have pensions these days, and Social Security will not come close to replacing your total preretirement income.
Having some guaranteed income in addition to Social Security can help bring peace of mind during retirement. Ideally, you would have enough fixed income to cover your necessities, like housing and food.
Talk with a fee-only financial planner about setting up a guaranteed income stream with part of your retirement savings.
Be cautious about being sold some big annuity with sky-high fees that you can’t get out of for years. This should be a small portion of your overall net worth, giving you a little extra peace of mind from some guarantees on your income stream in retirement.
Whether you are concerned about running out of money in retirement or think you are set, develop a retirement plan to ensure you and your loved one are financially set for the rest of your lives. We’ve shared 14 tips to help your money last the rest of your life. Act today to put one of these (or all) into place. When you are still kicking and enjoying life at 120 years old, you will be happy you did.
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