Will your retirement money last as long as you do?

Wednesday, January 01, 2025 05:46 AM - Comment(s)

Will your retirement money last as long as you do?

If you worry that your retirement savings won’t last as long as it needs to, you’re not alone. Forty-nine percent of pre-retirees are concerned about outliving their money, according to the SimplyWise Retirement Confidence Index. Knowing how long your money needs to last may be one of the biggest unknowns in retirement planning.

Although the future can’t be predicted, at birth, American men are expected to live 75.1 years and women 80.5 years, reports the National Center for Health Statistics. That means a couple turning 65 can expect to live together in retirement for another 19 years, on average, but potentially longer. That’s great news considering the time many retirees will have to enjoy the next chapter of their lives. The downside? Many people are concerned about running out of money during retirement.

You can ease your mind by acknowledging that retirement does not signal the end of savings. "We tend to think about saving money as something we do only while working, but your money can still work for you in retirement," says Emily Guy Birken, author of Making Social Security Work for You: Advice, Strategies, and Timelines That Can Maximize Your Benefits. If you retire at 62 and live for 30 more years, that's 30 years of growth potential for your retirement nest egg.

Divide and conquer

To maximize your money, Birken suggests thinking about your retirement portfolio as having three different buckets. Planning this way can help ensure that you'll have what you need for as long as you need it.

The first bucket is for the first five years of retirement. It is earning interest, but is in a relatively safe spot, so you don't have to worry much about stock market fluctuations and volatility.
The second bucket is for years six through 15 of retirement. It should also be relatively safe and earning interest.
The third bucket is for a longer time frame — year 16 and beyond — so you can afford to be a bit riskier, since you have more time to let that money grow.

Keep in mind that the markets always have some element of volatility, so you may want to consider adding a fixed or fixed indexed annuity to your financial strategy as well.

These annuities offer protection from loss due to market downturns and may provide you with a guaranteed stream of income for life. Think of it as getting a “retirement paycheck” for as long as you live. You also have the freedom to use the money any way you like, from taking care of your essential needs to pursuing other retirement goals and dreams.

Live now as you plan to later

Another way to ensure that your money lasts throughout retirement is to start living now as if you are already retired. Test-driving your retirement can help you set a realistic retirement budget and give you ample time to make adjustments to your financial plans before your actual retirement.

Birken advises you to begin by looking at your big line item expenses, such as housing, transportation, and health care. If there are changes you see yourself making in retirement (like downsizing to a townhouse or becoming a one-car household) that you can realistically make early, go ahead and implement them. You'll not only save money that you can funnel into your retirement accounts, but you’ll also ultimately set yourself up for a happier, more satisfying retirement.

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