How not to run out of money in retirement

Are you afraid of running out of money in retirement? Use these tricks to make sure it doesn’t happen to you.

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One of the biggest fears of many investors and retirees is running out of money in retirement. However, there are many strategies available to ensure that this does not happen to you. By employing one or more of these, you can dramatically reduce those odds.

8 Ways to Make Sure You Don’t Run Out of Money in Retirement

One of the biggest financial tasks of your life is saving enough money for retirement. However, some people don’t quite make it. Or barely make it. Or something bad might happen to them. Nevertheless, there are at least eight strategies that will allow you to still avoid running out of money. Choose one or more to apply to your life.

#1 Save more

This technique is employed by many. The 4% “rule” suggests that you save about 25X your annual expenses before you retire However, there is no law that says you can’t save 30X, 33X, 40X, or even 50X. Obviously the more you know about how much you spend, the less likely you are to run out of money.

#2 Spend less (at least sometimes)

Here’s another great trick that works very well. Instead of saving more, you can spend less. Maybe you plan to spend $100,000 per year in retirement, but if you can only spend $80,000, you’re much less likely to run out of money. You can do this by downsizing or moving to a less expensive place to live, or by adjusting how often you eat out, where you go on vacation, or what car you drive in your spare time. Options abound. But you don’t actually have to spend less all the time. You should really spend less if your portfolio is bad. This “variable withdrawal strategy” dramatically increases how much you can spend overall, even if it means you sometimes have to spend a little less. Having spending flexibility during retirement is very valuable.

#3 Spend only income

If you don’t actually touch your principal, your money will never run out. That doesn’t mean your nest egg, your income, and your expenses will remain stable or even keep up with inflation, but it doesn’t mean you won’t run out completely. However, this technique can lead to potential errors. Perhaps the biggest is that you’ll spend far less than you could have—for some people, this means they’ve worked too long and saved too much. This can lead one to invest in inappropriately high-yielding portfolios. Just because your income is high doesn’t mean your total return is high or even positive. Often this leads people to act and invest differently. For example, they may be more interested in entrepreneurship and real estate investments, both direct and indirect. There’s nothing wrong with that, but it requires a different set of skills and adds some risk, hassle, and (often) leverage.

#4 Spend your inheritance

Many of us are heirs and would prefer to leave some money and assets behind to our favorite charities. However, it is not essential. Of course, you don’t want to eat alpo To leave behind a huge legacy. There are several ways to dip into your “inheritance money” to support your lifestyle. For example, if you have a cash value life insurance policy, you can make a partial surrender, borrow against it, (1035) convert it to an immediate annuity, or fully surrender and then spend the money. Likewise, if you own a foreclosed home, you can sell it, take out a mortgage on it or even buy a reverse mortgage.

I’m not a big fan of that either Whole life insurance or reverse mortgage (Lots of costs and downsides there), but I’m also not a big fan of running out of money. You can sell or borrow against second homes, cars, boats, airplanes, and anything else you plan to leave to heirs. Sometimes you can have (part of) your cake and eat it too. Let’s say you want to leave a bunch of money to charity. But you’re also worried about running out of money. You might get one Charitable Reminder Trust. You get a charitable deduction to fund it (which allows you to spend money that would otherwise go to tax), you get annual payments from it over the years, and the charity gets the “residue” when you die.

You can take this idea of ​​spending your inheritance further, and many people do. They want their last check to bounce! Why spend all you have when you can spend all you have and all you can afford? Remember that loans that are only in your name go on death if your property has no value. (Yes, I think it’s unethical. No, I’m not seriously recommending it; don’t send me hate mail. But let’s be honest, from credit cards to medical bills to auto loans to the IRS, many people (So ​​does student loan debt.)

#5 Make money in retirement

Your nest egg lasts much longer if you maintain any level of earned income after retirement. While the Internet Retirement Police may argue that you’re not actually retired, you’re not trying to please them. Maybe it’s a little Etsy business or a blog. Maybe it’s an encore career. Maybe it’s an Airbnb in your mother-in-law’s apartment in the basement. No matter what, it all works the same to keep you from running out of money.

I think the other trick is to work longer before retiring. This allows you to contribute more, keep your investments longer, and make your Social Security benefits bigger.

#6 Delay Social Security

Deferring Social Security Age 62 to age 70 can dramatically increase your Social Security payments. Most healthy single people should delay for a very simple reason – if you die early, it won’t matter what you do, and if you die later, you’ll be very glad you waited to claim. This will definitely help you avoid running out of money for a higher guaranteed income. Financially speaking, delaying Social Security is a much better “deal” than the next two options, especially when you consider that it is indexed to inflation.

#7 Get a pension

If this is a big concern for you, you can work for an organization that offers some type of pension, such as a government or military employer. But if you never get a pension, you can still buy one. These are called Single premium immediately annuity (SPIAs), and you can buy them from many insurance companies. While inflation-indexed SPIAs are hard to come by these days, buying one or more in your 60s can still be a great way to put a floor under your income and “allow you” to spend your money, because you know more is coming next month.

#8 Buy longevity insurance

“Longevity insurance” is a similar product. It’s an annuity, but instead of paying you monthly when you buy it, it delays those monthly payments, sometimes for a long time. For example, you can buy an annuity at age 70 that doesn’t start paying until age 90. However, because many 70-year-olds who buy this product die before age 90, and because the insurance company has 20 years to invest your money, it pays out a lot starting at age 90. It “allows you” to spend much more of your wealth between 70 and 90 than you otherwise would. You know you won’t be hosed if you live to 98 because starting at 90, you have another source of substantial income. There is some information that People who buy annuities live longer. Although no one doubts that stimuli are important, correlation is not causation. Maybe people who are more likely to live longer are more likely to bet that way.

As you can see, there are at least eight methods you can use to make sure you don’t run out of money in retirement. Track things carefully, and if you think you’re on a sustainable path, use one or more of these methods to fix the problem.

What do you think? What are the best ways to make sure you don’t run out of money in retirement? Will you spend less or earn more? Comment below!