Many people focus on saving as much as possible for retirement because the prospect of running out of money during these years can prove daunting. While saving more can help, it’s also beneficial for people to think about how they can make their money last longer in retirement. Even those who save an adequate amount might find themselves needing to stretch their funds due to inflation, recession, or unexpected large expenses such as health care-related costs. For this reason, it’s important for people to understand how to make their savings go further once they no longer have a steady income. Some tips to consider include:
1. Finding a sustainable withdrawal rate
The best way to make your money last is to find a withdrawal rate that will not quickly drain your savings. Large withdrawals at the beginning of retirement can become problematic later on and limit how much an individual has left for everyday expenses. Financial planners often recommend that people withdraw approximately 4 percent of their savings in the first year of retirement and adjust the amount by the inflation rate in subsequent years. However, people who retire early will likely need a different strategy. These individuals can often benefit from starting at a 3 percent withdrawal rate or skip inflation adjustments when the markets are particularly bad in a given year. This can also be helpful for those who want a more conservative approach in general.
2. Maintaining a healthy lifestyle
While it might sound strange to prioritize personal health as a means of making one’s savings go further in retirement, the cost of health care continues to increase. When people exercise regularly and eat healthy, they can reduce their risk of developing various conditions, many of which can become chronic. Such ailments can lead to high medical costs, especially for seniors and elderly individuals. Additionally, it’s worthwhile for people to undergo screenings and other preventative-care measures. Catching medical issues early can help in addressing them in a timely manner and avoid complications that can increase medical costs.
3. Securing some guaranteed income
Not long ago, people could rely on Social Security and pensions to retire in a comfortable manner because they pay out for life. Securing enough guaranteed income to cover monthly necessities such as housing and food can relieve much of the financial pressure that people may feel in retirement, especially since these payouts do not decrease over time. Nowadays, Social Security and pensions alone aren’t always enough, so most individuals use guaranteed annuity income to provide a continuous, reliable stream of income during retirement. However, it’s better for these people to steer clear of annuities with high fees. While a guaranteed income is only a small percentage of one’s overall net worth, it can offer a sense of security.
4. Maximizing Social Security benefits
While Social Security is paid out throughout one’s retirement years, the amount that a person receives each month depends on many factors, including when they start claiming benefits. Waiting as long as possible to draw on the benefit will maximize monthly payments and increase the cost-of-living adjustments that help to counter the effects of inflation. Furthermore, larger Social Security checks can serve as longevity insurance. Therefore, when individuals feel tempted to draw on these benefits early on, it’s important for them to consider whether it would be more beneficial to withdraw the money now or later on down the line.
5. Taking out long-term care insurance
Although not everyone will need long-term care during their retirement years, it might be worthwhile to take out some insurance because these expenses can quickly drain your savings. Once someone needs this kind of assistance, the strain on their overall finances can lead to worry and anxiety for individuals and their families. Private rooms at nursing homes can cost more than $100,000 annually, and cheaper options could eventually break their budget. People can choose to put aside more money for their retirement if they think they will need this type of care, but obtaining long-term care insurance is often a better choice because it takes the guesswork out of the equation. Furthermore, securing this insurance earlier typically results in lower rates.
6. Reducing monthly expenses whenever possible
Budgeting can prove difficult, and this might not change during retirement for some people. However, it’s often possible for individuals to figure out ways to reduce their monthly expenses without cutting back on the things they want or need. For example, people can attempt to renegotiate recurring bills each year. Threatening to move to a different provider can help people to secure a deal for the coming year and save them hundreds of dollars, although this can take some time and energy. Moreover, when individuals have monthly expenses they can do without, removing them from their budget will make their savings last longer. In some circumstances, even saving a few thousand dollars each year can this strategy make a difference in whether or not people run out of money.