How to Avoid Running Out Of Money In Retirement

It’s hard to look forward to retirement when you’re overwhelmed by worries about money. The possibility of running out of funds in retirement by spending all that you’ve saved is a reality that every retiree faces, yet few know how to do the advanced planning necessary to avoid it. What it takes is a two-step plan. The first step is to increase your amount of guaranteed, lifetime income. The second is to manage the money you have very carefully. Let’s take a look at each of these two steps and some of the actions you can take within each of them.

Step 1: Increase your guaranteed, lifetime income:

Retirees may remove themselves from the working world, but they don’t have to remove a stable income from their lives. In fact, most retirees in the United States enjoy one form of income known as Social Security. In this section, not only will we discuss ways to increase that Social Security income, but we will also review another method of creating an income, which is to buy an annuity.

Get An Annuity:

An annuity is essentially a contract offered by an insurance carrier, which guarantees you a type of income in exchange for a payment or series of payments. Think of it as being similar to a life insurance policy, but instead of paying out upon death, an annuity pays out until death–assuming that’s how you have it structured. For a higher income, you can choose a fixed period of years for the annuity payout, but if you’re worried about running out of money in retirement, a better plan might be to choose a lifetime payout option. When you choose that option, the later you begin receiving payments, the higher the overall payments will be.

Delay Social Security:

If you’ve been paying attention to your Social Security statements, then you probably know that you’ll receive a smaller monthly benefit when you take Social Security at age 62 than if you wait until your full retirement age. What you might not realize, however, is that you can increase the amount of your monthly benefit even more by waiting past full retirement age. In fact, you earn delayed retirement credits all the way until you reach age 70. At that point, there is no more benefit in delaying your Social Security payments.

Step 2: Carefully manage your money:

You can have all the income in the world, but if you don’t manage it and your savings well, your money will slip through your fingers and not be there as you age and need it. That’s why once you’ve secured as high an income as you can, you need to think about how to manage it as well as your savings.

Update Your Budget Annually:

Most retirees–even the super rich ones–need to have some way of budgeting and controlling their spending, or they could easily run through their savings in the first decade or two. Whether it’s a question of too much caviar and champagne or too many fast food dinners, almost every retiree in every income bracket can spend everything if they spend it without thinking.

A budget gives you a way of putting boundaries on your spending so that you ensure savings for later. By updating your budget every year, you can further adjust your spending boundaries to preserve the savings you have and accommodate investment growth and losses.

Reallocate Conservatively:

Over time, the investments you’ve chosen for your 401(k) and IRAs might no longer suit you, because aging makes you increasingly risk-averse. If you have medium- or high-risk investments, you’ll probably want to reallocate those over time into less risky investments. By reallocating your portfolio to a more conservative profile, you can slow down growth, but you also reduce the risk of losses. Reducing the risk of losses is a good strategy when you don’t have many years left to rebuild any savings that you lose.

There is probably no individual solution that can ensure a retiree doesn’t run out of money. When a retiree takes control of his or her finances and income, however, they create a two-pronged approach to developing a platform of financial stability that can likely carry them through the decades. Without proper planning, though, retirees put their future success solely in the hands of chance, which may not be the best approach if you want to ensure you avoid running out of money in retirement.

Mark Angelo is the co-founder of Yorkville Advisors.


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