If you’re a regular reader here on our blog you know that we post a lot of information about building up a nest egg for retirement. That being said, making sure that your nest egg lasts is actually sometimes a bit more difficult. The steps below will help you to make yours last a good bit longer. Enjoy.
What most investors realize when they begin trying to create what will be their income stream in retirement is that health care costs, market returns, life expectancy and inflation, among other things, are all unknown factors that can make it extremely difficult to figure out exactly how much money they can safely withdraw from any retirement accounts that they have. The fact that some people could easily be retired for 20+ years makes it even more difficult.
One of the first steps to avoid using up your retirement funds to quickly is to put together an average family budget showing what your expenses will be once you leave the workforce. There are plenty of online retirement income planners and expense worksheets that you can find that will help you to set up a retirement budget. These planners can help you to differentiate between essential expenses like housing, health care and transportation with discretionary expenses like travel. If necessary they will help you to cut spending in the latter in order to have enough for the former.
Determining what amount of money you will be getting from Social Security is also important. The Social Security Administration can help you to do that based on what your payouts would be starting at various ages. Some companies like T. Rowe Price have a Social Security Benefits Evaluator that you can use for free to help determine what claiming strategies are best, and you can also go to SocialSecuritysolutions.com, although they charge a fee.
Having some Annuities, although they aren’t perfect and some come with high fees, You bridge the gap between what your Social Security payments will pay for and the difference that you’ll need to cover essential expenses. Immediate annuities tend to be relatively simple and cost efficient and, if you are keen on finding out how much you might receive using them, you can check it out at immediateannuities.com.
Once you have a budget in place and your annuity strategy, the next thing is to select a withdrawal rate that you use from savings. A good starting point is 4% a year and this has long been regarded as being “safe”. Of course if you can withdraw less than that it will be safer but keep in mind that, much past 5%, and the chance that you’ll run out of money during retirement increases drastically.
Lastly you will definitely want to review your portfolio and your spending annually, if not more often, so that you can fine tune it and make changes as necessary.
Of course one of the best ways to make sure that you have enough money in retirement is to start saving for it as early as possible and put as much in your IRAs, 401(k)s and other retirement accounts as possible while you’re still working.