Use these 7 killer strategies to never run out of money in retirement

By Lyle Solomon

Are you concerned that you will run out of money in retirement? It’s a real issue, given that people live longer than ever before.

It’s wonderful to live a long and healthy life. But it would be best if you spent your retirement years enjoying yourself rather than fretting about whether or not your money will last. Here are seven strategies to help you overcome your phobias.

1. Reduce your spending

That should be obvious, right? However, it is something to be aware of. If you had a budget before retiring, stick to it now. You’ll have to make adjustments to account for fluctuations in income and expenses (ideally, you’ll be spending less on clothing, fuel, and other work-related expenses). It’s not too late to create a budget if you’ve never done so before. Consider your monthly income and how you want to spend it, as well as whether you’ll need to tap into savings.

2. Opt for a long-term care insurance policy

Nursing home bills wipe out many people’s life savings. One method to avoid this is to buy long-term care insurance when you’re in your 40s or 50s when the premiums are lower. This covers costs not covered by health insurance, Medicare, or Medicaid. This insurance will help preserve your assets if you end up in a nursing home, and with 60% of people over the age of 65 requiring long-term care services at some point in their lives, it’s a good investment.

3. Pay off your debts

It’s better to avoid taking on debt in retirement, but this isn’t always possible. Try to reduce credit card debt first. Negotiate with creditors or hire professionals to get rid of debts in one go. Check out the debt relief laws, read the fine print section of the debt settlement agreements, save money, and pay the negotiated amount. You will be debt-free soon.

4. Don’t take out too much or too soon

Early withdrawals from retirement funds might have negative implications. Early withdrawal penalties may apply, and you may even lose tax benefits.

The IRS penalty for taking money out of a 401(k) early is 10% plus your income tax rate on the amount taken out. Keep in mind that the money is there to help you retire. So resist the urge to withdraw money from those accounts before reaching your retirement age.

The same can be said for withdrawing too much money after retirement. The 4 percent rule, which states that you should withdraw 4% of your retirement funds each year, is a good starting point (adjusted for inflation). The concept is that you may demand at least a 4% return on your investments, ensuring that you will not run out of money throughout your 30-year retirement.

That figure, though, is not set in stone. If you have a bigger nest egg, some experts recommend a little higher withdrawal rate of 4.5 percent to 5% — but not more than 5%. Others suggest a withdrawal rate of 3 to 3.5 percent.

5. Continue to make money

You may have taken a break from your full-time job of 40 years or more, but that doesn’t mean you have to leave the workforce entirely. Consider looking for stress-free part-time employment that allows you to maintain your hobbies, friends, and family. In addition to earning some money, that job will keep your mind sharp. Selling items you no longer need is another way to make retirement money.

6. Time your Social Security benefits correctly

It may be tempting to file for Social Security when you turn 62, but this can be a blunder unless you have a compelling reason to believe you will die soon. Early Social Security benefits can result in a permanent reduction of up to a third of monthly income. You get an 8% increase every year you wait from full retirement age to age 70 before receiving benefits.

7. Buy annuities

Certain types of annuities, though frequently misunderstood, are a fantastic strategy to assure you don’t run out of money. However, it would help if you exercise caution. There are several different types of annuities, and they are all complicated. Annuities may demand substantial upfront payment, and you should invest no more than 30 to 40 percent of your assets in them. An annuity can give lifetime payments in exchange for that payout. While it may appear to be the ideal solution for someone in need of money, there are some disadvantages. Payments may not keep pace with inflation, and fees might be substantial.

Conclusion

Don’t forget to put your money to work. Compound interest can help you save a lot of money. The sooner you start investing, much like saving, the more your money can grow.

Make sure you’re saving in a 401(k) plan provided by your employer or an IRA. If your 401(k) plan offers matching contributions, make sure you’re contributing enough to obtain the full employer match.

Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a Principal Attorney.