Thinking about the possibility of outliving your retirement savings can keep up any retiree at night.
Data shows that nearly 50% of Americans are concerned that their savings and investments might not be sufficient to see them through retirement.
If you have similar concerns, it’s crucial for you to know how long your retirement savings will last and take steps to avoid the possibility of running out of money when you need it the most.
Here are four factors that can impact how long your retirement funds will last.
How much stocks do you have?
If you are heavily invested in equities, your returns might go down drastically in the event of a downturn, which can force you to spend some of your principal.
Stock declines can erode your hard-earned savings faster than you think.
How much will you spend?
Experts recommend that you should limit your yearly expenses to no more than 4% of your total retirement figure.
If you withdraw anything more than that, you might run out of retirement funds faster than you think.
Possibly, that number should be lower, perhaps 3%, unless interest rates resume levels of years past.
How fast will inflation eat away at your money?
Inflation is one of the biggest factors that can impact how long your retirement funds will last.
Ideally, you should assume a reasonable rate of inflation, say between 2.5% and 3%, while calculating how long your retirement savings will last you.
What will you spend on healthcare?
Data shows that the average person is likely to spend around $150,000 on healthcare throughout their retirement.
If you have chronic health problems, you can expect to spend a lot more.
Seven ways to stretch your retirement savings
There are many steps you can take to stretch your retirement savings and avoid the possibility of outliving them.
Among them are these six strategies:
- If you are over the age of 60, allocate just 30% to 40% of your portfolio to equities. Allocate the rest towards bonds, annuities, real estate, and other assets that can provide you with a steady income even during a downturn.
- Invest in Treasury Inflation Protected Security (TIPS) and qualified longevity annuity contracts (QLAC) that can provide you with a guaranteed income.
- Unless you are an extremely savvy investor, you should not invest in individual stocks. You can choose to invest in a low-cost index fund instead.
- Open a health savings account and buy long-term care insurance. More importantly, take care of your health. A nutritious diet, regular exercise, 8 hours of sleep, spending time with your family, and socializing with your neighbors and community members can keep you healthy and happy.
- Wait until you reach your full retirement age (which you can find out here) to claim your Social Security benefits.
- Make a budget and stick to it. Trim your living expenses and live within your means.
Bonus tip
If you are healthy enough to work, consider getting a part-time job, starting home-based business, or taking up online or offline freelancing gigs during retirement.
Working longer will keep you constructively occupied, while helping you earn some money on the side to enjoy a more financially comfortable retirement.
