5 Tips To Avoid Outliving Your Money

5 Tips To Avoid Outliving Your Money


Comprehensive financial planning in Libertyville, IL can help retirees and pre-retirees make sure they are on the right financial track to not outliving their money. 

Unfortunately, many Americans facing retirement are worried that their retirement savings will run out. Several factors underlie that fear. 

First, Americans are living longer than ever. In a couple currently both 65 years old, there is a possibility that at least one spouse will live into their 90’s or older.

Second, expenses that play a big role in retirement, such as health care costs, continue to rise steeply, in Libertyville, IL, and everywhere else in the country. 


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Third, pensions have become scarce. For the past several decades, Americans have had to save for retirement themselves rather than relying solely on their employers. While there are excellent retirement savings vehicles like 401(k)s and individual retirement accounts (IRAs) available, nearly half of Americans don’t know how much they’ll need for retirement.

So what can you do to make sure you don’t last longer than your money does? Here are five tips.


1. Plan a retirement budget

In some ways, retirement planning may be similar to other financial plans you’ve had throughout your life. The crucial foundation is a comprehensive financial plan, and one of the building blocks is a spending budget. The most essential factor in not running out of money in retirement is knowing how much you are likely to spend versus how much income you are likely to have.

Many people believe that their expenses will drop in retirement. They may, especially if you have large expenses that you will no longer have. If you have commute costs, for example, and will no longer be working, those costs will vanish. 

But your expenses in retirement also may not decrease. The expenses of many retirees climb, especially in the first few years of retirement. If you plan to travel more, for instance, your discretionary spending may rise.

The only solution to knowing what money you will need is to create a working estimate of your expenses. 

Then, plan out what your income is likely to be. Start with an estimate of your Social Security benefits. Then, add estimates of any pensions and income from retirement savings plans.


2. Maximize your retirement income

The best defense against outliving your money is having the largest retirement nest egg you can.

If you are eligible for a 401(k) at work, especially a matching one, save as much as you can. People under the age of 50 can save up to $19,500 in 2020. If you’re 50 or over, that amount rises to $26,000. 

IRAs are also excellent retirement savings vehicles for those who don’t have access to a 401(k). If you’re under 50, you can save up to $6,000 in an IRA during 2020. If you’re 50 or over, the amount climbs to $6,500.

Consider strategies to maximize your Social Security benefits as well. The amount you receive depends on when you choose to receive it. You first become eligible to take Social Security benefits at the age of 62, but the benefits can be reduced by as much as 30 percent. 

You become eligible for the full amount of your benefits at your full retirement age (FRA), which is determined by your birth year. It’s 66 for people born between 1943 and 1954 and rises to 67 for folks born in 1960 and after. 

However, your benefits also increase by approximately 8 percent for every year you delay taking benefits between your FRA and the age of 70. There is no further increase after that age.


3. Consider your life expectancy

Many people assume they will live only as long as life expectancy tables say they will. But there are several good reasons to assess your own personal life expectancy, and not rely on tables that reflect the general population.

First, life expectancies have been increasing for roughly the past century. In fact, according to the World Health Organization, global life expectancy increased by 5.5 years between 2000-2016, the fastest increase since the 1960s.” (1) If you are currently in midlife or younger, you may well live longer than current life expectancy tables indicate.

Second, it’s a good idea to assess your personal longevity. How long have your older family members lived, for example? If you come from a family whose longevity is greater than the average, it’s prudent to factor in a long life expectancy.


4. Assess how much you can prudently withdraw from your retirement savings

A common rule of thumb indicates that, on average, people can withdraw 4 percent per year from their retirement savings to keep principal nest egg largely in tact. This rule of thumb often referred to as the 4 percent rule, is designed to make retirement savings last 30 years.

In other words, if you have $200,000 saved at the age of 66 and decided to retire, you could withdraw $8,000 per year for the next 30 years, taking you to the age of 96, theoretically without running out of money. 

However, this rule of thumb is far from guaranteed. The first risk to is sequence of return risk. Stocks are volatile, and at some point, a down year or series of years is likely to occur. If stock fluctuations occur early in your retirement, your nest egg may take a hit – and you’d be withdrawing from a lower balance from day one. A second risk to the 4 percent rule is the low interest rate environment. Bonds are an important portfolio component to help mitigate some risks that stocks present. However, yields on bonds have been persistently low. If stocks take a hit and bonds are yielding, a safe 4 percent withdrawal is not guaranteed. 

Your longevity, of course, will also play a role. So will the age at which you plan to retire. If you expect your retirement to last longer than 30 years, for either reason, it’s also prudent to adjust the rate downward.

Financial planners specialize in planning around these sorts of scenarios – so it might be wise to consult one before beginning a retirement withdrawal program. 


5. Consult a CERTIFIED FINANCIAL PLANNER™ Professional

At Prism Planning Partners, we are CERTIFIED FINANCIAL PLANNER ™️ Professionals committed to facilitating important questions so that we can help you explore all of your opportunities. We offer a broad array of financial planning and consulting services for our clients-including retirement, investment, and estate planning.

Contact us today and let us illuminate your possibilities!


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(1)“Global Health Observatory(GHO) data.” World Health Organization. 11 Oct 2020. https://www.who.int/gho/mortality_burden_disease/life_tables/situation_trends_text/en/#:~:text=Life%20expectancy%20at%20birth%20reflects%20the%20overall%20mortality%20level%20of%20a%20population.&text=Global%20average%20life%20expectancy%20increased,fastest%20increase%20since%20the%201960s.
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