8/15/2013 2:45 PM ET|
5 ways to avoid outliving your savings
You’ll never completely run out of money in retirement if you use these strategies.
One of the biggest challenges of retirement is making sure your money will last the rest of your life—however long that might be. You can only estimate how many years you will live, and you have to manage your finances so your savings will last for that unknown number of years. Here are some ways to make sure you will have money coming in, no matter how long you live:
A pension. Workers fortunate enough to get a traditional pension through their jobs generally have a second guaranteed source of monthly retirement income. Most private-sector pension plans are insured by the PBGC, which guarantees pension benefits up to certain annual limits and will pay out benefits if your former employer goes out of business. However, workers with traditional pensions are increasingly being offered lump-sum pension payouts, which do not come with the same protections. If you don't manage a lump sum prudently or you live longer than you expected, you could end up spending that money too quickly.
An annuity. Immediate annuities allow you to hand over a chunk of your retirement savings to an insurance company in exchange for guaranteed monthly payments for the rest of your life. The costs and fees of some annuities can be high, and you generally won't be able to pass the money you use to purchase an annuity on to heirs. But you gain a predictable monthly income, even if you live past age 100 or the stock market takes another dive, as long as the insurance company stays in business.
"With the insurance company annuity, the insurance company guarantees that the money will last the rest of your life no matter how long you live," says Steve Vernon, a fellow of the Society of Actuaries and author of "Money for Life: Turn Your IRA and 401k into a Lifetime Retirement Paycheck." "If you want that lifetime guarantee, you are going to have to trade off access to your money. With most annuities, once you give your money over to the insurance company, you can't get it back other than the monthly paycheck."
Systematic withdrawals. Disciplined investors may be able to gradually draw down their savings in such a way that it is likely to last as long as they live. Many financial advisers recommend withdrawing no more than about 3% or 4% of your retirement savings, perhaps adjusted for inflation, each year. This strategy carries the risks that your investments could perform poorly, that you will live longer than expected, or that you will simply fail to stick to the plan and spend more than you should. However, that money will be available to you to use for emergencies, such as medical bills or home repairs. And if you end up dying sooner than expected, your heirs will get the money. If you are an especially gifted investor, you'll also get to keep your investment gains.
"With a systematic withdrawal scheme, if you live a long time or have a poor investment experience, you might run out of money or you might pass away before you run out of money and have a lot of money left to leave to your heirs or charity," says Vernon. "Looking forward, we may not have the interest rates to support the 4% rule. We're moving toward 3.5 or 3% as a safer withdrawal rate."
Pay off your house. Paying off your mortgage eliminates one of your biggest monthly bills and allows you to use your savings for other expenses besides housing. The equity in your home could also be tapped for extreme emergencies, via a second mortgage or reverse mortgage.
"If you pay off your house, that's a guaranteed return of 3% to 4%," says Stephen Curley, a certified financial planner and director at Water Oak Advisors in Winter Park, Fla. "If you go into retirement debt-free and owning your house outright and you are able to take out 4% of your portfolio along with Social Security and meet your retirement needs, that is the best-case scenario. And if you can't stand the capital market, you should maybe buy a fixed immediate annuity."
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It's pretty simple actually. Live within your means. Save as much as you can. Forgo expensive luxury items until you have the cash saved up for them, AFTER putting your retirement savings away. Do this and you should have a good retirement. Works for me.
The problem is most people like to have immediate gratification and really do believe the saying "He who dies with the most toys, wins." Unfortunately if you follow this mantra, you will have the most toys when you die but your retirement will be pretty poor. You can't eat toys.
Delay those expensive things, save now, and enjoy a nice retirement.
Yes save as much as you can ....Don't take vacations or due anything
Save save save and then drop dead and not get to spend any of it.
Or live long and give it to nursing home.
Then again if you don't save you will be eating cat food in old age. Either way you are screwed
Nothing new here. Maybe they should start the article with a quiz. I am sure 99% of readers would score 100%. That way there would be no need to waste the reader's time. I might just have it wrong. Maybe this is a series of memeory games for old people. How about some examples of real people living a real retirement. Better yet Emily, take the posters here and tell their stories.
what are you suppose to do if you cant get socil security when your old
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