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Will Your Money Last in Retirement?

Will Your Money Last in Retirement?

April 16, 2024

You may feel entering retirement is akin to setting out on a cross-country road trip without a GPS. No one has a crystal ball so predicting our longevity or foreseeing tomorrow's challenges is impossible, naturally, this may spark anxiety about the road ahead. You might be already relishing your golden years or just starting to envision your future, but a pressing question looms:

Will my money last as long as I do?

Fear not, for within the labyrinth of financial planning, there are strategies to fortify your nest egg. And I am a big believer in the idea that "Action relieves anxiety" so let's embark on this journey together, thankfully, there are several ways you can increase the odds that your finances will last as long as you do in your golden years. Here are a few concerns to keep in mind while building your plan.

Have a Retirement Spending Plan

Similar to a budget, a spending plan helps you understand how much income you will need to live the lifestyle you want in retirement. This spending plan allows you to do the activities you enjoy such as traveling, shopping, or just hanging poolside - worry-free. Having a well-thought-out, holistic plan will help you establish the details of what you’d like to be able to afford during retirement and how you will fund the retirement you’ve always dreamt of. 

Without a proper spending plan in place, overspending can and most likely will occur. This is a common occurrence during retirement years, and is similar to overspending in younger years, with the biggest difference being that many of us are unsure or aware of how to properly plan our income during that time. 

For many, choosing a withdrawal rate in retirement such as four percent is considered to be a good starting point. For example, if you saved a million dollars for retirement, the 4 percent rule would have you expecting to earn approximately $40,000 a year in income from your retirement accounts, not including any funds from Social Security.

Many professionals are telling you to use this four percent rule, I'm telling you that's most likely not going to work. Unfortunately, many recent studies have shown that this general rule of thumb no longer works due to a concept called Sequence of Returns Risk. We use the consumption method instead and we have found it to be a much more accurate method of determining retirement income needs.

Take Control of Your Savings

When it comes to funding your retirement, most Americans use a combination of Social Security, savings, and pensions. It’s important to set yourself up for success and think outside of the box. These details could have a massive impact down the line and are a key driver of successful outcomes when it comes to retirement meeting or exceeding your expectations. 

Being thoughtful about the structure of your assets and the details of your income now, as a pre-retiree, will help you maintain your wealth not only at the beginning of your retirement but throughout your ENTIRE retirement. Remaining in control of your finances and always being aware of things like how much you’re spending or how taxation will play into your retirement plan, will ultimately allow you to focus your time and energy on the experiences that matter most, to you. 

Keep Earning

If you’re passionate about your career, enjoy what you do and it's not too physically demanding, you may benefit from waiting to retire. Not only does staying involved increase your overall standard of living but if you’re healthy enough and willing to continue working, delaying your Social Security benefits could drastically increase your monthly benefit amount. 

This will also afford you more time to let your retirement assets marinate so they can grow and strengthen over time. This can be an important piece of your retirement strategy. Ultimately, allowing your wealth to rebound or grow for an extra year or two could go a long way to helping your money last in and through retirement.

You may also want to consider transitioning out of the workforce slowly. If you have the ability to take on less responsibility or even work part-time, you may find that continuing to work is less of a chore and it could have a big impact over the long run. 

Protect Your Health

It seems as though healthcare costs continue to skyrocket on a daily basis and as we all know, being sick can become quite costly. In fact, it is one of the biggest risks to you in your retirement. Making healthier choices throughout your lifetime can help you reduce the odds of suffering from conditions such as diabetes, high blood pressure, arthritis, or other chronic illnesses, in turn lowering healthcare expenses.

As we grow closer to retirement, it’s important to take into account that spending money on a healthy lifestyle, as well as receiving regular screenings and accurate medical care, can help improve your quality of life. Spending a sufficient amount on preventative care now can be beneficial to lowering more costly expenses in the future. 

If you would like to discuss your current situation schedule a free 20-minute call with the link below.

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About the Author

James M. Comblo, CFF
is the President & CEO of FSC Wealth Advisors. His greatest passion in the financial services industry is helping clients live the life they want, not the life they are forced to. To learn more about him click here.