6 Proven Ways to Not Outlive Your Money in Retirement

(Rather watch the video? Click here.)

Imagine working your entire life, saving diligently, investing responsibly, taking a long-term approach to accumulating enough money so that you can live a few decades of absolute bliss, and then in your first few years of retirement the market takes a huge dive, and you watch the value of your hard-earned retirement portfolio plummet by 40%.

Can you imagine the anxiety you would feel?

How are you going to live the lifestyle that you worked and planned for now?

Do you have enough money to last if you live comfortably into your 90s?

What if there are unexpected expenses in retirement?

A whole new host of worries pops up now.

This is not uncommon.

This is the reality for a lot of people approaching retirement.

In fact, the number 1 concern for all people approaching retirement (and in retirement) is outliving their money!

People simply don’t know if they have enough money to last the rest of their life.

The main reason for this is that nobody knows exactly how long they’re going to live.

Because of this unknown variable, nobody knows exactly how much they can take out of the portfolio in retirement. (A poll showed that people believed they could take 10% out per year….no, no, no!)

Retirement experts concluded that you couldn’t realistically take more than 3% per year out of your retirement portfolio without taking on a substantial risk of running out of money.

So, what exactly does that mean?

It means that you take the amount of annual income you want to retire on and you divide it by 0.03. That gives you the portfolio size that you need to support that level of income.

For example:

You want $100k per year of annual income in retirement.

Divide that by 3% à 100k/0.03 = $3.33 Million

You need at least $3.33 Million saved to generate that much income in retirement…. That’s a lot of money!

Do you have that much saved?

Not a lot of people do.

The good news is that there are other options, and that’s what I want to explore right now.

So, here are 6 ways to address the “longevity risk” of your retirement portfolio (the risk of running out of money in retirement):

1. Cut Back to Save More: I wouldn’t say this is a popular option, but it’s an option. You can cut back your lifestyle prior to retirement, save even more than you already are, and hopefully accumulate enough money to support your desired retirement lifestyle.

2. Spend Less: Again, not a popular option. This requires lowering the expectations for yourself in retirement. If you were planning on living a lifestyle with $100,000/year maybe you curtail that to $50,000/year.

3. Work Longer: (I know, you’re probably not a fan of this blog thus far but hang on a bit longer) Working a few extra years gives you some extra savings to live off of, but it also shortens the life of your retirement. This gives you less years that you need to support yourself. Once again, nobody really wants to work longer.

4. Die Sooner: So, you could eat McDonald’s every day and maybe you’ll kick the bucket sooner…. This isn’t really an option, but obviously the longer you live the higher the likelihood that you will run out of money in retirement.

5. Make Riskier Investments: Or you could just go to the roulette wheel in Vegas…. But seriously, you can take on more risk with your retirement assets and there’s a possibility that you’ll bridge the gap and be able to achieve your goal. There’s also a high likelihood that your portfolio will take a big hit and you’ll have even less than you planned on…. This is certainly not my recommended option.

6. Earmark a Percentage of your Retirement as Guaranteed Lifetime Income: Retirement experts across the board agree that designating a percentage of your retirement portfolio to an income vehicle that provides a guaranteed income stream that you can never outlive, is a way to ensure that you never run out of money. It also gives you the freedom to spend your other money (since it doesn’t have to be locked up to generate income for you).

As you can see, there are a few ways to protect yourself from running out of money in retirement, but most of the options are less than appealing.

This is why one of the most important aspects of retirement planning is creating an income strategy for yourself.

There are a lot of great financial planners & investment advisors that can help you grow your money, and accumulate assets for retirement, but you want to work with somebody who specializes in retirement income planning when you’re ready to start spending your retirement money.

This is exactly what I do.

I help people with the distribution phase of retirement; this means creating an income strategy to protect against the risk of outliving your money.

So, let’s chat and see what makes the most sense for you!