As a longtime financial adviser, I’ve learned that people often look forward to retirement with a mix of eagerness and angst.
While they’re usually excited about the freedom they’ll have to travel, enjoy new and old hobbies and spend time with family and friends, they also wonder if they’ll have enough saved to afford a long and fulfilling retirement.
That’s a valid concern. According to the CDC’s National Vital Statistics Reports, based on data from 2023, the average American who makes it to age 65 can now expect to live about 20 more years.
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Many will live well past that — into their 90s or even 100s. That’s a long time to get by on the income you must create for yourself.
It’s no wonder a recent Allianz Life study found that 65% of Americans are more worried about running out of money in retirement than they are about dying.
How can you help ensure your money lasts as long as you do? The first step for many soon-to-be-retirees is to stop fretting and start planning.
Whether you’re DIYing your retirement or working with an experienced financial adviser, here are four things you should do to prioritize your nest egg’s longevity:
Build a retirement paycheck from reliable income sources
One key way to extend the life of your savings is to create a retirement paycheck you can count on every month, so you won’t feel forced to sell investments for income during a down market. If you can cover your basic expenses, you’ll give yourself more flexibility.
Those reliable income streams will include your Social Security benefits and a pension, if you have one. A part-time job or rental income can also give your retirement paycheck a boost.
If you need a bit more to fill a gap between your earnings and expenses, you could also consider a fixed index annuity strategy that provides consistent cash flow regardless of market conditions.
For retirees who don’t have an employer pension, annuities can be used to create a personal pension that works in much the same way.
Protect against major market losses
Historically, the market has eventually recovered from every drawdown, even steep and extended declines. But there’s no predicting how long any given recovery might take, and unfortunately, when you’re in retirement, time is not on your side.
If you’re closing in on your planned retirement date, you may consider transitioning your portfolio to a “margin-of-safety” approach, including defined-outcome strategies that offer some growth but also limit downside risk.
Investing in buffer exchange-traded funds (ETFs) and similar vehicles can reduce the impact of large drawdowns, especially early in retirement, when sequence of returns risk is a concern.
Manage taxes on withdrawals
Thoughtful tax planning is as critical in retirement as it is at any other stage of your financial life; maybe more so. Without it, your retirement savings could be extremely vulnerable — especially if tax rates rise in the future.
Carefully selecting the accounts from which retirement income will be sourced (taxable, tax-deferred and tax-free), and the order in which you’ll tap those accounts, can minimize your overall tax bite.
If you’ve stashed most of your savings in a 401(k) or similar tax-deferred plan, a Roth conversion might make sense. (No, it’s not too late.) Note: A ROTH Conversion is a taxable event. Consult your tax advisor regarding your situation.
Proactively managing your tax bracket from year to year could also help you avoid the income-related monthly adjustment amount (IRMAA), a surcharge that could lead to a considerable increase in your Medicare premiums.
Adjust spending during market cycles
The cornerstone of a disciplined retirement plan is a sustainable withdrawal rate. For decades, the “4% rule” — which suggests withdrawing 4% of your nest egg in year one of retirement, then adjusting that baseline dollar amount for inflation each year — has served as a popular benchmark.
But these days, many planners, including yours truly, favor a more flexible withdrawal strategy that adjusts spending based on market performance, especially if you expect to have a long retirement.
This approach can help you extend your portfolio’s longevity without significantly affecting your lifestyle.
Keeping a preservation mindset is a must
There are many unpredictable pressures that can impact your nest egg over time, from how long you might live to market performance, inflation, taxes and more. As a result, it’s easy to understand how uncertainty can steal some of the joy from what should be an amazing time of life.
But with proactive planning that focuses on preservation, you can push back a little (or a lot) on those worries.
Don’t hesitate to ask for guidance from a retirement specialist if you aren’t sure where to start. A knowledgeable financial adviser can walk you through the many ways you can reduce your longevity risk and confidently face your financial future.
Kim Franke-Folstad contributed to this article.
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