One of the most terrifying prospects that many workers face today is the possibility of outliving their retirement savings after they stop working. In many instances, however, this worst-case scenario can be avoided with proper planning. There are several steps you can take to ensure that your money lasts as long as possible:

Plan a Realistic Budget

If you thought your retirement would consist of pleasure cruises, country clubs and indulging in expensive hobbies, you'd better make sure those things won't deplete your savings. A realistic assessment of your monthly bills compared to the guaranteed long-term income you will receive, such as Social Security and a company pension should be done before you retire so that you have a clear idea of how your necessary living expenses stack up against your monthly income.

Tax Planning
If you have both Roth IRA and taxable retirement accounts, you may be wise to take any regular stream of income that you need from the taxable accounts. If you decide to withdraw $500-$1,000 per month from a taxable account, this won't likely have a substantial impact on the amount of income tax that you have to pay. You can then allow your Roth accounts to continue growing and use them to take out occasional larger distributions, such as to pay off your mortgage. This way, you won't ratchet yourself up into a higher tax bracket and pay additional tax on all of your income for the year.

Asset Allocation
You need to pay as much attention to your offense as your defense. If all of your retirement savings are allocated into guaranteed investments such as treasury securities and CDs, you may need to consider the possibility that you will run out of income at some point. There are several possible solutions to this dilemma; the right one will depend upon your particular investment objectives and risk tolerance. If you are truly afraid that you might outlast your assets, you may want to consider purchasing an annuity that offers a guaranteed lifetime income rider that promises to pay you every month regardless of how long you live. Longevity insurance may be another alternative if your family has a history of living to a ripe old age.

If you are willing to absorb some volatility, then you may want to consider moving a portion of your assets into a carefully-selected mix of equities, such as blue-chip stocks or mutual funds. You can also increase the level of income from your investments by looking at corporate bonds, preferred stocks and ETFs that invest in income-producing securities. Even a moderate level of risk can materially increase your investment returns over time. You should try to dip into your principal as little as possible, however, at least for the first few years. If you have to use some of your principal to live on, then you should do a thorough analysis of how long your money will last at a certain rate of withdrawal, assuming a realistic rate of growth.

Debt Retirement
Your money will go much further in retirement if you can retire your debt before you retire yourself. Not having to make a mortgage or car payment is mathematically equivalent to the income generated from a six-figure portfolio in many cases. If you do not have the means to wipe out your debt before you stop working, then refinancing should be your next goal if this is attainable. This is perhaps one of the least-risky methods of improving your cash flow after you retire.

Long-Term Care Insurance
This is one key factor that truly has the potential to wipe out your savings portfolio if you have no insurance coverage. The cost of long-term care has continued to spiral over the years and this trend is not likely to change anytime soon. According to a survey by MetLife, the average cost of a private room nursing home was $239 a day or $87,235 a year in 2011. Of course, the premiums for long-term care insurance aren't cheap either, so you will need to evaluate the risk versus cost here.

The Bottom Line
These are just some of the things that you can do to make sure that your nest egg lasts at least as long as you do. For more information on making your retirement savings last, consult your financial advisor.

Related Articles
  1. Credit & Loans

    5 Signs a Reverse Mortgage Is a Bad Idea

    Here are the key situations when you should probably pass on this type of home loan.
  2. Credit & Loans

    5 Signs a Reverse Mortgage Is a Good Idea

    If these five criteria describe your situation, a reverse mortgage might be a good idea for you.
  3. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  4. Retirement

    Retirement Planning for Entrepreneurs and Small Businesses

    If your business has receiveables, here's a smart way to leverage them to build up your retirement fund fast.
  5. Retirement

    Overhaul Social Security to Fix Retirement Shortfall

    There are several theories and ideas about how we can make up for the $6.6 trillion retirement savings shortfall in America. Adjustments to Social Security and our retirement savings plans are ...
  6. Savings

    What Women Investors Are Doing Right

    Women's risk aversion, penchant for research – and lack of male-style "irrational exuberance" – means their investing strategies often put them ahead.
  7. Taxes

    What IRS Form 990 Tells About a Nonprofit

    Want a picture of an organization's activities? This annual form, open to the public, sums up everything from salaries paid to missions accomplished.
  8. Taxes

    Top Reasons to File Separately When Married

    Most of the time, it makes sense for couples to file their taxes jointly. Except for these possible exceptions...
  9. Credit & Loans

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
  10. Taxes

    What IRS Form 1023 Is Used For

    To be treated as a tax-exempt organization, start by filling out this form.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  3. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  4. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  5. Proprietary Reverse Mortgage

    A loan that lets senior homeowners retrieve the equity in their ...
  6. Single-Purpose Reverse Mortgage

    A financial tool that lets senior homeowners retrieve some of ...
RELATED FAQS
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  4. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  5. Is the Social Security administration part of the executive branch?

    The U.S. Social Security Administration, or SSA, is an independent government agency under the purview of the executive branch. ... Read Full Answer >>
  6. What are the best ways to use your 401(k) without a penalty?

    The best way to use your 401(k) retirement savings account is to take normal distributions after you reach retirement age. ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!