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This Strategy Could Keep You From Running Out of Money in Retirement


If you’re not quite at retirement age, you have the advantage of learning from those who have already entered their golden years. While commercials typically show retired couples living in the lap of luxury, the truth is, many do not. According to the Current Population Survey Annual Social and Economic Supplement (CPS ASEC), the average American adult aged 65 and older brought in $75,254 in 2021. However, the median income for that group was $47,620. 

What can we learn from those who ended up with enough money to fund their dreams and what can we learn from those who wish they’d done more? 

While your financial advisor undoubtedly has detailed plans for you to follow, here we offer three easy-to-remember, uncomplicated tips. 

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1. Plan to live on guaranteed income

View your most recent Social Security statement online. There, you’ll learn how much you’re expected to receive in Social Security each month, based on how much you’ve paid in Social Security taxes through the years and when you plan to retire. To that amount, add any pension payments you have coming your way. We’ll call this your guaranteed income. 

Once you know how much you’re working with, you know how much you need to whittle your monthly payments down. That may mean paying off a vehicle or other consumer loan prior to retirement. It may lead to weather proofing your home to save on energy bills. Now is the best time to work on minimizing your post-retirement financial obligations. 

Notice that we haven’t talked about how much you have socked away in retirement accounts? That’s because living on guaranteed income allows you to draw from your retirement fund to cover the things you truly want to do, like travel or even turn a hobby into a business. 

If you have time to minimize your monthly financial obligations now, you’re fortunate. 

2. Create a bear market fund

The stock market is cyclical, entering both bear and bull markets with some regularity. While making withdrawals from your retirement accounts makes sense when the bulls are running and the sun is shining, your best bet is to leave your retirement accounts alone when the market is in hibernation. 

The wrong time to take money out of your retirement account is when the market — and your portfolio — take a dive. You not only deplete your assets at a quicker pace, you have less funds available to take advantage of a recovery. 

Starting today, put a little money into an emergency savings account each month. These are the dollars you’ll draw from when the market is down. How much you need varies according to experts, but it may be a good idea to aim for enough in emergency savings to cover three years’ worth of bills. 

Three years may be quite pessimistic (the average bear market lasts just shy of 10 months), but the long-term average frequency between bear markets is 3.5 years. Even if you don’t have to draw much from your emergency account during the first bear market you experience in retirement, there’s a fair chance you’ll need to draw from it again in a few years. 

Tip: Don’t forget to factor in guaranteed income. For example, if your monthly bills average $4,000 but you receive $2,000 in Social Security or via a pension, you’ll need to draw $2,000 from emergency savings each month until the market is once again running with the bulls. 

3. Lean on an annuity

One investment option that guarantees you regular payments throughout retirement is an annuity. According to the National Council on Aging (NCA), there are five types of annuities. The type of annuity you choose depends on your goals. For example, do you want payments to begin immediately or at some point in the future? Are you more interested in annuity payments based on a fixed amount of money or do you prefer to take some risk with a variable annuity? 

While you can buy an annuity at any time, they are typically purchased when a person is near retirement age and has already taken advantage of pre-tax savings, such as a 401(k) or IRA.  

Annuities are purchased through insurance companies, each with its own fee structure. Fees and administrative costs can eat into the value of your annuity, so make sure to go over a company’s fee structure with a fine-toothed comb before agreeing to one of its annuities. 

There’s no easy way around it; unless you win the lottery, how well you live in retirement all comes down to planning. Your plan doesn’t have to be complicated to be successful. It just needs to be something you can stick with until the day comes to bid adieu to your workplace. 

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