Long gone are the days of pensions, when employers took care of all retirement income. On the flip side, we are living longer and healthier lives.
If X equals a longer lifetime and Y equals smaller retirement funds, how do you solve for Z? Making retirement money last longer to match a longer lifespan is a very real problem for retirees. These three suggestions from The Motley Fool's "3 Easy Moves to Make Your Money Last Your Lifetime" cover some of the big-picture topics: expenses, investment tools and earned income.
- Decreasing expenses and cutting unnecessary costs is the first step in making your nest egg last longer. More than likely, your biggest cost is housing. This is where paying off your mortgage long before retirement—or downsizing into a smaller home either before retirement or just as you retire—makes sense. Unfortunately, more and more seniors are still carrying mortgages during retirement. Consider throwing all unexpected windfalls against the mortgage, or make one extra payment every year—if cash flow allows.
- Take some of your retirement nest egg and use it to buy an immediate annuity. An immediate annuity takes the lump sum you invest up front and converts it into a stream of monthly payments. They will give you several options on how long those payments last. Converting all of your money to an immediate annuity is risky—once you've bought an immediate annuity, you generally can't touch your initial lump-sum investment. Hold some of your nest egg back to give you access to cash if you need it for unexpected expenses.
- Baby boomers who work longer are doing themselves a huge financial favor. By working past 65, you win on several levels. A steady stream of income means more savings and investments, growing your nest egg and delaying the time that you start taking money out of your nest egg. Also, the longer you can delay retirement, up to age 70, the bigger your Social Security benefits will be.
Reference: The Motley Fool (April 10, 2016) "3 Easy Moves to Make Your Money Last Your Lifetime"