That’s the $64,000 question. The real question is: will your savings last as long as you do?
How can you make your retirement funds last as long as you do?
This is probably the number one question in the back of anyone’s mind when they start planning their retirement or selecting a life insurance policy. People ARE living longer and since the beginning of the 20th Century, life expectancy rates have increased dramatically. As a result, more and more people are finding themselves cruising right on past their 70′s and 80′s only to discover that their retirement monies didn’t. What can you do to avoid this nightmare?
1. Know your own life expectancy
There are over 1.1 million sites that pop up on Google when you search life expectance calculator but all these sites can tell you is how long the average person with your demographic profile will live. Are you average? I didn’t think so.
What happens if you don’t figure out how long you’ll live?
- You may live like a frugal miser your entire life only to die with millions in the bank
- You could outlive your cash and be forced to depend on charity, family or the federal government
The Census Bureau tables found in those 1.1 million sites are a decent place to start but there are several other factors that could determine if you’ll outlive your funds (other than not saving enough!):
– Improper investing
Chasing returns, aggressive investing, trying to time the market, failing to set up the correct retirement accounts, and investing in things you don’t understand can cause your portfolio to dry up far too soon.
– Skipping the budget
Probably no budget is more important than the retirement budget. You HAVE to know what you can spend and what you can’t.
– Too much debt
Interest charges can cut through a portfolio like a hot knife through butter. Having to repay a mortgage or excessive credit cards when living on the proceeds of your retirement accounts is a sure way to run out of cash far too soon.
– Your health
If you keep yourself in shape, exercise moderately, stay within a healthy weight range, don’t smoke, don’t have high blood pressure, and generally practice healthy habits, you probably should add a few years to those tables. Chances are pretty good you’ll do better than average.
– Your genetics
Genes may play a bigger role than many people, even experts, realize. We all know people who drink like fish and smoke like chimneys but are in their 80′s or 90′s, still living large. But if your family medical history is rife with cancer, or heart attacks, or short lives (well under average), you should take that into consideration. Family history IS NOT a guaranteed short lifespan but taken with poor health habits, it could be cause for concern.
If you don’t like thinking about these things, I don’t blame you. Just estimate that you’ll live to 95 … and if you plan for your retirement money to last that long, you’ll probably be okay one way or the other and if you live to 97 — GREAT! If you live to 75, you just left a great inheritance to your heirs. Make sure your will is in place and up to date.
2. Withdraw your funds wisely
Most financial advisors (click HERE to get matched with a financial advisor) advise their clients to withdraw no more than four percent of their retirement savings each year. The Four Percent Theory however, is a moving target and should be adjusted depending on the economy. If the market takes a tumble and your accounts are suffering, four percent next year will be substantially less than four percent this year.
3. Don’t be afraid to make adjustments
Even if you do use the Four Percent Rule, every two or three years you should sit down with your financial advisor to look at where your retirement portfolio stands and whether you’re on the right track.