Running out of money is one of the biggest fears people have after they retire. But there are lots of ways to prevent outliving your savings and put your mind at ease in the process. Here are seven suggestions to help you finance the rest of your life.
Withdraw a modest amount from savings each year. Take care to spend down your retirement savings gradually. One rule of thumb suggests a 4 percent withdrawal rate, but some experts say this is too much, especially if you retire early. You might run out of money if the economy turns bad or you live longer than expected. Another strategy is to follow the IRS required minimum distribution amount, starting at age 70.
Invest in equity markets. Once you retire your primary objective is to preserve capital, not put it at risk. However, if you are going to live another 20 or 30 years, or if the economy heats up and brings on another inflationary period like the 1970s, you need to grow your assets. So keep some portion of your funds in the stock market. Some experts suggest an amount equal to 100 minus your age. Remember to choose low cost investments such as a balanced mutual fund or exchange-traded fund.
Don't retire too early. One way to make sure you don't run out of money is to have an annuity. Fortunately for most of us, Social Security is a kind of annuity. Social Security benefits last a lifetime, increase with inflation and do not fluctuate with the financial markets. You can also take steps to increase your Social Security payment. The longer you work, up to age 70, the more generous your monthly annuity payment.
Downsize as appropriate. Some people, fed up with the rat race, can't wait to retire early and live a simple life far from the crowd. Choosing a low cost place to live can help your money last longer. You don't have to retire in Sarasota or San Diego, but can go to Boise, Tucson or Costa Rica to live at a fraction of the cost. If you can live without a boat, car, big house and a string of expensive vacations, you can stretch out your retirement funds for a long time. And remember, you don't have to downsize all at once. You can downsize in stages as your finances, interests and abilities change over time.
Stay healthy. Health care costs, such as insurance, co-pays and uncovered procedures, might be higher than you are expecting. So make sure you are up to date on Medicare and a supplemental health insurance plan. Try to set aside some funds in case you face a major medical issue. But just as important, try to preserve your health by eating right and exercising regularly. When you're retired you have the time to prepare healthy home-cooked meals. And the cost of a gym membership might just save you big medical bills in the future. Besides saving money, you also feel better when you're healthy.
Rely on friends. An active and supportive social network with family and friends not only helps support your psychological and emotional well-being, but it can save lots of money as well. Friends help each other, whether it's preparing meals, doing lawn care, sharing rides or trading off pet sitting. So don't hesitate to ask a favor, and then return it in kind. It costs a lot of money to pay for personal services. Friends do it all cheaper, and usually with a smile.
Give some away. If it turns out that you have plenty of money in retirement, then share the bounty with your family and community. Many young people are struggling with student loans and all the expenses of starting out in life. Help them if you can. It will make you feel good. And whether you're giving $10 a week to your church, $100 a year to your alma mater or even just a one-time $5 gift to the food pantry, you will feel richer for the experience.
Tom Sightings is the author of "You Only Retire Once" and blogs at Sightings at 60.