When it comes to enjoying your golden years, saving money is only half the battle. Even after you reach retirement, you still have to manage your money wisely to make sure it lasts the rest of your life. You can expect to live at least 20 years after you retire — and you may even live into your 90s or older. How can you make your retirement fund last for decades?
While there’s no way to guarantee that your money will last for 30 or 40 years, you can maximize the chances of that happening by making the right decisions as you approach and enter retirement. You shouldn’t stop investing in stocks, but you should consider buying an annuity, long-term care insurance or longevity insurance. Divide your money up and invest each portion differently depending on which decade of your retirement you plan to use it in. You may even want to continue working part-time in your retirement, to reduce the rate at which you withdraw from your retirement accounts, and allow you to delay claiming Social Security.
There are two kinds of insurance you should consider buying as you approach or enter retirement. The first is long-term care insurance, which can help you cover the costs of nursing care should you or your spouse need it. Medicaid covers only a limited amount of at-home or residential nursing care. Health insurance, if you have it, probably won’t pay for nursing care at all.
The younger you are when you buy long-term care insurance, the more affordable it will be. It can help you protect your retirement funds from nursing care costs, and protect your loved ones from the burden of providing or paying for nursing care, too.
Longevity insurance is a little different. You buy it from an insurance company when you’re 65 and then, when you’re 80 or 85, you’ll receive monthly payments for the rest of your life. It’s cheaper and easier than trying to manage your assets for 15 or 20 years, and it guarantees that you’ll receive a monthly lump sum payment whether you live to be 85 or 105. A $25,000 policy bought at age 65 could pay out about $3,000 a month once you turn 85. If you invested that money in stocks with an eight percent rate of annual return, you’d get $116,524 after 20 years, but that would only last you 3.5 years if you spent $3,000 a month.
Use the “Bucket Method”
The bucket method is a form of retirement planning that involves dividing your retirement funds up into three portions at the beginning of your retirement. The first portion will fund the first decade of your retirement, the second the second decade, and so on.
With the first portion, you’ll buy a 10-year immediate fixed annuity that will give you a monthly payout for the first 10 years of your retirement. You might not get as much as you would from a deferred annuity, but you’ll still be young enough to supplement that income with part-time work. Choose a reputable, big-name insurance company that’s unlikely to fail — if the insurance company underwriting your annuity fails, you lose the money.
The second “bucket” will fund your second decade of retirement, so you’ll want this money to be relatively safe, too. You have a couple of options here. You might buy a deferred 10-year annuity that will begin giving you monthly payments when the first annuity runs out. You might also put this money into government bonds, or look into buying high-dividend stocks or mutual funds. Consult a financial planner to help you choose the best stocks.
You’ll want to take some more risks with the third bucket. You won’t need this money for another 20 years so it still has time to grow. Put it into stocks and bonds just as you would have while you were working full-time.
Keep Working and Don’t Take Social Security Just Yet
If you can continue working part-time in retirement, do it. The more money you can earn, the less money you’ll have to draw from your retirement fund. If you can continue working full-time a little longer, that will mean fewer years you have to rely on your savings and a better chance of making that savings last. Many people set up an online business in their final years before retirement so that they can continue earning income while working from home, with minimal effort.
You should also put off drawing Social Security as long as possible. The longer you wait to claim your benefits, the larger your monthly check will be. If you’re turning 62 this year, your benefits would be $1,599 a month; but if you wait till age 70 to claim them, you’ll get a whopping $2,926 a month.
You don’t get to stop planning for your financial future once you reach 62 years of age. You have to manage your retirement funds carefully to make them last for the rest of your life. If you make the right choices with your money, you’ll have a much better chance of living comfortably throughout your old age and even leaving a little something behind for your heirs.