Perhaps the biggest fear retirees have is running our of money before they die. Having enough money to sustain your lifestyle, enjoy your free time and be able to cover health emergencies remains one of the biggest challenges of the so-called “golden years.” However, using a few key strategies should enable you to live your life out the way you want – without depending on relatives to support you:
Pay off your house. Not too many years ago lots of baby boomers bought expensive homes thinking that the fast climbing real estate market would provide a cash machine of equity. The crash of 2008-2009 changed all of that. And if you are building a slid retirement plan it should include owning your residence free and clear. “If you pay off your house, it’s a guaranteed return of 3, 4 or, in some cases, 5 percent,” says Vestory advisor Bill Higgins. “The savings can be used to create a bigger emergency fund for unexpected medical costs,” he added.
When drawing down your savings, be flexible. Too many retirees don’t have a plan when it comes to withdrawals. Often they take whatever they need from IRA’s , or they take a set amount that increases each year with inflation. A flexible withdrawal strategy – which means taking a different amount each year depending on the performance of your portfolio – can often be the difference between a portfolio surviving post work years, or dying broke. By using this approach ,”You may be able to withdrawal a larger percentage of your portolio,” says Vestory advisor Mike Taylor. “Most of our studies show that a flexible strategy can lead to bigger withdrawals and more left in your portfolio ,” he added.
Proper Asset Allocation. Far too many retirees build a portfolio that is generally too conservative (not enough in stocks) and this leads to a lack of growth in your savings. Plus, in tough years for bonds -- like 2012 – a fixed income portfolio can end up losing money. Know your risk tolerance, have an investment policy and discipline, and stick to it. Your stock to bond ratio shouldn’t change according to what’s happening in the market. Instead, your asset allocation should reflect your need for return and your emotional ability to take risk.
Don’t use expensive annuities. There’s a reason that most annuities pay insurance salesmen huge commissions. The products ate expensive to the consumer, very hard to understand, and most studies have found they underperform a simple buy-and-hold strategy in all types of market conditions. Variable annuities, and equity index annuities are a couple of the worst examples of products being produced to give consumers a sense of security, but at a huge price. Don’t buy what a major publication once called “a protection racket.”
Maximize your Social Security Benefit . Many people wake up at age 62 and start receiving their Social Security benefit not realizing this could be a huge mistake. An important fact to know is that Social Security benefits increase about 8 percent a year between the ages of 62 and 70. Plus, if you re married there may be ways for
your spouse to claim benefits and get more over time. If you haven’t set uo an online Social Seccurity logon, go to www.ssa.gov and do so. Gettng the most you can from Social Security is a complex issue, it probably makes sense to get the advice of a financial advisor or at least visit a Social Security office.
Your post full-time work years list should be filled with relaxation, adventure and spending time with those you care about. Worrying about whether your savings will last shouldn’t be that list!