If you’re approaching retirement, the one question that probably crosses your mind most is, "How can I make sure I don’t run out of retirement money?" You’re not alone in wondering this, especially with rising healthcare costs, inflation eating away at your purchasing power, and people living longer than ever before. If you haven’t asked yourself this yet, well, you might be in for a shock when you hit retirement age.
Proper planning can't guarantee you’ll never run out of retirement money, but it can seriously decrease the chances. More importantly, it allows you to enjoy your golden years without constant stress about money. Imagine planning that dream holiday and knowing you can afford it. Sounds like a better retirement, right?
Many people worry about running out of retirement money, and understandably so. We can't predict how long we’ll live, what our expenses will look like, or how well our investments will perform. And, let's face it, even tax rates aren’t something we can rely on staying the same. (We’re expecting tax changes when the Trump tax plan expires at the end of 2025, so be prepared.)
But don’t worry, there are ways to significantly improve your chances of retirement money lasting throughout your retirement. Here are my top 15 tips to help your retirement money stretch for as long as you do.
1. Minimize Lifestyle Inflation
I was talking to a couple recently who spent a small fortune on a luxury vacation at Awasi in Chile's Atacama desert. It was amazing, but they admitted it had set them up for a future dilemma: how would they afford future trips? Lifestyle inflation doesn’t always show up in obvious ways. Sometimes it’s as simple as upgrading to a more expensive car or taking more lavish holidays.
It’s fine to splurge once in a while, but it’s important to keep core expenses under control to help your retirement money last. The more you limit those fixed expenses, the more you’ll be able to spend on things that matter. For example, driving a luxury car and flaunting designer clothes might be fun, but if your retirement money won’t last, it won’t be much of a retirement.
2. Don’t Overlook the Power of Inflation
Inflation is one of those sneaky factors that can rob you of your retirement money. What feels like a comfortable income at 62 might feel more like scraping by at 92. That’s the reality when prices go up every year. If inflation is around 3%, something that costs you £10 today could cost over £24 in 30 years. That’s a huge dent in your purchasing power.
3. Look After Your Health Now, So You Don’t Deplete Your Retirement Money Later
Being healthy isn’t always cheap, but healthcare in retirement is even pricier. Making good health choices now can save you a ton in the future, helping you preserve your retirement money. Plus, staying healthy means you’ll likely enjoy retirement more, travelling, hiking, and doing what you love.
Now, there is a downside, living longer increases the chances your retirement money will need to stretch further. But, as I always say, I’d rather take that risk and live longer, with good health, than be confined to a life of mediocrity.
4. Boost Your Social Security Benefits
You may be tempted to start claiming Social Security early, at 62, because it seems like free money. But delaying it can work in your favor in the long run, boosting your benefits each year you wait. Consider your Social Security benefits like longevity insurance, it’s a guaranteed income stream for life, and you can increase it by waiting a little longer before claiming.
5. Create a Flexible Spending Plan for Retirement
Forget the rigid "budgeting" rules. A spending plan helps you prioritize what matters most to you in retirement whether it's travel, dining out, or spending more time with friends and family. When you have a spending plan, you’re in control of where your retirement money goes.
The idea is simple: Plan for the fun stuff, but don’t let overspending drain your savings. A good financial planner will help you estimate how much you’ll need for your dream retirement.
6. Be Smart About Taxes
Tax planning doesn’t stop when you retire. On the contrary, it can become more important. By planning how and when to withdraw your retirement money, you can keep more of it in your pocket. Don’t forget about tax-deferred accounts like 401(k)s or IRAs, these could trigger larger-than-expected tax bills if you’re not careful.
7. Tax Diversification for Your Assets
If all your retirement money is tied up in tax-deferred accounts, you might be in for an unpleasant surprise when it’s time to start withdrawing. Ideally, you want a mix of taxable and tax-free accounts, like a Roth IRA, to ensure you don’t get hit with huge taxes down the line.
8. Consider Working Longer
Sure, you might want to retire as soon as possible, but delaying your retirement by just a few years can have huge benefits. Not only does it give you more time to save, but it allows your investments to grow. Additionally, your Social Security benefits will grow for each year you wait to claim.
9. Keep Investing Even in Retirement
The fear of investing can stop many people from growing their retirement money. But avoiding it altogether could be a mistake. The earlier you start investing, the better your odds of having enough retirement money. A diversified, long-term investing strategy can help you ride out market fluctuations and ensure you don’t run out of money too soon.
10. Plan for Long-Term Care Costs
Long-term care is one of the biggest expenses in retirement. Even if you stay healthy, you should prepare for the possibility of needing care. That’s a huge strain on your retirement money, so consider long-term care insurance or other solutions to protect yourself.
11. Use Credit Card Points and Miles
A savvy couple I know used their credit card points to fly first class to Africa, saving over £60,000 on flights. That’s money they didn’t have to withdraw from their retirement money. And the best part? The points earned were tax-free! Don’t forget to use credit card rewards to make your travel dreams more affordable.
12. Buy Your Home Early
Owning a home can act as a hedge against rising housing costs in retirement. The longer you’ve owned a home, the easier it is to pay off your mortgage, making it a valuable asset. If you own your home by the time you retire, it can give you more flexibility and less stress about housing costs.
13. Reduce Home Expenses
If you’re nearing retirement and find that maintaining your home is too expensive or stressful, it might be time to "right-size." Downsizing to a smaller home or moving to a more affordable area can reduce your living costs and help your retirement money last longer.
14. Secure Guaranteed Income
A guaranteed income stream, like a pension or annuity, can give you peace of mind in retirement. Having fixed income to cover your essential needs will free up your retirement money for fun stuff. Just be cautious of high-fee annuities that lock your money away for years.
15. Start Planning Today for a Long Retirement
Whether you’re worried about running out of retirement money or just want to ensure you’re set, start planning today. Take these 15 tips, act on them, and you’ll be ready for a retirement that lasts as long as you do.
FAQs
Q1: How can I make sure my retirement money lasts longer?
Start by cutting back on lifestyle inflation, saving more, and investing wisely. Also, delay claiming Social Security and consider working a bit longer.
Q2: What’s the best way to deal with inflation in retirement?
Keep an eye on your expenses and adjust your budget regularly. You can also diversify your retirement money to include investments that outpace inflation.
Q3: Should I use a financial planner?
Absolutely. A good planner will help you optimize your Social Security, reduce taxes, and create a solid spending plan.