Making Retirement Savings Last

Different ways to respond to the challenge.

Making Retirement Savings LastAs you retire, there are variables beyond your control. Investment performance and factors like inflation in our unpredictable economy are toward the top of the list, but the rising cost of healthcare can have a significant impact on savings too.1 Your approach to withdrawing and preserving your retirement savings can give you more control over your financial life during the golden years. Since many retirees today have only a small amount of savings to work with, creating a strategy and sticking to it can stretch those dollars as far as they can go.2

According to a 2019 survey by GoBanking Rates, 64% of those surveyed expected to retire with less than $10,000 in savings. Overall, 46% of respondents had not saved anything for retirement. And of those age 65 and older, a third had no retirement savings at all, while another third had less than $50,000 to carry them through their retirement years.3

Northwestern Mutual’s 2020 Planning and Progress study found that 21% of Americans expected to keep working after age 65, and nearly half of those said it was due to necessity. During 2020, 10% dipped into retirement savings -- and 8% sold off some investments -- to fund basic living expenses.4

A savings account is vital during retirement, and for emergencies as well. Those who haven’t started saving can immediately change their prospects by consistently putting some money aside each month. Those who have accumulated some savings and investments can consider using the strategies below to extend their retirement savings.

Ease into retirement.

Rather than quitting your job immediately at age 65, continuing to work even part time while you’re still healthy and capable allows you to test the retirement waters first before jumping in with both feet. Working part time allows you to continue to earn, which can delay or offset the amount you need to use from your retirement fund.1

Working part-time generates social as well as financial benefits. Transitioning more slowly from full-time work to retirement gives retirees an opportunity to carefully consider their options and take up new interests while still maintaining social relationships from work.5

Easing into retirement means you can put off claiming Social Security benefits which increases your benefits amount when you do claim them later on. By waiting to claim benefits until age 70, retirees “earn” an additional 8 percent annually on their Social Security pay-outs. There are no increases in Social Security benefits for delaying past the age of 70. 6

Reduce expenses.

If you haven’t saved much by the time you retire, a big part of your strategy will be to downsize and save after retirement. One important way to do this is to relocate to a smaller house. A smaller house can allow you to unlock some of the equity in your current property while also saving on utility costs.7

Relocation can also result in huge savings. For example, the annual cost of living in Toledo, Ohio is $38,643 while the annual cost of living in Winston-Salem, North Carolina is $43,102. Some retirees even opt to live in a different country where the cost of living is significantly lower. These strategies can improve the chances that you’ll be able to make your retirement fund and Social Security benefits go the proper distance.8


Drawing retirement income without draining savings is a challenge, and financial experts offer different advice about how to increase your chances of making those dollars last.

Should you go by the 4% rule? For decades, retirees were cautioned to withdraw no more than 3-5% (an average of 4%) of their retirement balances annually (adjusted north for inflation as the years went by). An analysis by Fidelity cautions that inflation becomes the biggest risk to a portfolio in retirement and suggests that the maximum sustainable annual withdrawal rate is 4.3% for those whose retirement may last 35 years, or 4.9% with an expected retirement period of 25 years.9

Or the new and improved 4% rule? In 2020 the author of the 4% rule, William Bengen, published a new and more complex approach based on prevailing inflation rates that can lead to safe maximum withdrawal rates from 4% to 13% in a particular year.10

Or perhaps the "ceiling and floor" method? Vanguard recommends that retirees plan to withdraw a specific percentage of their portfolio annually, but adjust that figure to stay within predefined upper and lower limits based on the previous year’s withdrawal amount.11

Attention has to be paid to tax efficiency. Many people have amassed sizable retirement savings, yet give little thought as to the order of their withdrawals. Generally speaking, there is wisdom in taking money out of taxable accounts first, then tax-deferred accounts and lastly tax-exempt accounts. This withdrawal order gives the assets in the tax-deferred and tax-exempt accounts some additional time to grow. A smartly conceived withdrawal sequence may help your retirement savings to last several years longer than they would in its absence. 12

But if you have little to no savings and you’re approaching retirement, these withdrawal approaches may be irrelevant to you. If this is your situation, it would be wise to start saving right away and consider purchasing an annuity with certain options that pay out a guaranteed income for the rest of your life. Stashing even a small amount into an annuity can provide extra income above and beyond Social Security benefits for extra expenses in retirement.13

Take care of yourself.

Keeping healthy can benefit you in two ways. Increasingly, people want to work until age 70, or longer. Many assume they can, but the 2020 Retirement Confidence Survey from the Employee Benefit Research Institute found that 48% of current retirees had left the workforce earlier than they planned, with personal or spousal health concerns a major factor. 14

Eating right, consistent exercise and regular doctor visits can bolster earning potential as well as your constitution. Health problems can hurt your income stream and reduce your chances to get a job, and medical treatments can eat up time that you could use in other ways. Good health can mean fewer ER visits, fewer treatments and fewer hospital stays, all saving you money that might otherwise come out of your retirement fund.

According to a recent report issued by HealthView Services, an average 65-year-old healthy couple will spend $662,156 on healthcare during their remaining years. That figure doesn’t include dental, over-the-counter drug and long term care costs (and as a reminder, many eye, ear, and dental care costs are not even covered under Medicare or by Medigap policies). Every year you work may mean another year of health insurance coverage as well as income.15


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