How to Not Out-Live Your Retirement Savings

January 13, 2015

One of the biggest fears that many current retirees have is that they might out-live their retirement savings. That can be a particularly difficult problem, because once you’re retired there’s not much you can do about it. But if you’re planning for your retirement, there’s a lot you can do about a right now.

Here are five ways to not outlive your retirement savings:

1) Delay Retirement

This is something virtually anyone can do, as long as you are in good health. Actually, there is nothing sacrosanct about age 65 as the preferred age of retirement. The Social Security Administration is now in the process of forcing full retirement to gradually move up to age 67, for those born in 1960 or later.

But if you are concerned about outliving your retirement savings, you can delay the date of your retirement for virtually as long as you are able to work. And considering that people today are living longer, and are generally healthier, than what they were 50 years ago, delaying makes abundant sense.

If you can delay for retirement until age 70, you’ll reduce the number of years that you will live in retirement by five (with the assumption of 65 being a normal retirement age). For example, let’s say that for planning purposes you expect that you will live to be 90. If you retire at 65, you’ll need to provide for 25 years in retirement. But if you delay until you turn 70, you’ll cut that down to just 20 years. The difference in required financial resources will be substantial.

There is a another benefit to delaying retirement at least until age 70. Social Security will increase your monthly benefit by 8% for each year that you delay retiring past your normal retirement age. If normal retirement for you is 67, and you delay collecting benefits until 70, your monthly benefit will by 24% over what it would be if you retire at 67. (There is no benefit to delaying past age 70, as Social Security will no longer increase your monthly benefit beyond that age.)

2) Work Part-Time For as Long as You Can

This can be a halfway option, that will enable you to delay retirement out-right. Instead of delaying full retirement to, say age 70, you can instead spend the first few years of your retirement working part-time. Under that scenario, you’ll be trading full-retirement for semi-retirement. And the fact that you will be relying less on investment income will help you to preserve those assets for the time in your life when you’re not able to work at all.

This can work for people on a lot of fronts too. You may not be quite ready to fully retire at age 65 or 67, and working at least on a part-time basis – or starting your own part-time business – could help you to ease into the transition of finally living the work-free life.

3) Set Up a Roth IRA and Save It For…Later

We’re hearing a lot these days about the many benefits of the Roth IRA. These plans are something of a supercharged retirement plan, because they enable you to withdraw money from the plan tax-free, as long as you are at least 59 ½ when you begin taking distributions, and you have been in the plan for at least five years.

Other tax-sheltered retirement plans require that you begin paying taxes on any money that you withdraw from the plan. Unlike the Roth IRA, these plans are merely tax-deferred, and not tax-free.

But Roth IRAs have another advantage over ordinary retirement plans, one that make them particularly suitable as investment vehicles to keep you from outliving your retirement savings. Roth IRAs do not require you to take required minimum distributions (RMDs) when you turn 70 ½. Virtually every other retirement plan requires that you take RMDs as soon as you reach that age. That will virtually guarantee that other plans will eventually be depleted.

This is not true with the Roth IRA. Since there is no requirement to take RMD’s, you could allow the money in the account to continue to earn investment income and to grow until the time comes when you need to funds. This can enable you to live out of other retirement accounts, while you hold your Roth IRA funds until you actually need the money. Even if you exhaust other plans, you can still have your Roth IRA growing for the day when you need the money. You can delay withdrawing your Roth IRA funds until you’re 75, or 80, or what ever age you decide you need to.

4) Live on Non-Retirement Savings For as Long as You Can

If the idea of delaying retirement, or working part-time for the first few years, don’t interest you, you could also consider living on non-retirement savings for the first few years. This will enable you to delay tapping retirement savings for several years. During that time, the plans can continue to grow, so that you will have more money available in them when you finally do begin taking distributions.

As an example, let’s say that you begin taking Social Security benefits at age 65. You also have $100,000 in non retirement assets – savings, CDs, money market funds, stocks, mutual funds, etc. Rather than beginning to draw funds out of your retirement accounts at age 65, you instead withdrawal $20,000 per year from your non-retirement holdings for the first five years. That will allow your tax-sheltered retirement plans to continue growing for an extra five years.

Perhaps equally significant is the fact that your non-retirement assets can be withdrawn without creating an income tax liability.

5) Keep Your Cost of Living to an Absolute Minimum

This has to be a strategy if you are at all concerned over the prospect of outliving your retirement savings. There is nothing at all exotic about this strategy either. The less money you need to live on, the less you’ll need to withdraw from your retirement savings, and the longer they will last.

This involves keeping your basic living expenses as low as possible. That can mean trading down to a less expensive home, driving a modest car, and avoiding expensive entertainment hobbies. Even more fundamentally however is that you should make sure that you are completely out of debt. That means everything – credit cards, car loans, installment loans of all types, and yes, even your mortgage. The less money you owe, the lower your cost of living will be, and the longer your retirement savings will last.

Do you ever worry about outliving your retirement savings?


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Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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