How to Make Your Money Last

1. Retirement is a reinvention, not just financial planning

Retirement challenges us like nothing else. We have to reinvent our lives.

Identity shift: Retirement marks a significant transition from work-defined identity to a new phase of life. This shift requires thoughtful planning beyond finances.

Purpose and engagement: Successful retirees actively seek new interests, social connections, and meaningful activities. Consider volunteering, part-time work, learning new skills, or pursuing long-held passions.

Stages of retirement: Robert Atchley's research identifies five stages:

• Preretirement: Planning and anticipation
• Honeymoon: Initial excitement and freedom
• Disenchantment: Potential feelings of loss or boredom
• Reorientation: Actively creating a new lifestyle
• Stability: Settling into a satisfying retirement routine

2. Social Security: Maximize benefits by delaying claims

If I can give you just one word of advice about when to claim Social Security benefits, it would be WAIT.

Increased benefits: Delaying Social Security claims can significantly increase monthly payments. Waiting from age 62 to 70 can result in up to 76% higher benefits.

Strategies for couples: Married couples have additional options to maximize their combined benefits:

• Higher-earning spouse delays to age 70
• Lower-earning spouse may claim earlier
• Survivor benefits are higher when primary earner delays

Consider life expectancy: The break-even point for delaying benefits is typically in the early 80s. Given increasing longevity, especially for higher-income individuals, waiting often provides greater lifetime income.

3. Health insurance: Navigate options before and after Medicare

Peace of mind is knowing that you can see a doctor when you're sick.

Pre-Medicare options: Explore Affordable Care Act (ACA) marketplace plans, COBRA, or employer retiree coverage. Consider:

• Premium subsidies based on income
• Plan metal levels (Bronze, Silver, Gold, Platinum)
• Health Savings Accounts (HSAs) for high-deductible plans

Medicare enrollment: Sign up during your Initial Enrollment Period to avoid penalties. Understand the parts:

• Part A: Hospital insurance (usually premium-free)
• Part B: Medical insurance
• Part C: Medicare Advantage plans
• Part D: Prescription drug coverage

Supplemental coverage: Consider Medigap policies to cover gaps in Original Medicare or choose a comprehensive Medicare Advantage plan.

4. Pensions and annuities: Reliable income streams for life

I love Social Security. It's America's finest retirement plan.

Pension decisions: If offered a pension, carefully consider:

• Single-life vs. joint-and-survivor options
• Lump sum vs. monthly payments
• Coordination with Social Security benefits

Immediate annuities: These insurance products can provide:

• Guaranteed income for life
• Protection against outliving savings
• Options for inflation adjustment or fixed payments

Annuity considerations:

• Shop for competitive rates
• Understand fees and surrender charges
• Balance annuities with other investments for flexibility

5. Optimize retirement savings plans for tax advantages

If you haven't saved pots of money, don't waste time kicking yourself. It's never too late to give your future a boost.

Tax-deferred accounts: Maximize contributions to:

• 401(k)s, 403(b)s, 457 plans
• Traditional IRAs
• SEP-IRAs or Solo 401(k)s for self-employed individuals

Roth options: Consider Roth contributions for tax-free growth:

• Roth IRAs (subject to income limits)
• Roth 401(k) if offered by employer
• Backdoor Roth IRA conversions for high earners

Required Minimum Distributions (RMDs): Plan for mandatory withdrawals starting at age 72 (70½ if you reached 70½ before January 1, 2020) from most tax-deferred accounts.

6. Create a sustainable withdrawal strategy from investments

How much cash can you take from your nest egg every year without running the risk of eventually going broke?

4% rule: A common starting point is withdrawing 4% of your portfolio in the first year of retirement, then adjusting for inflation annually.

Flexible approaches:

• Variable withdrawal rates based on market performance
• "Bucket" strategies separating short-term and long-term needs
• Dynamic spending adjustments in response to portfolio changes

Longevity risk: Plan for a retirement lasting 30 years or more, especially for couples. Consider delaying Social Security and using annuities to provide longevity insurance.

7. Diversify retirement portfolio with low-cost index funds

Index funds are the only "secret" to investing. You are paying your fancy fund manager to lose.

Benefits of indexing:

• Low costs
• Broad diversification
• Consistent market returns

Core portfolio: Consider a simple three-fund portfolio:

• Total US stock market index fund
• Total international stock market index fund
• Total bond market index fund

Asset allocation: Adjust stock/bond mix based on risk tolerance and time horizon. A common rule of thumb: 110 minus your age in stocks.

8. Leverage home equity as a retirement income source

Your house is a piggy bank. This might be the moment to break it open.

Downsizing: Selling a larger home to move to a smaller, less expensive property can free up equity for investment or spending.

Reverse mortgages: Home Equity Conversion Mortgages (HECMs) allow homeowners 62+ to borrow against home equity:

• No monthly payments required
• Loan repaid when home is sold or owner moves/dies
• Options for lump sum, line of credit, or monthly payments

Considerations:

• Fees and interest reduce future equity
• Impact on heirs and estate planning
• Alternatives like home equity lines of credit (HELOCs)

9. Life insurance in retirement: Reevaluate and restructure

There's money in a life insurance policy and you don't have to die to get it.

Assess need: Determine if life insurance is still necessary:

• No dependents or adequate assets may eliminate need
• Continuing coverage for spouse or special needs dependents

Policy options:

• Term insurance: Usually ends or becomes expensive in retirement
• Whole life: May have cash value to access
• Universal life: Review to ensure it remains in force

Alternatives:

• Surrender policy for cash value
• Convert to paid-up policy with reduced death benefit
• Sell policy through a life settlement

Last updated: October 24, 2024