No one likes to think about the end, but when it comes to money, it’s important to plan for retirement with a long-term mindset. Making your money last is something that all retirees and those planning for retirement have to think about. After all, no one wants to run out of money before they die. The good news is that there are ways to make your money last for longer, making this something anyone can accomplish with a bit of patience, discipline, and self-control.
In the following post, you’ll find a list of the top five tips to make money last for the rest of your life and even longer.
Table of Contents
Tip #1: Save, save, save.
The most important thing you can do to make your money last is to start saving as early as possible. The sooner you begin to save, the more time your money has to grow. If you’re already retired, it’s not too late to start saving. Even if you only have a few years left until retirement, every little bit helps.
The key to saving effectively is to live below your means. While this may sound like obvious advice, that doesn’t mean it’s less relevant. Living below your means is about spending less than you earn and investing the difference. If you can do this consistently, you will build up a sizeable nest egg that can last for decades.
How to know how much you need to save
There are several different approaches to knowing how much to save every month. As a general rule of thumb, you should do your best to save as much as possible after accounting for all necessary living costs like housing, food, transportation, and healthcare. However, saving “as much as possible” may not cut it, and you may need to take extra steps to ensure your money will last long enough.
But how do you know if you’re saving enough or not? You still need a specific number to aim for, which is where the following approach comes in.
You need to estimate how big your nest egg needs to be by the time you retire to provide enough income to pay for your desired lifestyle during retirement. This is done in two steps. You first need to know how long your money needs to last. That goes through deciding when you plan to retire and knowing how long you’re likely to live, which you can find in online life expectancy tables.
Once you have that information, you can establish a monthly, quarterly, or annual withdrawal plan that provides enough income to pay for the lifestyle you want. You can then use an online calculator to determine the value of your nest egg so that it lasts the number of years you’ll likely have left.
Once you get that number, you can use the same calculator to find out exactly how much you need to set aside every month, starting today, for your savings to grow into the nest egg you just calculated.
Tip #2: Max out pensions and social security
Pensions and social security are two of the most important sources of retirement income for many retirees. If you have access to either of these benefits, be sure to maximize them.
Pensions are a type of retirement plan offered by many employers. They generally provide a fixed income for life, making them an ideal retirement income source. If you have a pension, find out how much income it will provide and when you can start receiving payments.
Social security, on the other hand, is a government-provided retirement benefit available to all retirees. The amount you receive from Social Security is based on your earnings history and the age at which you retire. You can start receiving Social Security payments as early as age 62, but if you wait until your full retirement age, you’ll receive a higher benefit.
How to max out your Social Security benefits
If you’re still working, maximizing your Social Security benefits is to continue working and paying into the system for as long as possible. The longer you work, the higher your benefit will be. If your employer offers to match your 401(k) contributions, ensure you contribute all you can to get the full match. This is free money that can ensure your nest egg lasts as long as you need it, especially after compounding for several decades.
In addition, if you’re married, you can also maximize your benefits by ensuring that you and your spouse are working and contributing to social security. This will allow you to receive two benefits when you retire, which can significantly increase your retirement income.
This will also allow you to take advantage of spousal and survivor benefits. Survivor benefits provide a spouse income after the primary breadwinner’s death. In contrast, spousal benefits allow a lower-earning spouse to receive a benefit based on the higher-earning spouse’s work history. This can be as high as 50% of your spouse’s benefit, so if either of you earns significantly more than the other and maxed out your Social Security contributions, the spousal benefit can add a significant amount of retirement income.
Tip #3: Purchase annuities for fixed income
An annuity is a financial product that provides guaranteed income for life. There are two main types of annuities: immediate and deferred. Immediate annuities start making payments as soon as you purchase them. In contrast, deferred annuities grow tax-deferred over time and begin making payments in the future, such as when you retire.
Some people choose to use annuities as a way to supplement their retirement income from Social Security and pensions. Others use them as a primary source of retirement income.
The biggest advantage of an annuity is that it provides guaranteed income for life, and you can make that income as big as you want, depending on how much you put into it. Combined with your pension and Social Security benefits, an annuity can help cover your basic living costs like housing, transportation, and healthcare entirely.
Things to look out for when purchasing an annuity
There are many factors to consider when choosing the right annuity for your retirement. To start, you need to choose the right type of annuity. You have several options, including purchasing a deferred fixed annuity and paying it off monthly until you retire. Alternatively, you could invest your money in other ways before retirement and buy an immediate annuity with a single lump sum taken from your nest egg upon retirement. That way, you’ll automatically turn your lump-sum payment into a steady and guaranteed income stream.
You need to be mindful of the costs associated with annuities. A plain, vanilla income annuity will be your cheapest option, and it will provide the highest possible income, but it comes with several strings attached. If you wish to retain access to your principal, have payments that increase over time, or have other special features, you will likely have to pay fees for those extra bells and whistles in the form of annuity riders. These fees can seriously add up and take a considerable chunk of your income, so be sure to read the fine print carefully before signing on the dotted line.
The amount of money you put in an annuity is also an essential factor to consider. You should never put all your eggs in one basket, especially if that basket gets locked up for years before you can access it. It’s not wise to put all or most of your savings into an annuity to cover all your income needs during retirement. It’s smarter to use income annuities to supplement your income and cover the basics, investing only a small portion of your net worth.
Tip #4: Establish passive income sources
A passive income stream is one that doesn’t require much work on your part to maintain. This could include investment in income-producing assets like rental properties, dividend-paying stocks, and mutual funds. But there are hundreds of other ways to start earning passive income. Some common examples include:
- Creating and monetizing a YouTube channel
- Writing a book and earning royalties
- Sell original music as NFTs with royalties embedded into the smart contract
- Starting a blog about retirement lifestyles and using it for affiliate marketing
- Renting out your spare tools or even your car
- Creating and selling online courses
- Sharing photos on stock photography websites and more.
The key to making passive income work for you is choosing an activity you enjoy and can see yourself doing long-term. That way, it won’t feel like work, and you’ll be more likely to stick with it. Once a passive income stream is up and running, it can provide a significant source of additional retirement income that can help make your nest egg last longer, regardless of your health.
On the other hand, you can also look for alternative sources of income that aren’t as passive. This could mean turning a hobby into a side hustle or taking up a part-time job that allows you to work remotely from a beach in Barbados.
Tip #5: Budget, budget, budget
Once you’re retired, it’s crucial to closely examine your expenses and ensure they align with your new income and lifestyle. Many people find that their spending patterns change once they retire, and that’s perfectly normal, but you need to know exactly how they changed. Creating a budget is the best way to keep track of and manage your expenses.
Budgeting during retirement is a bit different from budgeting during your working years. For one, you’ll need to account for any changes in your income as time passes, whether from a reduction in Social Security benefits or a change in your pension payments. You’ll also need to factor in any new expenses, such as increased healthcare costs, and account for the possibility of inflation eating away at your purchasing power.
There are many ways to approach budgeting in retirement, but one of the simplest and most effective is the 50-30-20 method. Under this system, you would allocate 50% of your monthly income towards essential expenses like housing, transportation, and healthcare. 30% would go towards discretionary spending on things like travel and entertainment, and the remaining 20% would be set aside for savings and investments that will help your money last longer.
If your monthly retirement income doesn’t quite stretch as far as you’d like it to, there are a few ways to cut costs without sacrificing your lifestyle. You can read this post to learn about some ways to save retirement money.
The bottom line
With these five tips, you can help ensure your retirement savings last at least as long as you do. Purchasing an annuity, establishing passive income streams, and budgeting carefully are all keys to making your money last a lifetime. You don’t have to be a millionaire to enjoy a comfortable and worry-free retirement, living life the way you want and always dreamed of. All it takes is a little bit of planning and some smart financial decisions along the way.
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