Ensuring you have enough savings to last through retirement is a major financial goal. But for many retirees, the biggest concern is whether their retirement savings will last that long. Let’s be honest, reaching age 80 is a major milestone.
According to retirement and wealth planning experts, there are some key indicators that your retirement fund is sustainable long-term.
Jeff Rose, founder of Good Financial Cents, said that, even in retirement, diversified investments are essential. He cited a study from the National Bureau of Economic Research that found that properly diversified portfolios can grow enough to outpace inflation and preserve buying power.
Cameron Burskey, managing director at Cornerstone Financial Services, also emphasized the importance of diversification.
“A diversified investment portfolio that balances risk and return is essential,” he said. “Having a mix of stocks, bonds and other assets can help your retirement fund weather market fluctuations, while providing consistent returns.”
A Well-Structured Retirement Plan
Having a retirement plan that factors in expected costs as well as contingencies like emergencies is a good sign your fund will last.
As Burskey noted, “A well-structured retirement plan should consider not only your expected expenses but also factors like inflation, healthcare costs and unexpected emergencies. A clear and thorough financial plan is a strong indicator of a fund that can last.”
Mapping out your income and expenses over 20-30 years helps ensure your savings align with your needs.
Estimated Income and Expenses
Compare your estimated retirement income to your working income and consider what your expenses will be in retirement. Don’t forget to include an emergency fund in this estimate.
“There are estimates that say you will need anywhere from 70% to 90% of your working income in retirement,” said Jim Penna, Senior Manager of Retirement Services and Investment Strategy at VectorVest. “If you are in that ballpark and the numbers are favorable, that is a good sign.”
Regular Reviews and Adjustments
Consistently reviewing and adjusting your retirement plan is wise.
“Life circumstances change and your financial strategy should adapt accordingly,” said Burskey. “Regular check-ins with a financial advisor can help ensure you stay on track.”
These meetings can allow you to pivot when needed.
The 4% Rule for Withdrawals
As we all know, planning for a long retirement takes some serious preparation — but it’s more specific than just “don’t spend all your money.”
“A key trick here is being smart with how much you take out each year,” said Rose. This is where the 4% rule comes in handy.
The 4% rule is a common rule of thumb that states that if you withdraw only 4% of your retirement fund each year, you should have enough to last 30 years of retirement. Limiting yourself like this allows your savings to keep growing while letting you spend enough to cover your expenses.
As Rose explained, “Imagine your retirement fund is like a giant cake and you only get a small slice each year to make sure it lasts for all the future birthdays–or in this case, years in retirement. So, if you stick to nibbling only that 4% each year (and mix it with other income bits like Social Security), you’re setting yourself up for a cozy financial future.”
More Tips for Making Your Money Last
For those worried about having enough savings, Rose suggested delaying retirement a few years. The Social Security Administration says holding off on claiming benefits can increase your monthly check by up to 8% yearly until age 70.
Cutting expenses and utilizing passive income streams, like rental income, can also help retirement savings go further.
If you’re anxious about how long your savings will last you, Burskey suggested meeting with a financial advisor to strengthen your plan. Evaluating expenses and creating a budget can optimize what you have saved. You can also downsize your home to reduce costs and free up money.
It’s Never Too Late
Finally, Penna emphasized that it’s never too late to plan for a secure retirement. Even in your 60s and 70s, strategizing savings and investments will help strengthen your finances.
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