I Asked ChatGPT How To Avoid Outliving My Wealth — Here’s What It Said
Written by
Sean Bryant
Edited by
Rebekah Evans
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Most people spend a large part of their adult lives working and saving enough money to retire comfortably. The goal is to maintain the same lifestyle after retirement that they had before.
Unfortunately, for many Americans, outliving their money remains a major concern. In fact, a recent survey from Allianz Life revealed that 64% of Americans are more worried about running out of retirement funds than about dying.
So what can you do to protect your wealth and make sure you don’t outlive the money you’ve saved? I decided to ask ChatGPT what it suggests. It broke down the process into several steps — here’s what it said.
Understand Your Retirement Needs
Everything begins with understanding your needs. What do you want your retirement to look like? Start by creating a budget to estimate your monthly expenses. Break down your retirement budget into:
- Essential Expenses: housing, utilities, food, transportation, insurance, healthcare, taxes
- Discretionary Expenses: travel, dining out, hobbies, gifts
While it’s essential to track current spending, it’s also important to estimate future costs, taking into account inflation. This is typically around 2% to 3% annually, but healthcare may rise faster.
When calculating your future needs, you’ll need to factor in life expectancy. Be conservative and plan to live until you’re 90 or 95 years old.
Strengthen Income Sources
Now it’s time to focus on your financials in retirement. Start by planning to delay taking Social Security as long as possible. While you’ll be eligible at 62, your income will increase by about 8% each year that you delay. This creates a larger, guaranteed, inflation-adjusted income stream for the rest of your life.
ChatGPT also recommended using an annuity. There are a couple of options. A longevity annuity, also known as a deferred income annuity, typically starts at ages 80 to 85 and can help protect against outliving your savings. You could also consider immediate fixed annuities, which can create a predictable income and shift longevity risk to the insurer.
Manage Withdrawal Strategy
How you use your money in retirement is going to be important for making it last. Most financial advisors (and ChatGPT) recommend following the 4% withdrawal method. Start by using about 4% of your portfolio the first year of retirement, then adjust annually for inflation. Just don’t be set on this number. Flexibility is key. Cut back in bear markets and increase withdrawals when markets perform well.
Optimize Investment Strategy
The plan should be to maintain growth in your portfolio. Avoid being too conservative too early. Equities will be important to outpace inflation. Try and stick to a balanced portfolio of 60/40 or 50/50 of stocks/bonds.
Additionally, you’ll want to do your best to reduce investment fees so you can hang on to most of your investment gains. This can be done by utilizing low cost ETFs and index funds.
Plan for Contingencies
Life doesn’t always go the way we plan. That means it’s important to plan for the unexpected. Long-term care insurance will help you cover the high cost of nursing homes or in-home care without draining your portfolio.
If you get to the point in retirement where you’re starting to worry about money, your home can be a great resource. You could sell the home and relocate to a lower-cost area or consider a reverse mortgage (with caution) to free up cash.
Review Your Plan Annually
Once you have your plan in place, it can’t be a set it and forget it situation. Life and markets change, so you should adjust your strategy as needed.
Each year, make an effort to review your budget to see if it still aligns with your life. Then look into the performance of your investments and determine if you need to adjust your allocation. Finally, do you need to adjust your withdrawal strategy?
Understanding each of these variables will allow your wealth to outlive you.
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