When discussing concerns about retirement, many individuals often raise the issue of potential health-related challenges. However, another significant worry that frequently affects retirees is the fear of depleting their financial resources.
The harsh reality is that no 401(k) or IRA balance can guarantee that one’s savings will never run dry. Even a substantial nest egg of $3 million can be depleted if not managed carefully.
Nevertheless, there is some encouraging news. There are proactive measures that can be taken to reduce the risk of exhausting your retirement savings during your lifetime. Here are several strategies worth considering as part of your retirement plan:
#1 Extend Your Working Years
Americans are enjoying longer lifespans, which is generally positive news. However, from a financial perspective, it poses a challenge. While you may initially plan for your retirement savings to last around 20 years if you retire in your mid-60s, you might end up living well into your mid-90s if you’re in excellent health.
To mitigate the risk of running out of savings, consider extending your career, especially if you find that your health is robust as you approach your planned retirement age. Additionally, if you still enjoy your work or find it relatively stress-free, working longer can be a viable option. Delaying the regular use of your savings can significantly reduce the likelihood of exhausting your funds.
If you’re feeling burned out in your current career but wish to preserve your nest egg, consider gig work. Engaging in more stimulating and possibly less lucrative work can help cover your expenses while safeguarding your retirement savings.
#2 Collaborate with a Financial Advisor for a Safe Withdrawal Rate
Randomly withdrawing funds from your savings can increase the risk of depleting your resources prematurely. Instead, seek guidance from a financial advisor to determine a safe withdrawal rate for your nest egg. This rate should consider factors such as:
- Your living expenses
- Your retirement age
- Various sources of retirement income
- The investment strategy of your savings
While it’s possible to calculate an optimal withdrawal rate on your own, working with a professional can provide greater confidence in your approach and contribute to your peace of mind.
#3 Delay Taking Social Security
Maximizing your monthly Social Security benefits can reduce your reliance on your retirement savings. If you can enhance monthly benefits, it may result in smaller withdrawals from your IRA or 401(k).
Benefits from Social Security are calculated based on your income history, and you begin receiving benefits as early as 62, but you are penalized for taking benefits early; waiting to reach your full retirement age (which depends on your birth year) results in no penalty. However, if you delay your claim beyond this point, your monthly benefit increases by 8% for each year you wait up to age 70.
If waiting until age 70 doesn’t appeal to you, consider delaying your filing by just one year to receive an 8% boost. This alone can reduce the risk of depleting your savings, as you may need to withdraw less from your retirement account while receiving more from Social Security.
It’s natural to worry about running out of retirement savings, but by implementing these strategies, you can enhance the likelihood that your financial resources will last as long as you need them to.