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How Long Will My Savings Last?

Jean Chatzky  |  June 10, 2019

Today, the average man will live to 76, the average woman to 81, according to the CDC.  The bigger question — will your money make it as long as you do?

Note: This story is sponsored by USAA

There are some financial questions that have definitive answers:  What’s the best interest rate I can earn on my savings? (Right now, about 2.5%)  How can I improve my credit score? (Pay your bills on time, every time; use no more than 10% of your available credit.)  Do I need life insurance? (If you have anyone depending on your income, yes.)

There are others for which the answers are, well, squishy. For example: How long will my savings last? The answer you want is: At least as long as you do.  But it’s tough to gain that measure of security because it depends on other factors that are not in your control including how long you live, how well the market performs, whether or not you’ll be able to continue to work for pay as long as you’d like, and whether poor health or other emergencies leads you to spend more than you want sooner than you’d like. It’s tough, but it’s not impossible.

There are things you can do to first understand how long your savings are likely to last and then to stretch them to go the long run, explains Chris Chen, CFP with Insight Financial Strategists, in Massachusetts. Embracing those concepts is the idea behind USAA’s #LifeUninterrupted program.  If you want to figure out where you start, specifically, you can dive in here. But understanding the following about retirement math will also help.

It’s Important To Manage Withdrawals  

I briefly nodded to the 4% rule in this story on how to know if you’re saving enough for retirement.  Let’s dive in a little deeper.  The 4% rule is the brainchild of a financial advisor named William Bengen who, in 1994, published a study in the Journal of Financial Planning that argued that by withdraw a flat 4% of the value of a portfolio during the first year of retirement, you could withdraw the same amount for the next 30 years as long as 50 to 75% of the money was invested in stocks.  In other words, it was a way to make your money last as long as you were likely to — if not longer.

Then the Great Recession hit, we had a decade of low interest rates, we continued to live longer and longer and the 4% rule was up for debate.  Today, some experts believe a safer withdrawal rate is 3% or 3.5%. Others say it’s okay to withdraw more unless you’re determined to leave money in the account to your heirs.  What seems to be more important than the rate, research from AgeWave has noted, is the willingness to be flexible. In years when the markets — and your portfolio — are down, withdraw a little less.  In years when the markets — and your portfolio — are up big, it’s okay to withdraw a little more. Think of it as the difference between one and two annual vacation. The good news, says AgeWave’s Ken Dychtwald, is that many retirees are doing exactly that.

Control The Things You Can Control

Decades ago, the majority of US workers had a pension that would provide income that lasted as long as they do.  Today, according to 2018 research from the Alliance for Lifetime Income, only 38% have the same in the form of a traditional pension or an annuity (although many military families are among the fortunate.)   One way to flip that equation is to use some of the money you’ve accumulated for retirement to purchase an annuity that would provide a paycheck for the rest of your life. Personally, I like the idea of knowing that my fixed costs — housing, medicare premiums, food — are covered, while also leaving some money in the market to grow.  

Social Security, of course, is also an annuity, so if this is a strategy you’re considering figure out how much of your cost of living it will cover and how much any military pensions will cover so you know how much you need to supplement.    

“Do not retire early,” Chen cautions.  “Your Social Security benefits can be reduced by up to 30%.  Collect your benefits at the normal retirement age or wait longer.”  Even if you are thinking of slowing down in your 60s, Dychtwald argues for continuing to work part time.  “If you work 20 hours a week on projects with long breaks in between for 5 additional years, that can be an extra $300,000.”  The benefit of that money isn’t just that it could supplement your retirement coffers — it’s that it could prevent you from dipping into them earlier than you have to.  That’s more time to stall the clock on withdrawals and, yes, Social Security, to your benefit.

Focus On Your Health As Much (If Not More) Than Your Wealth

There’s a false notion that in the US we spend the vast amount of our healthcare dollars taking care of very old people in the last years of their lives.  In fact, 75% of our healthcare spending goes to managing chronic diseases — things like diabetes, asthma, osteoporosis, the list goes on. As Dr. Michael Roizen, my co-author on AgeProof: Living Longer Without Running Out Of Money Or Breaking A Hip explains, one way to dramatically reduce your own chances of getting one of these conditions is to focus on four proactive measure that can keep you in good health.  First, avoid toxins — smoking is the biggie, but pollution counts as well. Second, get up and move — 10,000 steps a day is a good place to start, but add a couple of days of weight-bearing exercise a week as well. Third, eat foods you love that love you back, mostly plants, avoiding trans and saturated fats. And fourth, and finally, do what you can to reduce stress. Knowing that your savings are on track will help with that last item in no small measure.  

Learn more at USAA.com/retirement, and consider getting a no-charge retirement review today by calling 1-800-531-3392.

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