You saved money for your golden years throughout your career, and now that you're actually retired, you want some sort of guarantee that it's going to last. Unfortunately, no such official assurance exists (unless you buy yourself an annuity that guarantees you income for life). That's why many seniors worry about running out of money, so much so that it trumps their fear of death.
If you're concerned about depleting your nest egg prematurely, you should know that there are steps you can take to help you retain your savings for as long as you'll need them. Here are a few important ones to start with.
1. Follow a budget
Just as you need a budget during your working years, it's critical that you maintain one in retirement, too. Without a budget, you'll have a hard time tracking your spending and keeping it in check. Therefore, it pays to take a look at your recurring expenses and see which line items are costing you more than you can comfortably afford. From there, you'll be able to make changes that help you avoid wasting your limited cash.
2. Keep your major expenses low
Whether you're still working or retired, it's the little things in life that often get you through the day, like a really good coffee or a treat at the local bakery. As a senior, you don't want to deprive yourself of these luxuries -- and if you keep your major living expenses on the low side, you won't have to. The biggest expenses in retirement are housing and healthcare, but you may not have much control over the latter.
Housing, on the other hand, is an expense you have the power to reduce. One way to do that is by downsizing. You might also consider selling your home if you currently own it, and renting instead. Though renting isn't completely risk-free (there's always the chance that your rent could go up), it does eliminate many of the financial unknowns that come with owning, such as maintenance items and repairs that could drain your nest egg faster than expected.
3. Establish a smart savings-withdrawal strategy
At the beginning of retirement, you'll ideally be looking at a large sum of money to work with. The question becomes: How can you ensure that your money lasts for the rest of your life? One good way to sustain your nest egg is to adopt a smart withdrawal strategy, and to that end, you might consider the 4% rule as a starting point. The rule states that if you begin by withdrawing 4% of your savings during your first year of retirement, and then adjust subsequent withdrawals for inflation, your nest egg should last for 30 years.
Though the 4% rule has its flaws, it's a good benchmark to work with, especially if you think a 30-year retirement sounds about right for you given your age and life expectancy. That said, if you retired on the early side, you might need to adopt a more conservative withdrawal strategy -- say, 2% or 3% a year -- to reduce your chances of depleting your nest egg in your lifetime.
Furthermore, be prepared to adjust your withdrawal strategy to account for market conditions. If a recession hits, and your investments drop in value, you're better off withdrawing as little as possible from savings, cutting back on expenses, and riding out that period rather than continuing to withdraw at the higher rate you're used to. On the flip side, if there's a year in which the market exceeds expectations, you might withdraw a bit extra from savings and enjoy it.
4. Hold off on filing for Social Security as long as possible
While your nest egg might constitute the bulk of your retirement income, chances are, you'll also have Social Security to fall back on. And while those benefits are calculated based on your lifetime earnings, the age at which you file for them could impact your ultimate monthly payments.
If you file for benefits at full retirement age (which, depending on the year you were born, is 66, 67, or somewhere in between), you'll get the exact monthly benefit your earnings record entitles you to. But if you delay benefits past full retirement age, you'll boost them by 8% a year up until age 70. And the more income you collect from Social Security, the less you'll have to remove from your nest egg, thereby making it last longer.
Running out of money as a senior is a legitimate fear, and one that could limit the extent to which you're able to enjoy retirement. Take these critical steps, and with any luck, your nest egg will be there for you when you need it, however long that happens to be.