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How to Make Your Nest Egg Last

Seniors working through retirementWhile it is true that saving for retirement was easier before pensions all but disappeared and lifespans were shorter, there is still ways in which to make your retirement a viable proposition.

As baby boomers retire, many face the tough challenge of how to acquire a nest egg that will last their lifetime. In fact, 46% of those who are poised to retire recognize that the primary source of their retirement income must come from their own investment vehicles and not from the social security system on which their parents relied.

Obviously, one great way to be certain your nest egg lasts as long as possible is to decrease your monthly expenses. You knew that, of course. That was the same plan you employed in order to buy your first house, raise your children, pay for their college- the difference in retirement however, (again, I’m stating the obvious) is that you were working then, able to grow that nest egg.  If you needed money to take care of emergencies, you had time to replenish those savings.  In retirement, the scary truth is that if you can’t live off the income your nest egg generates, along with your other income sources, that nest egg becomes smaller and smaller, making less and less income as it’s spent thereby insuring that you will outlive your retirement savings.  As many review their monthly expense, the biggest is still probably the mortgage on your home.  Weigh the consequences of paying off your mortgage early, perhaps even before you reach retirement age.

With the volatility of the stock market these days it's tough to make investment decisions that produce a reliable income stream.  If you already know that you will need more income during your retirement, it might be time to look into buying an annuity.  I personally hate annuities but I can’t deny that a purposeful investment in this type of guaranteed income can be the right investment for some. For every 65 year old couple, statistics are that one of you will live to age 97.  You could be retired almost as long as you've worked.  An immediate annuity is a pretty simple concept – you pay an insurance company a lump sum of money and they cut you a monthly check for the rest of your life.  Keep in mind though that more is not better – converting all of your money to an immediate annuity is not only risky but ill advised.  Once you've bought an immediate annuity, you generally cannot touch your initial lump-sum investment. The most affordable immediate annuity provides only the annuitant with a monthly pay check rather than providing for designated beneficiaries at your death.  So, before you make this purchase, one important fact to consider is your own mortality. Regardless of how you invest, it will always be a good idea to have some of your nest egg in cash so that you have immediate access to funds if you need money for unexpected expenses.

Finally, another great strategy to make your money last longer may not be very appealing but is nevertheless quite effective -work longer. If you're planning to retire at 62 or 65, consider working a few more years, which can be a big benefit or, if you are tired of your current career, try a field that you are truly passionate about.  After all, with the likelihood that you will live longer than your parents, the idea of 'being retired' for the next 30 years may not be all that appealing.  Delayed retirement means that you can keep saving, putting off the time when you will need to make withdrawals from your nest egg. This will have the added benefit of delaying your need to apply for your social security benefits too —the later you start collecting up to age 70, the larger your ultimate checks will be.

Reference: The Motley Fool (April 10, 2016) "3 Easy Moves to Make Your Money Last Your Lifetime"

 

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