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Make Your Money Last in Retirement

Spending your pension takes planning. Here’s how to be sure you don’t outlive your money.

by Dori Zinn | August 6, 2021
<p>mature couple walking on the beach holding a picnic basket</p>

Before you say farewell to your career, make sure your money will last through retirement.

The Squeeze

  • To make sure you’re spending the right amount, set your expectations based on how long you expect to live, when you’ll fully retire, and overall health.
  • You can minimize extra costs by reducing expenses, like downsizing your home or selling a car. 
  • It’s okay to delay retirement, especially if you know you won’t have enough funds to last your whole life.

Between saving for your kids’ education and maybe even helping your parents out financially, you’ve spent years and even decades saving for retirement. But when it’s time to spend your pension, how can you make sure it lasts as long as you do? Before you say farewell to your career, make sure your money will last through retirement.

Set retirement expectations

If you haven’t retired yet, think about when you will stop earning an income officially. Keep in mind that the average life expectancy is just shy of 79 years of age in the U.S. While it may feel morbid to think about death, you’ll need to know how long your money will need to last, from when you stop working to when you die.

For instance, you retire at 65 and expect to live to about 85, given your family history and overall health. That means you’ll have 20 years of non-working spending ahead of you. 

Reduce expenses

If you’re used to keeping up a certain lifestyle since you have the cash to do so, it might be time to rethink your needs. Here are some areas where you can trim costs. 

Housing: Paying off your mortgage before retirement means one less payment when you’re on a new fixed income. You might also want to consider downsizing your home to something smaller — and more affordable — based on your lifestyle.

Transportation: Is your car owned outright? If you and your partner both have cars, will you need them both in retirement, or can you downsize to one vehicle?

Loans: Alongside car and home loans, consider paying off loans in full before you retire to eliminate those monthly payments. If you have a personal or student loan you’re still paying, try to chip away at them as much as you can while still earning an income.

Find additional income

There are a few ways to get more money every month. Consider working part-time or maximizing those Social Security checks every month. 

Waiting to claim Social Security depends on your income, relationship, and benefits. You’ll hit the maximum benefits around 70 years of age. While your amount does increase the longer you wait, it won’t increase after you hit 70 — your full retirement age.

If you’ve retired from your regular job, you can still find part-time work doing other things. Say you’re an accountant or CPA, you could charge friends and family a little bit of money to help them file their taxes. If you were in construction or held a trade job, like plumbing, you could sell some handyman or handywoman services to those who can’t otherwise do them. If you’re a web developer, you can build websites without working 40 or more hours a week.

Seeing a large sum of money in one account soon after retirement might make you feel like you’ve got it made. But remember that number needs to last you for the foreseeable future. 

Delay retirement if you have to

If you planned to retire at 65 but realize you won’t have enough money to last you those 20 years, you might not be able to afford to retire at that age. Instead, consider delaying retirement until you have enough money to last you through retirement. That might mean working until you’re 70 or even longer.

While this isn’t ideal for everyone — and sometimes you’re forced into an earlier retirement than you would’ve hoped — you might want to consider this option if you don’t have enough money to live off of for the rest of your life feasibly.

Carefully craft withdrawals

Seeing a large sum of money in one account soon after retirement might make you feel like you’ve got it made. But remember that number needs to last you for the foreseeable future. Many financial advisors and planners recommend the 4% rule. This is when you deduct 4% of your total retirement investments the first year. In the second year, you subtract 4% plus inflation. 

For example, you might have $1 million in retirement savings. The 4% rule means withdrawing $40,000 your first year of retirement. In your second year, inflation could cause your expenses to go up 2%. So you’ll add that additional amount onto your $40,000 — a total of $40,800 that second year. 

This rule is general and doesn’t take into account a lot of factors. For instance, if you downsize your home, you might not need to withdraw that much money every year. Along with that, what if you don’t need to take out that much money each year? You might want to consider only taking out 3% and see how you manage that first year. 

The rule also assumes your spending will go up in retirement — not down — and is based on a 30-year retirement. If you don’t have that much money saved, don’t plan to spend that much, and you’ve delayed full retirement for a few more years, you might withdraw more or less.

Remember your health

The older you get, the more your health is likely to suffer. Consider setting aside enough money for long-term care insurance or help. Also, make sure you stay up-to-date on every doctor’s appointment, health screening, or other proactive measures. The more you take care of yourself, the less likely you’ll wade through medical debt at an older age.

Be open and honest with your partner and family about retirement. This means talking about your long-term needs, affordability, and what you’d like to do after you stop working. Consider hiring a tax professional or financial planner to guide you through pre-retirement and retirement concerns. These experts — along with your doctor and other healthcare professionals — can make sure you’re getting all the suitable types of care when you head into retirement.

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About the Author

Dori Zinn has been covering personal finance for more than a decade. Her work as been featured in The New York Times, Forbes, Yahoo!, CNET, and more. She covers credit, debt, budgeting, investing, college affordability and other topics to help people learn about money.

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