Nearly three out of five middle-class retirees will likely run out of money if they maintain their pre-retirement lifestyles and don’t reduce spending by at least 24 percent, according to a 2008 study by Ernst & Young.
Curbing spending will undoubtedly help your money last longer, but it’s not the only factor in the equation.
You can also stretch your retirement income by proactively managing your investment accounts and savings, which means understanding how they produce income over time and what risks they carry.
Be realistic about whether you can afford the lifestyle you want in retirement. And stay healthy. Out-of-pocket medical expenses can eat away at your assets or income.
Do a cash flow analysis
A comfortable retirement is largely a function of wants, needs and how much money stands between the two.
Surprisingly, less than half of workers — 47 percent — say they or their spouse have tried to calculate how much money they will need for a comfortable retirement, according to the Employee Benefit Research Institute’s 2008 Retirement Confidence Survey.
As a rule of thumb, some experts say that you can expect to live on 80 percent of your pre-retirement income. But if you want to live more extravagantly, you’ll need more. So your first step is to figure out how much money you’ll need each month to pay your expenses.
“The purpose of doing a cash flow analysis is to give you that baseline of how much money you need.
“If you don’t have a baseline there’s no way you can make rational decisions.”
Most people will probably tell you that they would like to retire earlier, not later. But people are retiring later due to economic and other factors.
The median retirement age for retirees increased from age 59 in 1991 to age 62 by 2003, according to a 2009 survey by the Employee Benefit Research Institute.
The upside of working into retirement is that you have more time to build up your retirement accounts and take advantage of company-sponsored medical plans. But be mindful of how collecting a paycheck may affect other things.
If you have less than $200,000 in savings, you may want to consider postponing retirement for awhile because it’s likely that you won’t be able to generate enough income to cover inflation for a 30-year retirement even with 6 percent after-tax returns each year