Make Your Money Last Throughout Retirement

Debbie Loper |

It is vital that you consider your retirement needs long before you approach retirement years. Your number one priority must be to find ways to make your retirement funds last. Your retirement considerations should include three tasks:


Develop an income plan

You cannot spend your retirement money during your retirement years. You need to live off the earnings from that money. You must develop an income plan that allows you to live off 6% to 7% interest on your retirement savings, so you will not deplete it.

Start by determining how much income you will need during retirement. Make a full budget, including rent/mortgage, utilities, groceries, and entertainment. You can find a step-by-step guide for creating a retirement budget here. Make sure you come up with two different figures: a monthly amount and an annual amount.

Next, use a retirement calculator to find out how much you will need to have saved. That is your target savings amount.

Then use a savings calculator to figure how much you need to set aside each month to reach your retirement goal.


Create a Tax Plan

You have two choices for how to pay taxes on retirement funds.

You can select a Roth IRA, which requires you to pay tax now, before you set the money aside in your retirement account. You should use this option if you think your tax rate will be higher during retirement than it is now.

If you select a traditional IRA, you skip the taxes now and pay them later when you withdraw the money as retirement income. This option is for those who think their future tax rate will be lower than their current one.

You should also consider tax-free life insurance. This is a policy that can provide income for you during your retirement years. You can learn how this insurance works here.


Create a Retirement Investment Plan

When you retire, you will need to keep your funds in some type of investment. Many retirees choose bonds, because they pay interest and are safer than stocks. However, if you plan to be aggressive, you may invest in stocks, especially those that pay dividends.

Either way, the idea is to grow your money so that your withdrawals will not deplete it. Remember that losses during retirement are hard to replace, because you are no longer contributing funds to your retirement account. Any funds you have in investments that are traded on the open market can suffer losses. This includes stocks, mutual funds, exchange-traded funds, variable annuities, currencies, and commodities.

You may want to consider private investments, such as investing in a business by providing private equity for an entrepreneur, or buying senior secured debt, which has priority over any other debt a company may have.

Decide now how you will invest during retirement, so you will have a solid foundation for your plans. You should be very clear about what kind of income your investments will earn, when the cash will flow to you, and whether you will be keeping up with inflation or not.


The Bottom Line

Your retirement planning must be thorough so you can have peace of mind. Remember that your plan must include three elements: 1) an income plan, 2) a tax plan, and 3) a retirement investing plan. On top of that, you must have a current strategy for setting aside income now to fund your comprehensive retirement plan.