Americans are living longer — and that means many of us are living longer in retirement than we'd expected. The average 65-year-old retiree is expected to live another 18 years, the Social Security Administration estimates, and it's not unusual for people to live well into their 90s or even hit 100.
Your retirement could last decades. How can you make sure that your retirement savings last? Here are a few strategies that can help you live a long, comfortable retirement.
Start Planning Early
The sooner you start making retirement plans, the more options you'll have. It's easier to qualify for insurance at the start of your retirement, when you're younger. It's also easier to set up a solid budget and investment plan. If you wait until later, it might be too late for course corrections.
Maximize Social Security
You get to choose when you start collecting Social Security benefits. You can start collecting when you turn 62, but the longer you wait, the more your monthly payment increases, but your benefits max out when you turn 70. If you started taking benefits at 62, you'd get $708 per month, the Social Security Administration says — but if you waited until you turned 70 to start collecting, you'd get $1,253 per month.
Delaying your Social Security benefits can help even more if you're married. If you receive a larger Social Security payment than your spouse and die first, your spouse would then receive your larger Social Security payment.
Mind Your Budget
You don't get a do-over with your retirement spending. Careful budgeting is critical. If you spend too much during the early years, your nest egg could run out.
As you approach or enter retirement, create a household budget. Consider how much you'll need for necessities such as housing, food and insurance. Think about how much you'd like to spend on things like travel and clothing, too. Once you've drawn up a budget, balance it against your retirement savings.
How do you know if you have enough? One rule of thumb is to withdraw no more than 4% of your nest egg per year. If that's not enough for your needs, you'll need to figure out how to make up the difference. You could downsize to a less expensive house, take fewer vacations or postpone retirement to build up your savings a little more.
Consider an Annuity
An annuity is a type of insurance contract that turns your savings into future income. You can buy an annuity either with a large, one-time transfer from your retirement savings or by paying periodic premiums. In exchange, the annuity dispenses income, which can be guaranteed for the rest of your life as well as your spouse's or partner's.
Think of an annuity as longevity insurance and protection against living too long or running out of money. An annuity can be a source of guaranteed lifetime income. The insurance company tells you how much you'll receive each month, and depending on the type of annuity, the growth of the account may or may not be tied to the stock market. Best of all, the income continues no matter how long you live.
Plan for Health Care Costs
When you turn 65, you qualify for Medicare, which should cover most of your health care expenses. But Medicare won't pay for everything. Your deductibles, copayments and coinsurance could be very expensive. You owe 20% of charges for doctor services under Medicare Part B, for example, so a $20,000 outpatient surgery would cost you $4,000 if you only had Medicare.
You could purchase a private health insurance plan through Medigap or Medicare Advantage. In exchange for a monthly premium, these plans cover out-of-pocket expenses, so you aren't hit with a huge bill.
The easiest time to qualify is when you first turn 65. You have a six- and seven-month enrollment period, respectively, during which you can sign up for Medigap or Medicare Advantage. You could still apply after those windows, but there are more restrictions. For instance, a Medigap plan could deny you coverage for preexisting health conditions.
Consider Long-Term Care Costs
Medicare rarely covers long-term care, nursing home and assisted living facility care, or home health care. These can be steep expenses — a private room in a nursing home costs about $7,698 a month on average, the U.S. Department of Health and Human Services says.
To prepare for these costs, consider taking out a long-term care insurance policy or a life insurance policy with a long-term care rider. You could also set part of your retirement savings aside for these costs. You might be able to get help with these expenses through Medicaid, but only after you've exhausted most of your assets.
Keep Some Growth Investments
Investing can feel more intimidating during retirement. If you lose money when the market goes south, you don't have as much time to make it back. It might seem like the best move is to keep your money in safe, guaranteed accounts, such as savings accounts or CDs. But that exposes your retirement to another risk: inflation.
Because prices fluctuate over time, your savings need to keep up to maintain your lifestyle. That's why you should hold at least some of your money in growth assets, such as stocks.
Advisors usually recommended subtracting your age from 100 to determine how much you should put into stocks when investing for retirement. If you're 70 years old, for example, you'd keep 30% in stocks, according to this rule.
But with people living longer, it might be best to use a higher starting number — say, 110 or even 120. The key is that you shouldn't go all-cash in retirement, even if it feels like a safe move.
If you're still able to work, it might be worth getting a part-time job during your retirement. Every dollar you bring in is a dollar less that you'd need to take from your savings. Even a small salary can make a big difference. For example, earning $10,000 a year might not feel like much, but it works out the same as having an extra $250,000 in savings, assuming 4% annual interest.
Whether you stay part-time with your employer, take on consulting or freelance work, or get a job in a local retail store, part-time work can help support your retirement.
Meet With a Financial Advisor
A financial advisor can make sure your retirement plan stays on track. They can review your goals, compare your options for investing for retirement and help you plan for the tax impact of withdrawing money from 401(k)s and individual retirement accounts (IRAs).
To help you budget, your advisor could run a Monte Carlo simulation — a financial calculation that shows how long your savings would last depending on how much you spend and the annual investment return. This way, you'd figure out a safe amount to withdraw every year.
Even if you don't want to work with an advisor over the long term, meeting with one at the start of your retirement could help you prepare for this new life stage.
Making your savings last for a long retirement can be a challenge. Yet by using these strategies to build a plan, you'll position yourself to enjoy your golden years without worry, however long they last.