Top 5 Smart Ways to Avoid Running Out of Money During Retirement

retirement income

Planning for retirement isn’t easy for anyone. It doesn’t matter if you’re a 20-something with student loans or a 50-something who doesn’t think they’ll have enough saved up to retire by their mid-60s. You can still earn retirement income.

It’s normal to feel frustrated when it comes to saving for retirement, but this doesn’t mean you should avoid the issue altogether until you’re “old enough” or “making enough money” to start saving. The best time to start saving for retirement is right now.

If you waited until your 30s or even 40s and 50s to begin saving for retirement, then you might wonder whether you’ll have enough money to live on in your golden years. This thought can create a lot of anxiety for some people, but fortunately, there are several practical ways to avoid running out of money during retirement.

Stop worrying and start strategizing today to design a savings plan that aligns with your retirement goals.

Here’s How to Make Retirement Income

Continue Contributions Even After Retirement 

Saving doesn’t have to stop when you retire. Did you know you could actually continue contributing to retirement plans after you retire? While you can’t contribute to an employer’s 401(k) after leaving your job, you can contribute to a traditional or Roth IRA, which means a 401(k) rollover would be an excellent option for any retiree who wants to continue saving.

You don’t even need to rely on a pricy human financial advisor to manage your retirement funds. Robo-advisors like Betterment offer excellent fee structures, strong security measures, and top-tier investment advice based on algorithms that analyze market conditions 24/7.

So, an IRA with a robo-advisor is an ideal option for any retiree who wants to save money on fees while maximizing their investment retirement income. The one downside is you need to have some sort of retirement income to qualify for IRA contributions. But, just because you’re retired doesn’t mean you can’t make money on the side! We’ll discuss that later on in this post.

Wait to Withdraw From Social Security

If you retire in the near future, the minimum retirement age for Social Security withdrawals will likely be somewhere between 67-72. However, this is just a guideline to let you know when you can take out Social Security. It doesn’t necessarily mean you should.

The longer you wait for Social Security, the more money you’ll have coming in each month. For instance, someone who retires at age 62 will receive 30% less than someone who retires at “normal” retirement age (65-67). Meanwhile, someone who retires at 70 will receive significantly more each month thanks to delayed retirement credits.

Adopt the Rule of 110

The traditional standard for changing your investment strategy as you get older has typically been the “rule of 100,” which states you should subtract your age from 100 to determine how much of your portfolio should comprise of stocks. For example, a 40 year-old would have a 60% stocks rati0.

As Investopedia argues however, the rule of 100 could lead to overly conservative investment strategies, which subsequently cause people to run out of money during retirement.

As an alternative, people should generally consider the rule of 110 instead, which allows for slightly more aggressive investing, takes longer lifespans into account, and recognizes how U.S. bonds have incredibly low yields nowadays.

With the rule of 110, you’ll be able to make more money in retirement and avoid running out of money like someone who invests too conservatively for their age range.

Develop a Passive Retirement Income Stream

Being retired doesn’t mean you should ignore all possible income opportunities the moment you quit your job. In fact, there are many low-effort and lucrative passive income options for retirees. These include, hosting guests in your home through Airbnb, getting into peer-to-peer investing, or monetizing your hobbies.

You may want to avoid work in the traditional sense, but if you’re genuinely concerned about running out of money, then passive income streams are ideal alternatives to finding a part-time job.

In addition to your passive income streams, you can further supplement your income by investing in dividend-paying stocks.

Consider Long-Term Care Expenses

The average American underestimates the cost of long-term care by 50%. That’s a bad warning sign because it means we’re probably not saving enough for long-term care expenses like nursing homes, adult daycare, in-home health aides, or assisted living centers. While 1/3 of Americans think home health care costs around $400 per month, the real cost is about $3,800 per month. Yikes!

To avoid letting home health care and other out-of-pocket medical expenses drain your retirement savings, it’s crucial that you save up enough money to cover your typical expenses and emergency expenses.

You could also get long-term care insurance before retirement to save money in the future. You may be healthy until the day you die, but since you never know, caution is preferable to a “hope for the best” strategy.

Recap: Don’t Run Out of Money in Retirement 

Even if you started saving for retirement later in life, you’re not necessarily doomed. As you now know, it’s perfectly possible to develop viable income streams without too much effort, plan for the expensiveness of long-term care, and maximize your Social Security withdrawals for long-term financial stability.

All it takes is some careful planning in advance and self-discipline to make your retirement goals become reality.

5 Smart Ways to Avoid Running Out of Money During Retirement

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