How to make your money last through retirement

You’ve built up your nest egg, and your retirement is set just as you’re leaving the work force. But what are you planning to do with that egg? You’ve sat on it for years now; do you simply crack it open and see what spills out?

You spent your entire career working and stashing dollars, because Social Security isn’t enough to support your quality of life after retirement. It isn’t enough to help you buy groceries or pay your bills, so you had to do something to continue the life you’re accustomed to — even after you quit working.

It was hard. More than simply adding to a fund or savings each month, diligent squirrelling meant going without — years of sacrificing to make sure your cash went where you needed it most for your future. The many exotic vacations you missed will now pay off, because you have enough money put away to make your golden years truly golden.

Properly spending your savings in your retirement years takes planning.

You didn’t skimp on planning when it came time to build your stash, so you certainly don’t want to skimp when it comes to using it.

You built your savings because you knew you’d need it to survive. If you don’t spend it wisely, you could run out.

Using these three strategies, you can help ensure that you don’t run out of money during retirement.

How to make your retirement funds last

• Understand that the 4% rule may not apply.

You may have heard that if you want your savings to last at least 30 years, you’ll need to withdraw 4 percent of it in the beginning, then add the inflation rate each year after that.

But things aren’t that simple anymore. In the past, the odds of your funds lasting through your retirement were around 80 percent or so (that’s pretty good), but now, if you adhere to the 4 percent rule, there are no guarantees that you won’t outlive your savings.

Research by Morningstar suggests that you should start lower (around 3 percent) if you want further assurance that you won’t run out of money. You can verify how much you’ll be able to live off of by running different numbers on a retirement (3-5 percent) income calculator. Try testing different percentages over different years (25-30 years) to figure out just how long your money should last. Then, decide on your best withdrawal plan.

• Know where you should be withdrawing from.

You may have tax-deferred accounts mixed with taxable accounts. By taxing efficiently, you’ll stretch your money farther into your retirement. Usually, you want to pull funds from taxable accounts first, since they may be taxed at a lower long-term capital gains rate.

Then, you’d shift your withdrawal to your tax-deferred accounts. These are your 401Ks, IRAs, and Roth accounts. This gives your tax-advantaged accounts more time to build up without taxes dragging them down — allowing you more money for your retirement.

But, beware. Once you reach 70.5 years old, you’ll have to withdraw certain amounts to stay within the laws’ requirements. If you don’t, you could pay as much as 50 percent tax on what you haven’t taken out yet. Ouch! Make sure you’re aware of your limitations and requirements once you reach the target age.

•  Be prepared to make tweaks each year.

Whatever way you determine is best for your financial future, be sure to follow up on your progress each year so that you can see where you stand. You may find you need to withdraw more. Or, you may find that you have to scale back.

Depending on the market status, you could also determine that your annual plan was right on target. But don’t take that for granted the following year. Schedule a review at each year’s end to ensure you don’t let these crucial decisions slip by.

Use an online retirement calculator to plug in your new balances and planned spending to see if you should adjust your plan for the New Year. If you’re unsure, consult with a financial planner to help you decide on the best way to withdraw and survive on your existing retirement income.

Now you have a plan for your spending. Execute it well and stretch your retirement money long-enough so that you’ll never go without.