Planning for a 30-Year Retirement: Don't Outlive Your Assets

Planning for a 30-Year Retirement: Don’t Outlive Your Assets

Today, we're diving into a topic that doesn’t always get the attention it deserves—how to plan for a retirement that could last up to 30 years. Many people dream of retiring early, but one big risk people often forget to consider is outliving their savings. What happens if you live longer than expected and run out of money? Let’s talk about how to avoid that scary situation.

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How Long Will You Live?

One of the biggest questions in retirement planning is: how long will you live? While nobody can predict exactly when they'll pass away, there are some statistics we can use to help plan. For example, a 65-year-old man today has an average life expectancy of around 83.5 years. He has a 50% chance of living to age 85, and about 75% of men will live past age 80. For women, the numbers are even higher. A 65-year-old woman has a life expectancy of 85, with a 50% chance of making it to age 90.

According to the Journal of Financial Planning, 60% of retirees underestimate how long they will live by at least five years. This is a big deal because if you're not planning for a longer life, you might outlive your savings. The Employee Benefits Research Institute says more than 40% of retirees are at risk of running out of money. This is where retirement planning becomes crucial.

Retire Later, Save More

So, what can you do to make sure you don’t run out of money in retirement? One key factor is when you decide to retire. Retiring early might sound fun, but it comes with more risks. The earlier you retire, the longer your savings need to last, and the more unknowns you’ll face, like changes in the economy, inflation, and your health.

Retiring later gives you more certainty about your financial future.  The longer you work, the more savings you can build, and the fewer years you’ll have to rely on those savings. Also, if you wait to take Social Security or pension benefits, you can get higher payments.

Managing Expenses and Income Streams

Another challenge of planning for a 30-year retirement is dealing with unknown expenses. Your spending habits can change a lot over time. At the beginning of retirement, people tend to spend more on travel and activities because they are healthier and more active. As they age, they might spend less on travel, but their healthcare costs could increase. These expenses can be unpredictable.

Managing income streams is also a big part of retirement planning. Social Security and pension benefits can be essential, but if you take them early, the payments will be smaller. It’s important to have a balance between your savings and income. Drawing from your IRA or 401(k) savings can be tricky, especially if the market fluctuates. That’s why it’s smart to have a flexible plan in place.

Keep Growing Your Money

A common mistake people make is becoming too conservative with their investments once they hit retirement. Some believe they should move all their money into a savings account or CDs to keep it safe. But if you do this, your money won’t grow, and you could fall behind inflation. Inflation means that over time, things get more expensive, so you need your savings to keep growing to keep up.

It’s important to invest wisely. Yes, you want to be careful, but you still need growth to make sure your money lasts. That’s where strategies like the 4% rule come into play. The 4% rule suggests that you can withdraw 4% of your savings each year without running out of money for 30 years. This rule helps ensure you have enough to live on without depleting your savings too quickly.

The Importance of Knowing Your Spending Habits

A major part of retirement planning is understanding how much you spend. If you don’t know where your money is going, it’s hard to know how much you’ll need for retirement. This is why financial planners often ask people to track their expenses. You need to know how much you’re spending now so you can estimate how much you’ll need in retirement.

Many people don’t realize how much they are spending. They swipe their debit card or credit card without thinking about the big picture. To plan for retirement, you must get a good handle on what you're spending now and how that might change in the future. This includes everyday expenses, healthcare costs, and even unexpected expenses like home repairs.

Preparing for Retirement: What to Do Now

If you’re three to five years away from retiring, now is the time to get serious about your financial planning. Here are a few key things you should be doing:

1. Track Your Spending: Understand where your money is going each month. This will help you plan how much you’ll need in retirement.
2. Maximize Savings: Make sure you are contributing as much as possible to your retirement accounts like your 401(k), IRA, or savings account. The more you save now, the more you’ll have to draw from later.
3. Know Your Income Sources: Figure out how much you’ll get from Social Security, pensions, and other income streams. This will help you understand how much you need to save and how much you can spend each year.
4. Delay Retirement if Needed: Sometimes working just a few more years can make a huge difference in how much money you’ll have. Even delaying retirement by one year can significantly boost your savings and your Social Security benefits.
5. Invest Wisely: Don't abandon your investments. Make sure you have a strategy in place to grow your money while keeping an eye on inflation and market changes.

Final Thoughts

Planning for a long retirement takes time and effort. You need to be realistic about how long you might live and how much money you’ll need. The key is to start planning early, keep saving, and make smart choices about when to retire and how to manage your investments. Remember, it’s better to save more than you think you need than to realize too late that you don’t have enough.

Don’t wait until it’s too late to start thinking about your financial future. The earlier you start planning, the more control you’ll have over your retirement. Whether you live for 10, 20, or 30 years after you retire, you want to make sure your money lasts as long as you do!

If you’d like to learn more about retirement planning, visit us at Commonwealth Financial Services. We're here to help guide you through the process and make sure you’re prepared for whatever the future holds.