Make Your Money Last in Retirement


People are living longer and saving less. But there are ways to stretch out your dollars.

If you're like many people, you've put considerable time and effort into socking away money for retirement. But you've probably put less thought into how slowly you'll spend the money and in a way that will make it last--a potential disaster.

More from

10 Top Urban Retirement Spots

20 401(k) Mistakes

13 Tips to Make an IRA Last Longer


There are steps you can take to make your money last. Spend less and work longer, of course. But even then you can't know how long you're going to live. All you have are the odds: for a married couple at age 65, there's a 58% chance one person will live to 90; a 50% chance one will live to 92; and a 25% chance one will live to 97.

William Wixon, owner of Wixon Advisors, advises many Minnesota clients to plan for a retirement of 30 to 35 years. How can they make their money last that long, or longer? Let's say you're 65 years old, want to retire now, and expect to need $100,000 annual income in retirement. You'll need to adjust that $100,000 to rise with inflation because, as Wixon says, "What's a loaf of bread going to cost in 30 years? Maybe nine bucks." Here are some options for you, with pros and cons.

Savings Accounts

If you have a Depression-era mentality, put your nest egg in savings accounts and certificates of deposit with no more than the FDIC-insured limit of $250,000 in any one bank. It's safe and will be there for you no matter how the markets do.

Unfortunately such low-risk investments may lose value over time after inflation and are unlikely to generate much income. If you have a pot of money to get you through your golden years, the most that can be withdrawn over a 30-year period is 5% (some people say 4%) per year, adjusted for inflation. At current interest rates of 2% or so, you'll need to start with $5 million to generate $100,000 a year in income. But that doesn't allow for $100,000 to grow with inflation, so plan to draw down that $5 million over time.

A Balanced Portfolio


A recent white paper from Vanguard Group discusses making systematic, fixed, inflation-adjusted withdrawals from a balanced mutual fund of stocks and bonds. Adjusting your withdrawals based on the inflation rate might reduce the risk that you'll run out of money, but it won't eliminate it entirely.

Immediate Annuities



One downside is that an immediate annuity ties up your money, so you won't have access to it in an emergency or to pass on as an inheritance if you get hit by a bus the day after you buy it. It also locks into the prevailing low-interest-rate environment. You can get around this by buying annuities in chunks over several years. To lock in real, after-inflation income, opt for an inflation-adjustment rider, but understand that it will cut into how much you'll receive each month.

Deferred Annuities

With a deferred annuity, you pay now and hope to accumulate assets through either a variable product that invests in equity mutual funds or a fixed product that offers bond-like returns. How much you'll receive each month when you start to draw down your annuity will then depend on how your variable or fixed investments do over time.


Another reason to consider deferred annuities is that they enable you to continue saving tax-deferred after you've maxed out your 401(k) and your IRA. You will still have to pay taxes as you withdraw the money. Unlike with an immediate annuity, if there's a balance when you die, it goes to your heirs.


Guaranteed Lifetime Withdrawal Benefits (GLWBs)

Many deferred variable annuities buyers avoid the risk of out-living their savings by paying for guarantees that payments will last until they die. That's one way to guarantee your $100,000 annually lifetime income will continue (as long as the insurer remains in business).


Reverse Mortgage


The advantage is this lets you tap equity in your home without having to meet any income guidelines or make immediate payments, as you would with a home-equity loan. Unfortunately costs are high, and when you're gone your heirs might have to give up the family home to pay back the reverse mortgage.

If your home loses value, any shortfall against the loan is the Federal Housing Administration's problem. But remember, you still have to pay taxes, insurance and upkeep on your house. And it won't provide $100,000 for long. The maximum loan you can get in most cases is some percentage of $625,000, based on your age. Hopefully that will last you.


View Comments (32)