Will My Retirement Savings Last? Strategies for Long-Term Security

Key Takeaways 

• Having steady, predictable income sources will permit most people to maintain their lifestyle in the future, providing freedom and stability.

• There are a number of factors that can affect how long savings last, including inflation, market conditions, and withdrawal rates. 

• In addition to Social Security, from which the average retiree receives about $1,800 monthly, other possible income sources include rental income, certificates of deposit, or bond funds. 

The Golden Years should be a time for exhaling — not concern about finances. The fact, though, is that many people are worried about running out of money during retirement. The good news is that with careful planning and wise handling of retirement savings, money can last through retirement years.

Here are strategies for long-term security.

Understanding Your Retirement Savings 

Having steady, predictable income sources will permit most people to maintain their lifestyle in the future, providing freedom and stability. That means putting one’s money to work. 

To figure out where they are financially, individuals must assess their savings, including 401(k) and other income sources such as Social Security. 

Those who have a defined benefit plan should determine before retirement how much pension income they stand to get. Typically, the income will be based on how long they were with the company, their earnings, and their age when they ceased working. They should verify from HR that they are fully vested, though. Also, note that some companies lower pension payouts if retirement is taken before or after age 65. 

The amount of income that those with a 401(k) or other employer-sponsored retirement plan will receive depends on the amount of money, where it was invested, and how long the person was in the plan.

Those who have an individual retirement account (IRA) can begin withdrawing from it, penalty free, beginning at age 59 ½. Earlier withdrawals are possible, but unless an exception applies, a 10% early withdrawal tax penalty will be incurred. 

For many, Social Security will be a significant income source in retirement. A major decision will be when to apply for benefits. Reduced benefits are available at age 62. Or the person can wait to receive full benefits — eligibility depends on birth year — or delay their initial payment to qualify for a bigger amount. Create a personal Social Security account for an estimate of future benefits.

Note that Social Security benefits are periodically adjusted for inflation. The Social Security Administration offers a number of tools and resources to help plan for when those benefits will be tapped.

There is no consensus on the amount of savings a person should have for retirement, although some suggest a 75% replacement rate. In other words, someone who earns $100,000 just before retirement will likely need about $75,000 annually for retirement. In any case, the pre-retirement replacement rate should be based on estimated retirement spending. 

It is a good idea to enlist a financial advisor, who can help with income source evaluation and next steps. A helpful go-to tool is the Retirement Calculator from Yieldstreet, the alternative investment platform.

How Long Will My Money Last?

There are a number of factors that can affect how long savings last, including inflation, market conditions, and withdrawal rates. Investment returns and unforeseen costs such as healthcare expenses also factor in. This is where that retirement calculator can be helpful.

In any case, there are ways to stretch retirement savings further, including systematic withdrawals. There is the 4% rule, which calls for withdrawing 4% of savings the first year, then taking out the same amount each following year — plus an adjustment for inflation.

There are also “dynamic withdrawals,” a strategy in which withdrawal amounts will change in response to investment returns. So, the amount available to spend turns on the market performance.

The income floor approach ensures that stocks will not have to be sold when the market slumps. Here, basic expenses are covered and invested savings can be used for discretionary items. 

The strategy calls for determining how much will be needed for housing, food, and other essentials and ensure that those expenses are covered by Social Security or other guaranteed income. An annuity or bond ladder would also help.

Strategies to maximize savings also include income from variable and fixed annuities. Not only can they offer consistent, dependable income, but they have the potential for continued growth.

In addition to Social Security, from which the average retired person receives about $1,800 monthly, other possible income sources include rental income, certificates of deposit, or bond funds. Other possibilities are dividend stocks, a part-time job or side business, or the aforementioned annuities.

This is also a good time for new retirees or those soon to retire to consider adjusting their financial habits, including spending.

Tools and Resources for Planning

There is a bounty of tools and resources available that can provide peace of mind and actionable insights. There are retirement calculators, for example, and retirement planning books. 

The Department of Labor offers interactive worksheets to help with retirement planning. Many companies that manage 401(k)s and IRAs provide tools for tracking savings progress.

There also may be value in consulting with a financial advisor, particularly for help with questions about potential tax liabilities.

Practical Tips

For one thing, there are some common myths surrounding retirement savings, including relying on Social Security exclusively or expecting a certain fixed income to last throughout retirement. Multiple steady, reliable sources are generally necessary for a retirement without financial worry.

There are strategies for managing financial anxieties, including creating a budget, tracking expenses, and establishing realistic expectations for retirement spending. It is also smart to deal with debt such as student loans and credit card bills as soon as possible. There are also taxes, which can disrupt finances in retirement. It is wise to speak with a tax expert before making retirement plans.

If moving to a different city in retirement is a possibility, individuals should be sure to compare cost of living numbers. Also, a health insurance strategy should be in place. If retirement is still a ways away, a health savings account can help save for medical expenses with tax-free withdrawals.

Do note that one-size-fits-all solutions do not exist. Thus, when making decisions about their retirement savings, people should consider their unique circumstances, goals, and risk tolerance.

It is important for people to remember that their retirement plan is not fixed and should be reviewed and adjusted periodically. This could entail regularly monitoring investment performance and adjusting as needed. As life circumstances change, individuals should re-evaluate expenses and withdrawal strategies. They should also continue to educate themselves on financial planning and retirement best practices.

Success Stories

Success stories abound. One man, for example, retired in 2018 at age 55 after 33 years in the aluminum industry. Moves that set him up for success included saving his raise each time he received one and saving for retirement right out of college. He also learned everything he could about money and personal finance, and married someone who shared the same goals.

A woman who worked as an auditor for a railroad was able to retire at 55, an age she decided for herself early on. It was important for her to make her own exit date, which was important to her. She did not want to be “forced out” and offered a retirement package. By pre-planning, she was able to prepare financially, mentally, and emotionally.

Speaking of success, diversification as a way to manage risk can be key to long-term investment success. It is essential to build a portfolio composed of varying investments that do not fluctuate simultaneously. Doing so exposes retirement investors to various market sectors and investment types.

Alternative Investments and Portfolio Diversification

Alternatives can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other alternative investments.

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

For many people who are approaching retirement, the longevity of their savings is a critical concern. However, by combining the above actionable strategies with insights into optimizing withdrawal rates, and leveraging social security, a sustainable retirement is very possible. Time is of the essence, however. Get started on these practical tips right away.