How to Keep from Outliving Your Assets––Herb White

How to Keep from Outliving Your Assets

By Herb White, MBA, CFP®, Denver LIVING WELL Magazine

When 80-year-old Peter’s family looked into his assets after he died, they were shocked to discover he only had $4,000 left. Where had his money gone? They knew he’d had a good-sized nest egg when he retired, and they assumed he was in good shape. Peter was not a wild spender in his later years, so they were doubly surprised. How could this have happened?

The answer may be surprising. Although Peter lived frugally in his later years, he had done little to maintain his nest egg once he retired. He is not alone. Retirees often have the mistaken belief that their hard-earned money will continue to accumulate in retirement without any effort on their part.

In fact, failure to tend to their assets in retirement can lead to outliving their assets. This is one of the greatest risks to seniors’ financial security today. Yet increasing longevity—having a longer life span—is often not taken into consideration. “Great grandpa died at 80, so living to 80 is in the genes,” people often think. However, great grandpa’s children and their children will likely live longer than 80, yet their assets may not.

Do the math today

If you haven’t retired yet, continue to save as much as possible for your golden years. Take advantage of your employer’s 401(k) plan. Calculate what you will need to save and how much you can realistically afford to withdraw annually once you do retire. Use an online financial calculator designed to show these amounts or ask a financial professional for help. If you do the math before retirement, you will have a clearer picture and may be able to take steps now.

Start by calculating what percent of your principal you can afford to withdraw each year in retirement. Take into account the size of your nest egg, your estimated longevity, the market conditions and outlook, inflation predictions and your financial goals. Those goals could be inheritances to family or charitable donations.

Make a retirement plan

Let’s say you estimated living until age 88 but your money could run out at age 80. You can take steps now to stretch that nest egg. By including those steps in a written financial plan, you will have an extra measure of peace of mind.

Take action throughout retirement

Don’t ignore your hard-earned money. One way is to keep your eye on interest rates and take action when the rates change. For example, if interest rates are rising, you might place more money in short-term CDs (certificates of deposit) and move that money when rates are dropping.

Shift some of your portfolio assets into investments that generate income. Consider dividend-paying stocks—these can provide you earnings on a regular basis. Bonds also can be helpful. If you set up a bond ladder with a number of bonds that have varying maturity dates, you may also see more steady income. Investing in a mutual fund that includes companies providing dividends may be a better alternative to a handful of individual stocks.

To plan for your living expenses, place a year’s worth of cash in a cash-reserve savings account that is interest bearing. Make monthly withdrawals and replenish the reserve from your investments annually. A good way to do this is to liquidate longer-term investments, but train yourself to track and time gains and losses so they offset each other.

Consider fixed index annuities. They guarantee a steady stream of income for life but can be complex. Be sure to talk to your advisor about them.

If your portfolio’s interest and dividends are significant, you could decide to use only that money to live on. Be sure to monitor your portfolio carefully as a sinking portfolio can lead to fewer resources for your living expenses.

Taking these steps is no guarantee that you won’t outlive your assets, but they will take you a long way to ensuring a happy retirement. Your nest egg needs protection now more than ever before. It all starts with a plan.

Tune in to “America’s Wealth Management Show” sponsored locally by Life Certain Wealth Strategies

Saturdays from noon to 1 p.m. on news radio 630 KHOW.

Provided courtesy of Herb White, MBA, CFP®, a Certified Financial Planner™ with Life Certain Wealth Strategies 8400 E Prentice Ave #715 Greenwood Village, Colorado, www.lifecertain.com, (303) 793-3999. Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Life Certain Wealth Strategies and Woodbury Financial Services are not affiliated entities.