How You Can Make Your Money Last In Retirement

How You Can Make Your Money Last In Retirement
by Takara Alexis

If you are like most people, you have put a substantial amount of time and effort into putting money away for retirement. But you have probably put less thought into how gradually you will spend the money and in a way that will make it last--a possible disaster.

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. You only have 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.

If you have a melancholy-era mentality, insert your nest egg in savings accounts and certificates of deposit with no more than the FDIC-insured limit of $250,000 in any of the banks. It will always be there for you regardless of how the markets are doing plus it's safe.

If you do not just so happen to have $5 million lying around, you will need to take some more risks to have any type of chance of producing that $100,000 a year you long for. One alternative is to place money in a diversified portfolio of stocks, bonds and real estate that pays dividends. If you begin with $3 million and the market acts like is has been for the past 70 years, you should have no worries. But if the market moves slowly or if companies cut their dividends, there is a chance your money won't last.

Another good reason to think about deferred annuities is that they allow you to keep saving tax-deferred after you have maxed out your 401(k) and your IRA. You'll still need to pay taxes as you take out the money. Unlike with an immediate annuity, if there is a balance when you pass away, it goes to your heirs.

The problem with deferred annuities are the lockups and often enormous fees. You pay an average of 2.15% a year, according to one study, and you could pay up to 4% annually in fees. Unless the tax deferral is really important, you could be better off investing in tax-efficient mutual funds or ETFs until you need the money, and then take it and put it into an immediate annuity. This isn't risk free but it can save you a decent amount of money.