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How to Make Your Money Last in Retirement

how to make your money last in retirement

Editor's Note: This article presents some simple ways to strengthen your income confidence in retirement. As you read about how you can make your money last in retirement with different income strategy options at your disposal, check out this debate by two economists on the security of the $3 trillion Social Security trust fund. It's just another personal reminder of how our personal financial security is ultimately up to each of us.

With new swells of Americans turning 65 each day, it’s one of the most-pressing questions in financial planning: How can I make my money last in retirement?     

Today’s retirees aren’t just sitting back. As they live longer, they are delving into new opportunities with full steam.

Second-act careers. Entrepreneurship. Volunteering for personal causes. Cross-country tours. Worldwide travel. All of this is breaking the boundaries and redefining how we think of aging.

But the increasing lifespans also bring new trials. Longevity risk and other risk hazards compound with additional years of retirement living.

One of the biggest challenges is creating a dependable stream of monthly income for cash-flow needs. And not just that, but a monthly income stream that you might need to count on for a very long time.

While a one-size-fits-all answer won’t work for everyone, new research tees up some fresh insights on how to make your money last as long as you might need it.

Three retirement experts, hailing from the Stanford Center on Longevity Studies and the Society of Actuaries, completed a study on retirement income strategies. Using a variety of forecasting techniques, they tested nearly 300 strategies in order to see which one would best allow retirement investors to generate income safely and efficiently.

Their findings were aimed at middle-income households – or among investors with some portfolio assets (but not over $1 million in asset values).    

Getting Retirement Income Down to a Science

Retirement researcher Dr. Wade Pfau, certified financial planner and actuary Joe Tomlinson, and long-time actuary and retirement expert Steve Vernon were the study authors.

Building on a prior report from 2017, they came up with the “Spend Safely in Retirement Strategy.” Described as a “baseline retirement strategy,” the process includes two key steps:

1. Wait to claim Social Security until you are 70 years old so you obtain the highest benefit possible.

If you are married, the researchers recommend that the higher income-earner maximize their benefit by claiming at 70. That assumes that the other spouse would start their benefits at 66 – or whenever their full retirement age is.

2. Drawing on IRAs and employer plans like 401(k) accounts, use required minimum distributions (RMDs) to generate retirement income.

The authors suggest putting half to all of the IRA and/or employer plan assets into a “low-cost index fund, target-date fund, or balanced fund” as part of the strategy.

If you did need money from your retirement accounts before 70.5, tapping your savings beforehand would still be better than claiming Social Security early, according to the report.

Filling Retirement Income Gaps Before Age 70

What if you couldn’t keep working full-time till you took Social Security at 70?

What would you do if you were forced into early retirement? Or if you simply wanted to slow down after so many years?

You could then build an “income bridge” from your savings. This would involve creating a separate bucket of money to cover the income gap between when you stopped working and when you claimed Social Security at 70.

The bucket of money could be a number of short-term fixed-income instruments, from money market funds or bond funds to fixed annuities.

Uncertain about how much money you might need to put aside? As a starting point, the study recommends considering the amount you would have otherwise received from Social Security benefits, if you had claimed earlier than 70.

You might consider exploring options that can offer a good balance of competitive interest-earning potential, liquidity, and ways to maximize income payment dollars for every dollar you put in.

Bolstering Peace of Mind with More Income Certainty

The Spend Safely in Retirement Strategy is easily followable for retirement investors. But, in their 2019 updated research, Pfau, Tomlinson and Vernon recognize that an income strategy can be strengthened with an “actuarial method.”

By replacing the Step 2 RMD drawdown strategy with guaranteed annuity payouts, the investor could keep a significant position in equities. The equities portion of the portfolio would help cover discretionary retirement spending.

“Such a method,” the authors write, “would solve for regular withdrawals from savings by equating the present value of future retirement income from all sources, including Social Security and pensions, to the present value of future living expenses from all sources.”

For this strategy to be effective, some factors would have to accounted for in the income strategy including:

  • Life expectancy for an investor and for their spouse
  • The expected return on the investor’s assets
  • Future inflation on living expenses
  • How much money would come from other benefits, like Social Security, job earnings, and so on
  • The time value of money (how much money with earning potential is worth now compared to the same amount in the future)


Exploring Annuity Payouts as Part of an Income Plan

One part of the report compared some income-generating alternatives to the baseline RMD drawdown strategy. These included:

  • Immediate annuities with fixed payments and 3% inflation-adjusting payments
  • A variable annuity with a guaranteed lifetime withdrawal benefit
  • A systematic withdrawal plan (SWP) that is invested 75% in stocks and calculates for yearly withdrawals as 3% of assets remaining each year
  • An RMD drawdown strategy with 75% stocks
  • A 5% SWP invested 75% in stocks


While each of the six income strategies differed in the income level it was paying in the early and later years of retirement – and how much in assets it preserved at the end – the authors noted two observations:

  1. All of the annuity income strategies delivered more income than the other three strategies in unfavorable investment scenarios.
  2. The RMD drawdown strategy and the 5% systematic withdrawal plan gave investors more retirement income in favorable investment scenarios than the annuity strategies did.


These analyses, the study noted, “support the overall strategy to cover basic living expenses with Social Security and annuities, and [to] pay for discretionary living expenses with invested assets.”

The annuity-payout strategies could also be used a stabilizing force as part of an overall retirement strategy – particularly in lieu of the relative unpredictability of sequence risk and its effects.

Preparing for Your Financial Future

The research by Pfau, Tomlinson and Vernon is a valuable addition to research literature for investors. It gives them a simple-to-implement strategy for framing their own retirement income streams.

Even so, many people find they benefit from increased confidence and peace of mind by working with a financial professional.

In particular, an experienced income strategist can help you determine how to make the most of your money in retirement. As retirement-focused professionals, they know the unique risks facing retirees and can help build rock-solid strategies to manage those risks with confidence.

If you are ready for personal help, financial professionals at SafeMoney.com can assist you. Use our "Find a Financial Professional" section to connect with someone directly for an appointment. Should you need a personal referral, call us at 877.476.9723.

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