One of the most common questions I get asked by people thinking of retiring is, “What do I need to do to ensure I won’t run out of money in retirement?” If you’ve asked this question, you have reasons to be concerned: Healthcare is costly, most people live longer, and inflation has eroded purchasing power. The list goes on and on. If you haven’t asked this question, you either have a ton of money or are in for a rude surprise later in retirement.Proper retirement planning cannot completely eliminate the risk of running out of money in retirement, but it sure can make it much less likely. More importantly, it can allow you the financial freedom to get more joy during your retirement versus spending the next 30 years stressing out that you may or may not go broke as you age. Knowing you can afford that bucket list trip will make it more enjoyable.
Many people worry about running out of money in retirement. That’s understandable as we don’t know how long we’ll live, our future costs, and what kind of returns we can expect on our investments and savings. At this point, we don’t even know what tax rates will be next year, let alone 20 years down the road. (With the expiration of the original Trump tax plan at the end of 2025, there will surely be tax changes coming this year or next).
There are several ways, however, to boost the odds that your money will last as long as you do in retirement. Here are my 15 favorite ways to help your money last forever in retirement.
1. Keep An Eye On Lifestyle Inflation
I recently spoke with a couple on vacation who said their amazing stay at Awasi in Chile’s Atacama desert would ruin their retirement travel budget. The luxury stay was a splurge, but now they were spoiled and would need to rethink how they travel in the future. Not all examples of lifestyle inflation are this obvious. Sometimes, things just cost more over time, or perhaps we go up a notch or two every time we get a new car.
To be clear, I’m a huge fan of lavish travel spending. However, depending on your income, you may need to cut back on other areas to avoid having your travels cause you to run out of money in retirement.
The bottom line is that what’s necessary for survival and what entails an absolutely fabulous retirement are likely not the same thing. Keeping your core must-have expenses to a minimum will make it much easier for your money to last in retirement. I am not saying you have to cut out everything else, but there is a big difference between planning to spend a ton of money traveling in style for months on end compared to driving a luxury car while wearing designer duds with no money left over to go out and show off your fabulous outfits.
Minimizing your fixed expenses gives you the most financial freedom regarding spending. The more financial freedom you have, the easier it will be to make your money last in retirement.
2. Don’t Ignore The Costs Of Inflation
What may seem like a great retirement income at 62 will probably feel