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Do you know if your retirement funds will last forever?

Okay, we’re going to switch our focus for a second here. We’re going to stop talking about saving.

That’s right: this article won’t talk about saving money for retirement. You already know that the biggest financial hurdle you may face in your working lifetime is saving enough for retirement. Also, you know that most Americans are ill-prepared for retirement.

What do you do once you’ve saved for your retirement?

This article is going to focus on an often-overlooked aspect of retirement: making your money last. It’s an unfortunate truth that this advice is overshadowed by the constant whispers of financial blogs urging you to save more.

The truth is you will need a strategy once you’ve gotten past the savings aspect of retirement planning.

The best part about this article is you can realistically apply this advice to any phase of your financial planning. Everyone wants to know how to stretch their money and make what they are currently earning last them as long as possible. Think about it: the more you save, the less you spend, the more you have!

Retirees especially are concerned with making their money last, as they no longer have their paychecks to supplement their income.

Another problem is retirees do not know how long they will live, and what they are living off of has to last them for the rest of their lives. It is at this time that it is crucial to make the money retirees currently have last them.  

The question becomes how to make the funds last. If you spend too much you’ll wind up with nothing to see you through retirement. Spend too little and you could be scrimping and struggling when you may not need to.

The key is to find the “sweet spot” in your spending habits. Smart saving and smart spending habits will ensure that your funds won’t run out.

At different stages in your life, you begin to think about retirement differently.

In your twenties, you may think about saving. However, your focus will be more on paying off student loans, finding a stable job and paying off any additional debts you may have incurred. The good news is a lot of companies will put you into a retirement plan when you are hired. This way you can begin saving in your twenties with little-to-no effort.

As you move closer to your retirement age, you begin saving more. A financial balance is easier to achieve in your later years because you will most likely be earning more and have paid off your debts. It only makes sense that retirement savings becomes a priority in the years after your twenties, because your retired years aren’t as far away.

Also, during this time that your focus needs to shift, from thinking of your retirement fund as a number in an account to a stream of income, specifically, a stream of income that will last you for the next 30 to 40 years. .

It helps to think of your pension fund in terms of paychecks, with each withdrawal period marking a pay period.

If you’re thinking: how will a set sum last me for the next few decades? then you aren’t alone; however, there is one thing you are neglecting to factor in: account growth. Additionally, if you are thinking of the amount in your pension plan in terms of paychecks and pay periods, your Social Security should be treated as a bonus, designed to supplement these paychecks.

Risk Tolerance vs Capacity for Risk

Additionally, in order to make you money last, you should begin thinking less about your tolerance for risk and more in terms of your capacity for risk. What we mean by this is if you have saved enough in your retirement account, your savings is doing well and you aren’t currently in debt with a mortgage or credit cards, then you have a high capacity for risk. In scenarios like this, you could realistically put any amount into the market and still be fine, even if the market takes a turn.

If you have a low capacity for risk, you will be unable to take on risk. These individuals may rely solely on Social Security or have slacked with their savings or their retirement funds. If you have a low capacity for risk, you won’t be able to invest as much of your money in the market because you will not be able to financially withstand a market downturn.

Simplification is key

Simplifying your portfolio may help you make your pensions funds last through retirement. No matter what your capacity for risk is, an easy-to-manage and steadfast portfolio will yield better results.

Speak to a trusted financial adviser who can help you set a plan that comes with steady withdrawals and re-balancing. Simplifying your portfolio entails sticking with generic stocks and bonds and knowing how to balance your investments with your capacity for risk.

Have cash-on-hand

Another way to make your money last throughout your retirement is to have a cash reserve on hand. This reserve should be large enough to cover your bills and necessary expenses – without Social Security.

Think of this cash reserve as a security blanket in case something goes awry.

In order to figure out what your cash reserve number is, you should first set out a strong budget. As long as your income matches your expenses, you will be able to begin stashing away a cash reserve.

Next you will assess the gap in your finances. This gap occurs during retirement when your retirement income is less than your expenses. After calculating this gap, you should double your number. The final number you come up with is your cash reserve.

Don’t underestimate the power of a good budget.

The truth is there is no glamorous secret to making your money last during your retirement. The key is a strong budget and financial vigilance.

If you combine this two aspects and consider the above, you can make your pension funds last for years.