What to Do If You Know You'll Outlive Your Retirement Savings

Outliving retirement savings is a huge concern for many Americans, and the worry is not unfounded. According to a Northwestern Mutual survey, 21% of Americans have no retirement savings at all and another 10% have less than $5,000 saved. For some, it may be possible to get back on track by boosting retirement contributions and looking for ways to increase income. But what if you can't do that?

I'll be honest with you: There aren't any options here that involve making large purchases in retirement and sipping drinks on a beach in a foreign country. But with careful planning, you can stretch your money a little further than you expected -- maybe even far enough to last the rest of your life.

Here are some suggestions.

Cut expenses

Opportunities to reduce monthly costs may include cooking more at home instead of dining out, downsizing a home, or moving to a more affordable city. You may also want to look for services you can cut back on or eliminate, like that unused gym membership or excess cellphone data you're not using. Every little bit helps. Put this extra money into savings. If you continue this frugal approach into retirement, you'll be able to make what savings you have last a little longer.

Consider phased retirement

Phased retirement is where you gradually reduce the number of hours you're working rather than retiring all at once. This gives you some of the freedom of retirement while you're still earning income, so you won't need to draw upon your savings as much in the early years of your retirement.

If your job doesn't let you work part time, try to find one that does. When you're ready to begin your transition into retirement, decide how many hours you'd like to work each week. Once you have an idea how much you would get paid, you can see what percentage of your retirement living expenses this would cover and then decide if it's worth it.

Delay retirement

An alternative to phased retirement is to delay retirement by a couple of years. It will reduce the nest egg you need to cover the rest of your retirement expenses. For example, say you planned to retire at 62 and you've determined that you'll need about $35,000 per year to cover your living expenses. If you delay your retirement until 65, you shave over $100,000 off the amount you need for retirement -- and earn money during these extra years in the workforce.

Delay your Social Security benefits

You can begin taking Social Security benefits as early as 62, but for your full benefit, you must wait until your full retirement age -- somewhere between 66 and 67 for most adults today. You'll get the best deal if you can delay your benefits until age 70. At that point, you'll receive 124% of your scheduled benefit per check if your full retirement age is 67, or 132% if your full retirement age is 66.

By delaying your Social Security benefits as long as you can, you'll reduce the personal savings you'll need. But don't rely too heavily on Social Security. Its trust funds will be depleted in 2034 unless changes are made to the program, and these changes could reduce the value of your Social Security benefits over time.

Reduce your withdrawal rate

Conventional wisdom says you can comfortably withdraw 4% of your retirement savings each year with confidence that doing so will let your money last 30 years or more. If you withdraw less, your savings will last longer -- unless your living expenses in retirement make this unfeasible. But if you do what you can to reduce your expenses, a lower withdrawal rate can help in two ways.

First, by taking less money from tax-deferred retirement accounts, your taxable income for the year will be lower and you will owe less to the government. Second, it leaves more money in your retirement accounts to continue growing.

You may not be able to avoid running out of money in retirement, but by being smart and applying one or more of the above strategies, you can make the most of the savings you do have.

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