How to Ensure You'll Never Outlive Your Savings

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Let's begin with some good news.

We're living longer and staying healthier. The average retirement now lasts two decades.

Here's the bad news.

Many of us won't have the money to finance that retirement.

Talk about mixed blessings. It's great that we're living longer. Yet running out of money when we're at our weakest and most vulnerable is a true nightmare scenario.

Nobody wants to live a life of deprivation. Or to become a heavy burden on our family and friends.

So how do we ensure that our savings lasts as long as we do?

Let's find out.

A successful retirement is your responsibility

Unless you work in the private sector, generous pensions have gone the way of the three martini lunch. And even the private sector is rapidly shifting the retirement burden to employees.

The reason? Basic economics. Workers once lived five or ten years past retirement. Rich pension packages were palatable. Now workers live 20 or 30 years beyond the end of their working life. The financial costs are often staggering.

It's undeniably great that we're living longer and staying healthier. Yet that blessing has given rise to serious anxiety among today's retirees. A recent survey by Wells Fargo showed nearly half of retirees fear running out of money.

Sadly, that number should be even higher. Nearly half of Americans have negligible retirement savings.

If our collective behavior doesn't change, we're going to see millions of people living through retirements that feature a lowered standard of living.

That's a recipe for unhappiness on a colossal scale.

Which is why it's important you take action to ensure you aren't one the unlucky majority.

Save early and often

It's obvious, but it's undeniably true. The easiest way to create wealth is to start saving early. The more you save, the more you can invest. The earlier you save and invest, the greater the return.

It's a simple formula. Yet few grasp its real power. Do you consistently put one-tenth of your income into an IRA or 401k? Then you're almost guaranteed to be successful. It's also critical to always accept an employer's match. Where else are you going to get a 100-percent return?

Stay on top of asset allocation

Your optimal asset allocation is strongly tied to your time horizon. A younger investor can afford to be aggressive. An older investor needs to exercise more caution.

Bonds are an excellent bridge over periods of market volatility. When you retire, it's a good idea for bonds to comprise the majority of your portfolio. Yet that doesn't mean older investors should phase out stocks. Planning on a long and happy retirement? You may need the growth potential stocks offer.

Are you on target to have enough money to sustain yourself through retirement? Then a neutral or defensive posture makes sense. Does it appear you'll have a shortfall? Then you should consider a more aggressive allocation.

Maximize Social Security

Social Security payments alone won't secure a stable retirement. The payout isn't large. There's perpetual concern about the program's future solvency. Yet it is a guaranteed source of income that should be maximized to the hilt. You paid into it -- you should reap every possible benefit.

Everyone knows it's smart to delay Social Security. Yet many of us don't realize how stark the difference really is. If you wait until 70, your lifetime monthly benefit is 75-percent higher than if you start at 62.

That's a humongous gap. It's also a no brainer for anyone concerned about a retirement shortfall. Savvy wealth builders should explore other options. Make sure to have 35 years of covered earnings. Investigate the upside of claiming spousal benefits. Do whatever you can to enhance this valuable fixed income stream.

Explore the value of annuities

An annuity allows you to swap some of your hard-earned savings for a promise. Doesn't sound very appealing on the surface, right? Yet if you're worried about outliving your savings, this is exactly the kind of promise you need.

Under this scenario, an insurance company will guarantee you monthly payments as long as you live. Confident about living to 95 or even 100? Then this is an excellent hedge. On the other hand, statistics don't quite support that kind of old age optimism.

Annuities have other drawbacks. Fees are often high. Your money usually can't be passed to heirs. Yet if you're consumed by nightmares of being 105 years old and destitute, there's no better peace of mind than this.

Pay off your home

This is simple, yet also very effective. Housing and healthcare costs will sap your retirement nest egg faster than anything else. We can't assure ourselves good health. Yet we can assure ourselves low housing costs. Pay it off early, and you can also tap your equity in a crisis.

The bottom line

People are understandably worried about outliving their savings. We're living longer. We're also saving less. Yet if you implement these basic strategies, you can minimize the risk of an unhappy post-work life.

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