Will You Outlive Your Retirement Plan?

Creating a secure nest egg for full retirement is a worry that most baby boomers share, especially given the dwindling economy, which is often compared to the 1930's Great Depression. With rising senior medical costs, lower returns on investments and plunging stocks, American retirees and even soon-to-be retirees face a unique socioeconomic climate that many have never previously experienced.

According to AARP, senior bankruptcy has risen by nearly 150% over the past 18 years, and seniors between the ages of 75 and 84 are most likely to file for it. This startling trend is mostly due to unforeseen out-of-pocket medical expenses, insufficient retirement planning, and static social security benefits that have been outpaced inflation.

Another financial disadvantage that senior citizens face is longevity, and failing to save enough funds to cover their complete retirement plan. According to a CRS, Report for Congress, the life expectancy of the average U.S. citizen is 78 years, which is a significant increase from the 50 year life expectancy from the beginning of the 20th century.

Given this sharp age increase, most senior citizens don't have enough savings to support retiring for 30 years or more. Even if seniors' nest eggs are substantial, and they have a sufficient retirement plan, there is still a strong possibility that they will either outlive or use up their retirement savings.

Taking all things into consideration, to get the most out of your retirement plan it is important to take extra precautions, including small daily changes and larger financial adjustments. Below is a list of tips on how to make your retirement plan last longer in these difficult economic times.

Retirement Plan Longevity

Small Daily Changes Impact Retirement Plans In A Big Way

Even though making small daily changes, such as bargain hunting or cutting back on medical costs, might seem insignificant, the savings add up fast. Below is a list of simple tips that most retirees and/or senior citizens can engage in to make their dollars stretch further.

1. Improve Your Retirement Plan By Cutting Back on Spending
Most retirees view their golden years as a chance to let loose and make large purchases that they were unable to do when they were still working. However, to make retirement funds last as long as possible, it is essential to curb all unnecessary spending, including buying luxury cars and vacation homes.

Retirees should also hunt for bargains on necessary items when possible. The easiest way to save on essential items is to clip coupons from local weekly advertisements. By doing this, seniors can save thousands of dollars per year on their grocery bills and help extend their retirement.

2. Create Healthy Retirement Plan By Lowering Prescription Costs
According to AARP, the cost of the 195 most commonly used senior citizen prescription drugs rose twice as fast as inflation in 2005. With medical treatments, insurance premiums, and prescription drug costs continually rising, it is important for seniors to take advantage of more affordable alternatives to brand name medications to help extend the life of their retirement plan.

Retirees can take the initiative by first talking to their doctors about cheaper medications. They can also save money by ordering their prescriptions through online pharmacies, which charge a fraction of the normal price. Seniors and retirees should also look at their local chain stores for prescription discounts - Target, Walmart and Walgreens all offer significant price reductions on generic medications.

3. Avoid Discounting Your Retirement Plan By Taking Advantage of Senior Discounts
Retirees can reap the benefits of significant savings by simply admitting that they are 50 years or older. Numerous restaurants, hotels, clothing stores and supermarkets offer senior discounts of between 5 to 10 percent, and airlines offer seniors savings of more than 40% off of standard ticket prices all of which will help increase the longevity of retirement plans.

4. Reduce The Strain On Your Retirement Plan By Working Part-Time
Seniors and retirees should consider working part-time in order to further their retirement savings plan or to supplement their retirement plan's income. While many retailers offer part-time positions, seniors also have the option of posting items on eBay or similar sites or becoming pet sitters to make extra money. Once seniors reach retirement age, they are allowed to earn up to $37,680 annually without any government penalties.

Retirement Plan Security

Retirement Plan Security

Along with taking simple steps to extend their retirement plans, retirees can also make sound financial changes such as postponing withdrawals, to ensure the success of their nest eggs. Here is a list of tips on how to extend retirement plan funds through smart financial decisions:

1. Increase the Benefit of Retirement Plans by Postponing Social Security Benefits
If retirees delay withdrawing their social security benefits, their pay outs will rise by 7-8% each year from age 62 to 70. With that in mind, if they can wait until age 70 to withdrawal from their social security benefits, they will have received 83% more money than if they had withdrawal at age 62. These savings add up fast, and can make a large financial difference later in the longevity of your retirement plan.

2. For Retirement Plan Longevity Purchase Longevity Insurance
Longevity insurance, a type of fixed annuity, provides guaranteed lifetime income payments to recipients at an age of their choosing, with age 85 being the most common starting age. Retirees can take advantage of this type of insurance by first choosing a desired age to start receiving payouts, followed by giving the insurance company an upfront payment of anywhere from a few thousand dollars to tens of thousands of dollars.

Once the predetermined age has been reached, the insurance company provides the retiree with a fixed monthly payment amount. Longevity insurance does have some downsides, however, one being that the payments are not adjusted for inflation, meaning that retirees are at the mercy of inflation rates and may not be able to live on their insurance income alone. Retirees considering making longevity insurance a part of their retirement plan should do thorough research before choosing a company and a plan.

3. Invest In Your Retirement Plan By Monitoring Your Investment Portfolios
Retirees who have investment portfolios should consider refraining from giving themselves regular raises. Instead, seniors and retirees should avoid raises altogether for at least a few years. This way, even the most conservative investment portfolios will last through the lifetime of a retirement plan.

Retirees should also assess their investment portfolio withdrawal rates annually, ensuring that their withdrawals are only 4% of their total investment funds. By only withdrawing 4% annually, retirees should have enough investment funds to last them between 20 and 30 years.

4. Postpone 401K, IRA and 403b Withdrawals
Congress recently passed a bill that now allows seniors to postpone their 401K, IRA and 403b withdrawals beyond the mandatory 70 ½ years of age. This ensures that seniors will not be forced to withdrawal from their funds while investments are low.

Retirees can ensure that they don't outlive their retirement plans by making small day-to-day changes and larger sound financial adjustments. Considering that life expectancy is rising and investments are diminishing, seniors can never be too prepared for when creating their retirement plan.