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Retirement planning: How to stretch your money in retirement

Updated on October 5, 2011
Retirement income and savings can last if they are managed wisely.
Retirement income and savings can last if they are managed wisely.

Since the majority of retirees depend on fixed incomes, making retirement income and savings last is a top priority. Indeed, longevity risk – the risk of outliving your money – must be guarded against dutifully. In general, individuals should prepare for thirty years of retirement.

Some retirees only live a few years in retirement, but some may live up to 40 years and more! Given the uncertainty about life spans, it is better to plan properly and let the chips fall where they may. Fortunately, there are several effective ways of combatting longevity risk and making your money last.

Diversify your retirement portfolio properly

The rule-of-thumb is that retirees should be more conservative with their money since their savings are finite and income is fixed. However, being too conservative exposes your retirement fund to inflation risk and purchasing power risk as well. It is not prudent to be completely risk intolerant; this is where portfolio diversification is handy. This strategy helps you to preserve the real value of your money without risking it all – a win-win situation.

Minimize tax risk

Retirees already face myriad risks of retirement. As though that is not terrible enough, taxes erode their fixed pensions and incomes. The good thing is that there are tax relief options, which vary among countries or states. These should be pinpointed and exploited for the retiree’s benefit. For instance, investment in immediate annuities is a tax-free-income option. However, tax relief options must be exploited in moderation, since there may be inherent drawbacks.

Minimize expenses and expenditure

Lifestyle considerations are important in your golden years. If you do not have adequate retirement funds, world travel may not be a good idea. Retirees must examine the ways of reducing necessary expenses and eliminating unnecessary or frivolous ones. Sometimes you are the best and worst person to determine what is necessary and what is not. Those who experienced significant cuts in their retirement income should scale down their lifestyle just a bit as well.

Monitor annual withdrawal

Many retirees may receive lumpsum payments early in their retirement. The temptation is to spend most or all of it within a short period. However, restraint is needed; in your first year of retirement, try spending more than approximately 5% of your retirement fund is not advised. Your withdrawal from your retirement fund thereafter should be well below 10% per annum – depending on prevailing market conditions.

Continue saving

Just as retirees should continue to plan during retirement, they should continue to save as well. No matter how small the amount, any savings is better than none. Savings suggests that instead of constantly depleting your retirement fund, you will be helping to sustain it. This can delay depletion of your life savings and would make your money last longer.


Even if your retirement income is low, it can be made to last once it is managed properly. Your standard of living could and should be adjusted to suit your means. Once you adhere to the principles of prudent financial management, your money would last in retirement.

How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor
How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor

How to Retire Happy, Wild, and Free offers inspirational advice on how to enjoy life to its fullest. The key to achieving an active and satisfying retirement involves a great deal more than having adequate financial resources; it also encompasses all other aspects of life -- interesting leisure activities, creative pursuits, physical well-being, mental well-being, and solid social support.



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  • SpiffyD profile image

    SpiffyD 6 years ago from The Caribbean

    Certainly Deborah. It's still funny that many persons don't consider it a priority, preferring to live exclusively in the "now."

  • Deborah-Diane profile image

    Deborah-Diane 6 years ago from Orange County, California

    Great advice for retirees ... and we'll all be there one of these days!