One of the most important things that retirees and those who are approaching their retirement years worry about is how to make their money last throughout their retirement.
The good news is that the California-based Stanford Center on Longevity Studies led a study to find out the best strategies for this problem. Here are two ways to prolong your money through retirement.
Wait Until You’re 70 to Claim Social Security
According the research, retirees who are classified as middle-income earners may be able to get their needed lifetime income by delaying claiming their Social Security.
If you wait until you turn 70 to start your Social Security, the funds may be able to cover about two-thirds or up to 80% of your basic living expenses in retirement. For couples, the one who earns more should be the one to hold out from claiming early.
To replace the social security benefits that you will supposedly earn by the time you turn 61, you can accept work that are not necessarily full-time. Your earnings should be enough to bridge the income gap that the delay caused.
However, if you’re not into the idea of working again, you can reach into your retirement funds to cover the amount that is equivalent to the average monthly benefit of $1.5K per month; the amount you would have already started receiving had you started Social Security earlier.
The researchers recommended putting these retirement savings in investments that are considered safe because it will only be needed for eight years or less. These investments include money market, short-term bond fund, and a stable-value fund offered in your 401(k).
Invest Your 401 (k) and Individual Retirement Account (IRA)
It is recommended to invest at least half of your 401(k) and IRA assets in stocks. At the same time, you should also limit your withdrawals to what is mandated by the required minimum distribution (RMD) levels of the IRS.
The research tried to find out if this strategy will be effective in different investment scenarios. One option is to have an all-stock portfolio and invest 100% of your funds in S&P 500. The second one is dividing your funds and put half of it in stocks and the other half in intermediate-term Treasuries. Meanwhile the third is a portfolio of 100% treasury bonds.
For a conservative setting, the study shows that there is a 50% chance that the all-bond portfolio can keep up with inflation for about 10 years from age 65 to age 75. The other two portfolio types have a better chance of generating RMDs that can beat inflation until the age of 90.
As for general conditions, an all-stock portfolio is estimated to have higher RMDs over a 30-year retirement compared to the 50-50 portfolio. However, they switch when the returns are worse than expected. The half-stocks-half-treasuries portfolio performs better over a 30-year period. Decreasing withdrawals will last shorter as a result.
According to the researchers, they would prefer allocating funds in an all-stock portfolio. But they do acknowledge that most of the retirees would be hesitant with such a high allocation to stocks.