Make Sure You Don’t Outlive Your Money

Longer life expectancies are ratcheting up the pressure on retirees to make their money last as long as they do.

New mortality estimates by the nonprofit Society of Actuaries, released Monday, show the average 65-year-old U.S. woman is expected to live to 88.8 years, up from 86.4 in 2000. Men age 65 are expected to live to 86.6 years, up from 84.6 in 2000. These new figures should raise concerns even for people who believe they have accumulated enough money for later life. Here are five tips for such individuals who are approaching or in retirement:

Be flexible in your spending, particularly early in retirement. Some people head into retirement with a set plan for how much they can afford to withdraw from their portfolio each year. One common approach is to withdraw 4% of your nest egg the first year and then adjust that dollar amount for inflation each year. To play it safer, consider cutting back on spending when adverse markets take a significant bite out of your nest egg, particularly if that happens early in retirement, says financial adviser Brent Brodeski, CEO of Savant Capital Management, based in Rockford, Ill. “If you just keep spending,” he says, “you are eating your seed corn.” On the flip side, you can spend more in a year when you have big investment gains.

Be wary of taking a lump sum in lieu of a monthly pension. Longer life expectancies increase costs for corporate retirement plans. That may lead more companies to invite workers to take a lump-sum payment instead of a stream of payments for life. Ask yourself: If it’s a good deal for the company, why is it a good deal for me? An income stream that will continue for your lifetime is valuable protection against outliving your money, particularly if you live longer than average.

Be strategic in taking Social Security. Many smart, well-educated workers “have little to no idea” about when to start taking Social Security, says Taylor Winn, founder and president of Buckhead Wealth Management in Atlanta. But those lifelong inflation-adjusted benefits are a major asset that should be approached with care. Taking benefits at 62, the earliest age possible, reduces the benefit check by 25% versus the payout at the current “normal” retirement age of 66. By contrast, if you delay the start of benefits past 66, the benefit will go up by 8% of that full-retirement-age amount each year to age 70.

Holding out for a larger monthly check can provide a valuable safety net for later life. Married couples should coordinate their claiming strategies to maximize benefits over both their lifetimes, which often involves the higher earner delaying the start of benefits.

Plan for a longer-than-average life span. By definition, about half of people will live longer than the average life expectancy. So, to be conservative, plan for your money to last for a longer-than-average span. Mr. Winn says he generally shows clients projections of how much of their financial assets might remain at their life expectancy and then at five-year increments beyond that.

Don’t go overboard on gifting. Many retirees with substantial assets want to share that money with children or grandchildren. But Mr. Brodeski advises his newly retired clients to be wary of being “too generous too soon, because they might impoverish themselves.”