Running out of money in retirement

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 Q. I’ve been retired for two years. I took Social Security at age 65 and I have a very small pension. It’s not enough. I don’t really want to go back to work but I’m afraid to touch my investments. How can I make sure I don’t take out too much and run out of money?

A. Running out of money in retirement is not a good option.

“If you do not want to work now, then think about what it would be like working — because you have to — in your late 70s,” said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton. “If you retire, it is very reasonable that you can be alive at age 85, so funding 20 years of retirement can be very expensive.”

Lynch says you should start by looking carefully at your expenses and come up with your number. Next, add up your guaranteed income — your pension and Social Security — and determine the gap.

Then consider your options.

With your investments, determine what income they can realistically kick off without you running out of money.

“Generally, I use a 3.5 to 4 percent withdrawal rate,” he said. “So if you have $500,000 in investments, that is $17,500 to $20,000 annually. Is that enough?”

If not, rather than a full retirement, a semi-retirement may be the answer.

“Many people that retire, get another job doing something that they are passionate about.” Lynch said. “They generally make less money, but that may push back taking some investment income, which has a huge impact later in life. Not taking $20,000 today leaves you an additional $75k+ in 20 years at 7 percent.”

You said you’ve already started taking your Social Security benefits. For others, if they can afford to wait, Lynch said there’s a tremendous benefit because each year you wait, you get an additional 8 percent increase in your annual benefit, compounded with inflation, for life.

“You have to understand that when Social Security was established with 65 as the retirement age in 1935, average life expectancy was 64. You were never really supposed to get the benefit on average,” he said. “Now life expectancy is in the mid 80s and it is possible that you will live much longer than that.”

He said you need to make sure that running out of money is not an option.

“It is better to work a few more years while you are young than be running out of money on the back end,” Lynch said.

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This post first appeared in March 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.