Even if you were smart (or lucky) enough to have a comfortable retirement nest egg, you may still worry that it may not last you through what may be 30 years of retirement. As many retirees and pre-retirees saw in 2008, one unexpected financial disaster can devastate your life savings.
And many others have discovered that even the best-laid plans for retirement can be ripped apart by an unanticipated medical crisis.
Not to worry. We talked to financial planning firms, big and small, across the United States, and asked for their best tips to help retirees protect, preserve and grow their retirement savings.
There are the easy ones, like once you turn 50 you can take advantage of the catch-up contributions to your 401(k) ($5,500) and IRA ($1,000). You can delay taking Social Security until you’re 70 because each year you wait, your benefit will increase by 8%. Or you can increase your savings rate.
“I see people putting away 1% or 3% of their salary,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity Investments. “People have to realize that is probably not enough to maintain their lifestyle in retirement. We’re talking about 10% to 15% of your current income.”
Besides increasing your savings, here are a few other tips:
1. Have an emergency or “rainy day” fund outside of your retirement account.
Some retirement planners say retirees should have six months to a year of living expenses outside of your retirement accounts.
“Rainy funds are absolutely important,” says Srinivas Reddy, senior vice president and head of full-service investments at Prudential Retirement. “You need to have a rainy-day fund that covers 90 to 180 days of living expenses, not only so you have a safety net, but so you don’t draw from longer-term investment savings for retirement.”
Jeremy Kisner, president of Surevest Wealth Management in Phoenix, says his company recommends four to five years of living expenses insulated from the stock market — and they put the money in a laddered bond portfolio. That account is where your annual living expenses are drawn from.
“As you spend your money for this year, you have to replenish it (from the growth accounts),” he says. “In a typical year you are harvesting gains and dividends from growth side, and replenishing your safe money in the income segment.”
That offers his clients five years of “reliable” income. They did not have to worry about withdrawing funds after the crash in 2008. And by the time they had to transfer money from those retirement accounts, the market had recovered, he says.
But that rainy day money should not be in cash, says Nicholas Yrizarry, president and CEO of Nicholas Yrizarry Wealth Management Group in Laguna Beach, Calif. “Money in cash is a negative investment. There is no return after taxes and inflation. Be careful not to put too much money in cash.”