Make your savings last

  • Your money may need to last longer than you expect.
  • Determining a realistic withdrawal rate is critical.
  • Some retired couples may spend a total of $365,000 - $454,000 on health care1.
  • Your emergency fund should cover six months of expenses.

In retirement

You've worked hard and saved for the future — now you need to make sure your savings last the rest of your life. By understanding the risks you face, you can make smart choices about how much to withdraw and how to handle unexpected financial challenges.

The financial implications of a long life

A long life is a wonderful thing. But it does add a challenge to retirement planning. According to Craig Brimhall, Vice President of Retirement Wealth Strategies for Ameriprise Financial, "The biggest risk that future retirees face is running out of money — and losing financial independence. You've got to plan ahead so your money lasts as long as you do."

These statistics from the Society of Actuaries2 support his point:

  • 82% of couples who are both at least age 65 can both expect to live until at least age 85.
  • 60% can expect to live until 90.
  • 33% can expect to live to 95.

A smart, conservative withdrawal plan can help. Working with a financial advisor to decide how much to withdraw, which accounts to take the money from, and when to do so can help secure a comfortable retirement for you and your spouse or partner, and help ensure your retirement income lasts as long as possible.

Determining a sustainable withdrawal rate

How much can you afford to withdraw from your savings each year? While it depends on your individual needs, many retirees have an unrealistic idea of the amounts they can withdraw annually without running out of money. Aggressive withdrawals are generally unsustainable — especially when the markets are down.

In reality, withdrawing 4% to 5% in the first year, with cost-of-living adjustments to the payment amount in subsequent years, may be realistic for many people over the long term, as shown in this chart. However, it is advantageous to take the smallest possible amount.

Maximizing your IRA - 10 years
Withdrawal rates
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Planning for health care expenses

The cost of health care in America is rising astronomically. Combined with longer lives and less insurance coverage, this presents a potentially huge expense for retirees. What can you do?

A good approach is to factor health care costs into your retirement expenses. By 2020, a 65-year-old married couple without an employer-based health plan and with median drug expenses could need a total of $365,000 to $454,000 for insurance premiums and out-of-pocket medical expenses during retirement.1

By accounting for these expenses in your retirement plan, understanding your options for Medicare or other health care solutions, and/or securing long-term care insurance, you may be able to avoid tapping your other savings.

Preparing for the unexpected

While no one can predict the future, you can prepare by taking a few simple steps. For example, always keep enough cash to last six months easily accessible. With this cash reserve available, you may not have to deplete your main savings in the event of an emergency, or be required to liquidate longer-term investments.

Your Ameriprise financial advisor can help you develop a plan for making your savings last as long as possible, protecting your assets from health care expenses and preparing you for unexpected events with easily accessible savings accounts. To learn more, find an Ameriprise financial advisor in your area.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

1 Source: Employee Benefits Research Institute (ebri.org) December 2010 Issue Brief No. 351. Savings needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-of-Pocket Drug Expenses for Retirement at Age 65 in 2020. Based on couples age 65 in 2020 without an employer-based health plan and with median drug costs who choose to save in the 75 - 90 percentile. Does not include long-term health care costs.

2 Source: Society of Actuaries' Annuity 2000 Mortality tables. Copyright 2009 by the Society of Actuaries, Schaumburg, Illinois. Posted with permission.