Make your savings last

Key Points

  • Determining a realistic withdrawal rate is critical.
  • Health care can be one of the largest expenses for retirees; be sure to plan for it.
  • Have an emergency fund that covers at least six months of expenses.

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

According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Individuals who reached age 65 in 1950 could expect to live an average of 14 years more, to age 79; now a 65-year-old might expect to live for roughly an additional 19 years.

A long life can be 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."

Here are some strategies to consider that may help.

Determine a sustainable withdrawal rate

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.

How much can you afford to withdraw from your savings each year will depend 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 percent 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 and revisit your withdrawal rate frequently.

The impact of withdrawal rates over a 30 year period

Plan 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. A 65-year-old couple, both with median drug expenses, would need $255,000 in 2013 to have a 90 percent chance of having enough money to cover health care expenses (excluding long-term care) in 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.

Prepare 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.