Money Matters: 3 Steps to Making Your Money Last in Retirement

Pete D’Arruda (Coach Pete),  president of Capital Financial Advisory Group, contributes monthly to the Money Matters column on CaryCitizen.

Cary, NC – Traditionally, we’ve been told that saving diligently during our working years is the key to a successful, comfortable retirement.  Unfortunately, the harsh reality of accumulating a nest egg is only half the battle. Upon retirement, making your nest egg last is the next, and oftentimes more difficult, challenge. However, it is possible!

Here are three steps to prepare for the transition out of the workforce and into retirement.

Step 1: Determine Your Estimated Retirement Income, Then Compare

You can never plan for the future if you don’t know where you stand now. To plan effectively, start by calculating how much you expect to receive from your retirement income sources – Social Security, employer-sponsored plan, personal savings or a combination – both on a monthly and a yearly basis.

Additionally, be mindful of taxes. This is an area many fail to take into account during calculations.

After determining your estimated income, sketch out how much money you anticipate needing in retirement for both everyday expenses and potential expenses (anything from a new roof on the house to long-term care).

Many retirees expect to minimize spending in retirement, which is generally not the case.

Every day is the weekend in retirement, so be realistic about your current spending habits and how they are likely to change.

Step 2: Allocate Your Money Appropriately

It’s unrealistic to expect you will spend the same each year in retirement.

If you plan on traveling during the early, healthy and mobile days of retirement, your initial expenses may soar well beyond your estimates. However, it’s also fair to assume that your expenses will begin to decline at a certain age, as you become less active.

So that begs the question, how do you allocate your money so you can spend it both appropriately and frugally throughout retirement?

A helpful way to do this is through annuity laddering. Each step in the ladder covers a specific period of time in retirement, providing a higher guaranteed return or payout within each step.

Laddering Your Money

Years 0-5: An immediate annuity or enrollment in a conservative bond/CD ladder covers the first five years of desired income in retirement.

Years 5-10: A deferred fixed annuity gives a higher payout. Long-term CDs could be used here, but the rates are usually too low.

Years 10+ : A fixed indexed annuity, which is deferred for 10 years or more, works just like a pension, in that you can take a pension payment or a lump sum at the end of the deferral period.

Using any leftover money not needed to meet lifestyle expenses, invest in the stock market. This is the growth area of your retirement portfolio where you can be more aggressive. It can also be used for inheritance, gifting, etc.

(More information, visit laddering strategies.)

Step 3: Close The Gap

At this stage in planning, you should know whether your retirement income will cover your estimated expenses. Is there a discrepancy? If so, now is the time to clear up and close any income-expense gaps you found in the retirement planning process. This could entail pushing back the date of your retirement or cutting some expenses out of your budget.

Saving for a successful, comfortable retirement is now the responsibility of the individual, but with the right guidance, planning and understanding, the retirement you envision is entirely within your grasp. Preparation is the key.

As always, seek out an experienced, trusted and knowledgeable financial professional for assistance. You want to work with someone who wants to see you accomplish the kind of retirement lifestyle you deserve.


Pete D’Arruda hosts the radio program Financial Safari and is the  president of Capital Financial Advisory, LLC in Cary, North Carolina. In our area, Pete can be heard on WPTF 680am  live Saturday mornings from 7am-8am. He apprears Tuesday mornings on NBC-17 between 6am-7am.

Photo by Glikò