Retirement isn’t just about leaving the workforce—it’s about ensuring your savings last as long as you do. According to the Congressional Budget Office (CBO), the average 65-year-old in the U.S. today can expect to live another 20 years, reaching age 85. With longer lifespans comes a greater need for financial security, making it more important than ever to have a strategy that sustains you through every stage of retirement.

Whether you’ve spent decades growing your wealth or are just starting to map out your retirement strategy, the key is making your money work for you. Let’s explore the smartest ways to stretch your savings, secure your income, and enjoy the retirement you’ve earned—without financial worry.

The Importance of Retirement Income Planning

For many Americans approaching retirement, the goal is to maintain the lifestyle they’ve grown accustomed to, but for those with significant wealth, there are added layers to consider. Your retirement income needs may be more complex than others due to multiple streams of income, investment accounts, properties, and other assets. Without careful planning, you may face the risk of running out of money in your later years.

According to the 2024 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), 74% of retirees report feeling confident about having enough money to live comfortably throughout their retirement years. However, the same survey indicates that many retirees are facing financial challenges, with over two-thirds reporting struggles with credit card debt, a significant increase from 40% in 2022. 

Additionally, nearly one-third of retirees are spending more than they can afford, up from 17% in 2022. For those with substantial wealth, these figures underscore the importance of a robust strategy that aligns with both their lifestyle and financial goals.

1. Develop a Sustainable Withdrawal Strategy

One of the most important aspects of helping ensure your wealth lasts is establishing a sustainable withdrawal strategy. This strategy dictates how much you can safely withdraw from your retirement accounts each year without depleting your savings.

A popular rule of thumb is the 4% rule, which suggests that withdrawing 4% of your portfolio per year can provide you with income for at least 30 years. However, this rule may not be as reliable for individuals with a more complex financial situation, such as those with significant wealth or high-income needs.

A more personalized approach may involve adjusting your withdrawal rate based on factors like:

• Life expectancy: The longer you expect to live, the more conservative your withdrawal rate should be.
• Investment performance: While past performance doesn’t predict future results, understanding the risk level of your portfolio is essential. A well-diversified portfolio that includes both growth and income-generating assets can help manage risk.
• Inflation: Over time, inflation erodes the purchasing power of your money. A strategy that accounts for inflation can help preserve your standard of living.
• Health care needs: Health care costs tend to rise as you age. Planning for these expenses can help ensure that your health needs are met while maintaining financial stability.

2. Diversify Your Income Streams

For wealthy retirees, the importance of income diversification cannot be overstated. With the right planning, you can create multiple streams of income to help support your retirement goals.

Here are some ways to diversify your income:

• Investment portfolios: By maintaining a diversified portfolio with a mix of stocks, bonds, and alternative investments, you can potentially reduce the risk of putting all your money into one asset class. Stocks may offer long-term growth, while bonds can provide stability.
• Real estate income: Many wealthy individuals own rental properties, which can help provide a steady income during retirement. If you’re considering relying on real estate, make sure the properties are well-maintained and in desirable locations.
• Dividends and interest: High-net-worth individuals often rely on dividends from stocks or interest from fixed-income investments. These income sources provide reliable cash flow with less volatility than equities.
• Annuities: For those looking for guaranteed income, annuities can provide a predictable income stream for a set period or for life. While certain annuities may not be right for everyone, they can offer peace of mind for those who want to help eliminate the risk of outliving their money. Ask your advisor about what annuities are best for your financial situation.

3. Be Mindful of Taxes in Retirement

Taxes can be a significant drain on your wealth, and many retirees overlook the impact that taxes will have on their income. Planning for taxes is essential to help preserve your wealth in retirement.

• Tax-efficient withdrawals: When you withdraw money from your retirement accounts, such as IRAs or 401(k)s, those withdrawals are typically subject to income tax. To help minimize the tax burden, you may want to withdraw from tax-deferred accounts more conservatively while tapping into tax-efficient investments.
• Roth conversions: Converting traditional IRAs to Roth IRAs can also help reduce future taxes. While you’ll pay taxes on the conversion, Roth IRAs allow for tax-free withdrawals in retirement.
• Capital gains: Selling appreciated investments could result in capital gains taxes. For high-net-worth individuals, it’s essential to consult with a tax professional to help identify opportunities for tax planning strategies, like tax-loss harvesting.
• State taxes: Some states have more favorable tax policies for retirees. It’s important to consider your state of residence and how it may affect your retirement income. States like Florida and Texas don’t have a state income tax, which can help reduce your tax liability.

4. Plan for Long-Term Care and Healthcare Costs

As you age, the likelihood of needing long-term care increases. Healthcare and long-term care expenses can quickly deplete your retirement savings if you don’t plan ahead. In Arkansas, long-term care costs are generally lower than the national average, with assisted living averaging around $4,146 per month and nursing home care ranging from $110,360 for a semi-private room to $123,913 for a private room annually. For “skilled nursing care” (Skilled nursing care goes beyond basic assistance with daily living and focuses on medical and rehabilitative needs that require the expertise of trained professionals) the median cost for a semi private room in Arkansas is $7,422, and $8,390 for a private room. Here are some options for covering these costs:

• Long-term care insurance: This type of insurance can cover services such as nursing home care, home healthcare, and assisted living. When purchasing long-term care insurance, it’s important to understand the coverage limits and exclusions.
• Health Savings Accounts (HSAs): If you have a high-deductible health plan (HDHP), an HSA can be an excellent way to save for future medical expenses. Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
• Medicare: While Medicare can cover some healthcare costs after age 65, it doesn't cover everything. Understanding what Medicare covers and how it works with other health insurance can help you avoid surprise out-of-pocket expenses.
• Medicaid: Medicaid is a joint federal and state program that helps with medical expenses for low-income individuals. However, qualifying for Medicaid requires you to meet income and asset limits, and the eligibility requirements vary by state.

5. Protect Your Wealth With Estate Planning

Estate planning isn’t just about passing on your wealth; it’s about helping ensure your assets are protected and your wishes are honored. A well-thought-out estate plan is essential for helping ensure your money lasts for generations.

Some key components of estate planning include:

• Wills and Trusts: A will dictates how your assets will be distributed after your death. On the other hand, trusts can help minimize estate taxes, avoid probate, and protect assets for beneficiaries.
• Power of Attorney and Healthcare Directives: These documents allow you to designate someone to make decisions on your behalf if you become incapacitated.
• Charitable Giving: For some retirees, charitable giving is an important part of their legacy. Charitable giving strategies, such as donor-advised funds, can help you support causes you care about while receiving tax benefits.

6. Review Your Financial Plan Regularly

Retirement isn’t a one-time event—it’s a phase of life that requires continuous planning. As markets fluctuate, tax laws change, and life circumstances evolve, it’s essential to review your financial plan on a regular basis to help ensure that you remain on track.

Regular reviews with a financial advisor can help you make adjustments to your strategy, update your estate plan, and help ensure that your income streams are aligned with your goals.

Final Thoughts

Making your money last in retirement requires careful planning, diversification, tax efficiency, and estate planning. For high-net-worth individuals approaching retirement, this task is often more complex due to the variety of assets and income sources they have accumulated. At NJM Wealth Preservation Strategies, we’re experienced in helping wealthy retirees navigate these complexities and build a retirement strategy that helps ensure their wealth lasts and supports their desired lifestyle.

If you're approaching retirement and want to discuss your financial goals, please reach out to us today for a consultation.

Frequently Asked Questions (FAQs)

1. How do I know if my withdrawal rate is too high or too low for my retirement goals?

Your ideal withdrawal rate depends on several factors, including your life expectancy, investment returns, income needs, and any unforeseen costs, such as healthcare. It’s best to work with a financial advisor who can analyze your specific situation and recommend a sustainable withdrawal rate tailored to your unique financial goals.

2. Should I invest in international stocks in retirement, or should I focus on domestic investments?

While diversification is key to a healthy investment strategy, the decision to include international stocks in your portfolio depends on your risk tolerance and retirement goals. International investments can provide growth opportunities, but they also come with risks, such as currency fluctuations and geopolitical factors. Balancing your portfolio with both domestic and international investments can provide exposure to different markets and asset classes.

3. How do I account for inflation in my retirement planning?

Inflation erodes purchasing power over time, so it’s important to plan for increasing costs in the future. One strategy is to invest in assets that traditionally outpace inflation, such as stocks or real estate. Additionally, consider inflation-adjusted withdrawal strategies or products like inflation-protected securities to help ensure your income keeps pace with rising costs.

4. Can I still contribute to my retirement accounts once I retire?

It depends on the type of account. If you are over 50, you can continue contributing to retirement accounts such as IRAs or 401(k)s if you are still working. However, once you retire, you can no longer contribute to these accounts unless you have earned income (from part-time work, for example). Consider exploring options like Roth IRAs for tax-free growth and future withdrawals if you qualify.

5. What happens if I outlive my retirement savings?

It’s a valid concern, but planning ahead can help reduce the risk. If you outlive your retirement savings, consider income sources like annuities, which can provide guaranteed lifetime income. Additionally, revisiting your withdrawal strategy, downsizing your home, or working part-time during retirement are other options to help ensure your funds last longer. Planning for longevity and reviewing your retirement strategy regularly can help mitigate this risk.

Disclaimer

NJM Wealth Preservation Strategies does not provide specific investment advice or endorsements. This article is for educational purposes only and should not be interpreted as personalized financial advice. All investments carry risks, including the potential loss of principal. Please consult with a licensed professional to determine the best course of action for your unique financial situation.