6 Ways to Make Your Retirement Accounts Last Longer

Here is how to stretch shrunken retirement accounts to finance the rest of your life

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Once you retire, you have to make sure your nest egg lasts the rest of your life. It takes shrewd calculations and a even bit of luck to fund your own 30-year retirement in the best of times. But the stock market dive has thrown the delicate balance of managing your own retirement accounts off kilter. If market losses or an unexpected expense has bruised your nest egg, here are some ways to make it last longer.

Postpone withdrawals. Seniors over age 70 1/2 will not be required to take distributions from 401(k)s, IRAs, and 403(b)s in 2009. This will allow retirees who don’t need immediate access to their retirement accounts an opportunity to avoid selling low.

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Reexamine withdrawal rates. If you withdrew 4 percent for your portfolio last year, the same amount of money could be a significantly bigger chunk of this year’s account balance. For example, a 67-year-old recently retired couple with $750,000 could have withdrawn $30,000 annually, which is generally considered sustainable over the long term. But if their account balance dropped to $630,000, the same $30,000 in income now requires almost a 5 percent withdrawal rate, which means their nest egg won’t last as long. Consider withdrawing 4 percent of the new account balance this year. “Your withdrawals should be 4 percent, and that is designed to have a high probably of making your money last over a 20 to 30 year retirement,” says Rande Spiegelman, senior vice president of the Schwab Center for Financial Research.

Save your raise. Many seniors living off their portfolio give themselves raises every year to keep up with rising expenses. But if you can live without the increase for a few years, try to, especially if your portfolio has lost a significant amount of money. “Not taking any cost-of-living adjustments on withdrawals for a 5 year period would better enable a conservative portfolio to last throughout retirement,” says Ken Hevert, vice president of retirement income product management for Fidelity Investments.

Delay claiming Social Security. Social Security is calculated based on your 35 highest earning years in the workforce. Each year you work in your 60s replaces a lower earnings year from your 20s in the calculation, assuming you make more money now than you did in your 20s. Benefit payouts further increase by approximately 7 to 8 percent for each year you delay claiming between age 62 and 70. Maximizing your initial Social Security payment will also increase the dollar amount of your annual cost-of-living increases.

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Revisit your budget. If you don’t have a way to boost your income, slashing expenses is the other alternative to make your nest egg last longer. Cut your monthly bills as much as possible, perhaps by downsizing to a smaller house, moving to an area of the country with a lower cost of living, cutting back from two cars to one, and using coupons and senior discounts as much as possible.

Work part-time. Working during the traditional retirement years isn’t much fun, but it can allow you to delay tapping your nest egg or to withdraw smaller amounts. Seniors who have already signed up for Social Security and who are younger than their full retirement age (age 66 for baby boomers turning 62 this year) can earn up to $14,160 without penalty in 2009. Above that amount, 50 cents of every dollar is deducted from your check. In the year you reach your full retirement age the earnings limit increases to $37,680, and your check is only reduced by 33 cents for every dollar earned above that amount. After your birthday passes that year you can earn any amount without penalty. And your benefits aren’t withheld forever. If your checks are reduced by earnings, they will be recalculated to a higher amount when you reach your full retirement age. Try to find a part-time job or consulting work that you enjoy to make the time pass faster.

Tell us, what will you do to make your nest egg last longer?