Consider an annuity. Traditional pensions generally provide annuity payments that last the rest of your life. Those without a pension can create their own by turning over a portion of their savings to an insurance company in exchange for a promise of lifelong steady payments. "If you buy a solid annuity from an insurance company, it doesn't matter how long you live because you have transferred that risk to the insurance company," says Bodie. When deciding how much of your wealth to annuitize, consider the proportion of your annual expenses that are covered by other sources of income. "You want to make sure that between Social Security and any defined-benefit plan you have and any annuities you purchase that all your basic expenses are covered for the rest of your life," says Jack VanDerhei, research director at the Employee Benefit Research Institute.
Protect yourself from healthcare costs. Medicare will protect you from many, but not all of the healthcare expenses you will incur in retirement. Consider purchasing a supplemental policy to Medicare that fills in some of the gaps that Medicare doesn't cover. Middle-income retirees may also want to purchase long-term care insurance in case they require assisted living or nursing home care, which Medicare alone generally doesn't cover. "Assisted living can be horribly expensive," says Frank Armstrong, a certified financial planner and founder of Investor Solutions. "The very poor are going to be covered by Medicaid and the very rich can afford it, but the middle class needs to insure against long-term care costs."
Draw down smart. Once you accumulate a large nest egg, you need a plan to spend it at a reasonable rate. Armstrong recommends spending 4 percent or less of your savings each year to help ensure that it will last the rest of your life. "If you can't make it with the amount of money that a 4 percent withdrawal rate provides, then maybe you ought not retire," he says. Remember that you will be required to take annual withdrawals from traditional retirement accounts after age 70½ and pay income tax on the amount withdrawn. "The million dollars you think you own in a 401(k) is actually only $750,000 after taxes," says Armstrong.