How Can I Make $950k in an IRA Last for Life at Age 68?

To address longevity risk, consider weighing your portfolio with income assets. These are assets such as bonds, dividend-stocks and savings accounts, which generate returns without having to sell the underlying asset. While all investments have risk, successful income assets can provide indefinite portfolio income, albeit at a relatively low rate compared to their investment counterparts.

Annuity contracts are a potential income asset option for retirees. These are contracts that can guarantee a fixed payment for life. For example, a $950,000 annuity contract purchased at age 68 could, in theory, generate $6,360 per month or $76,320 per year, according to Schwab’s income annuity calculator.

However annuities, and all other income assets, typically expose your portfolio to inflation risk. Without significant growth, your portfolio will lose purchasing power over time.

A financial advisor can help you build a retirement income plan with taxes in mind. Talk to an advisor today.

To address this risk, it’s often wise to balance your retirement portfolio with some equities and other growth-oriented assets. Typically, a possible way to do this is through mixed-asset funds like an index fund or a mutual fund. These portfolio-based assets can give your retirement account exposure to growth investments, while mitigating the risk involved with selecting equities on a more singular basis.

Spending and Taxes in Retirement

If income is one half of managing longevity risk, spending is the other. First look at your tax situation.

With a pre-tax, traditional IRA or 401(k), you will need to pay income taxes on every withdrawal you make. That will reduce your effective rate of income and can also increase your Social Security benefit taxes. You can mitigate this by rolling over your IRA into a Roth IRA, but that would involve sacrificing a significant portion of the account to up-front income taxes.

If you keep your money in a pre-tax IRA, don’t forget to anticipate required minimum distributions (RMDs). With our example, your $950,000 IRA is the only form of retirement account you have, so it’s unlikely that you will withdraw less than your annual RMD. Once you reach age 73, just make sure to remember that this minimum exists, since the tax penalties for neglecting it can be severe.

Beyond that, consider the lifestyle you want. When it comes to making a retirement account last, much of the issue will be decided by how much you spend. A few key issues include:

• Do you own your own home or rent?

• Do you live in an expensive or inexpensive city?

• Can you comfortably move to extend your savings?

• What kind of luxuries and hobbies do you enjoy?

• Do you have particular medical needs?

• What kind of regular bills do you carry?

• Do you already have long-term care and supplemental health insurance?

• What kind of estate plans do you have?

All of these issues will determine your needs and flexibility in retirement. For example, someone living in a small town will likely find a $950,000 IRA more than enough for a comfortable retirement even with minimal portfolio growth. Someone living in an expensive city, on the other hand, may need to invest for significant gains in order to afford their standard of living. A financial advisor can help you determine your needs and an appropriate strategy for your goals.

To make sure your savings last the rest of your life, look at your rate of spending and your projected portfolio income. If this looks like something that can comfortably last well into your 90s, you’ve probably hit the right balance. If not, consider either investing for more growth with a plan for the accompanying risks or finding areas to cut spending.

Tips for Managing Your Portfolio in Retirement

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• As a retiree, don’t forget that it’s important to keep investing even in retirement. After all, ideally you will have anywhere from 25 to 30 years to enjoy the returns from your portfolio. Check out SmartAsset’s guide to retirement investing to learn more.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

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