03/16/2009
Making Your Money Last
Good Financial Habits Will Help You and Your Money Go The Distance
Just as healthy habits, such as regular exercise and a balanced diet, can help you live a long life, healthy financial habits could help your money go the distance with you.
How Long Will You Live?
The average 65-year-old American male now can expect to live to age 82 and the average 65-year-old female to age 85.1 Nearly one-third of all women and one-fifth of men age 65 can expect to reach age 90.2 Even living to 100 is becoming more and more common, due in part to improved medical diagnosis and treatment.
To get a sense of how long you might live, go to www.livingto100.com. Take a few minutes to answer the quiz. Then, click on your results and learn how you can improve your health and live longer.
How Long Will Your Money Last?
Living a long life is a great goal, but you’ll need a healthy supply of money to go the distance with you. Follow these good financial habits to increase the likelihood that your money will last as long as you will.
- Set clear goals. Make short-term and long-term goals — and write a brief financial plan to reach each goal. Try to stick with the plan, even though the market sometimes provides a rocky ride.
- Eliminate debt. Maintain a healthy balance sheet and a clean bill of financial health. If you accumulate debt, especially high-interest rate credit card debt, pay it off as soon as you can.
- Live within your means. Pay off all monthly bills. Don’t overspend. Track all your spending for a month and evaluate which expenses are truly necessary. Then cut out the rest.
- Save diligently, invest wisely. Start saving early on and keep putting time and the power of compounding on your
side as you build long-term financial strength. - Pay yourself first. Make it your top priority to save for the future throughout your working years.
- Monitor your asset allocation. Set and maintain an appropriate mix of investments throughout your life. Your needs, goals and risk tolerance may shift gradually as you age, but you will always benefit from broad diversification.3
- Conduct an annual financial checkup. Review your overall financial wellbeing, with a particular focus on your investments. Evaluate how well they perform vs. similar investments. And review your asset allocation, rebalancing it as needed.
- Withdraw safely. To give your money a good chance of lasting as long as you will, withdraw it at a “safe” rate. Limit annual withdrawals to four to five percent of your initial retirement account balance. Then adjust for the rate of inflation. This will give your nest egg a better chance of lasting 30+ years.
- Protect against long-term care costs. Being ill for a long period can be a big financial burden. With health care costs tending to rise faster than overall inflation, it can be worthwhile to investigate long-term care insurance. It can protect your assets and spare your loved ones from having to be your fulltime caregivers.
- Annuitize some money. To create a lifetime stream of income, buy a fixed annuity with some of your savings. Calculate your fixed monthly costs. Subtract your Social Security benefits. Then, purchase an annuity to cover the difference. Use the rest of your savings to pay for discretionary and variable items.
- Life expectancy, National Center for Health Statistics, www.cdc.gov/nchs/fastats/lifexpec.htm.
- Society of Actuaries Retirement Participant 2000 Table, as cited at: https://personal.vanguard.com/us/planningeducation/retirement/PEdRetPicLongRetireContent.jsp.
- Diversification does not ensure a profit or protect against loss in a declining market.
