retirement

5 ways to make retirement savings last

This is not your father's retirement.

Chances are, Dad left the company with a gold watch, a pension that included health insurance and a Social Security check he could count on. His life expectancy past retirement was fewer than 10 years -- so those resources weren't stretched.

The picture will be decidedly different for people who retire in the next 20 years -- no watches, no pensions or health insurance in most cases; a shaky Social Security system; and a life expectancy of at least 20 more years.

Even if you've planned carefully and your retirement nest egg is hefty, there's always a possibility that you'll outlive -- or outspend -- your money.

Don't run out
Worried about running out of money? That's a well-founded fear. Take these steps to allay concerns.

1. Buy longevity insurance 

The concept isn't new, but insurance companies have tweaked how these single premium annuities pay out to provide nervous baby boomers with additional cash just when they are likely to need it most.

You give the insurance company a relatively small chunk of change at age 65. The insurance company invests it until you turn 80 or 85 and then begins paying you monthly payments for the rest of your life. A typical policy might cost $25,000 at age 65 and pay out $3,000 per month beginning at age 85.

The money comes at a point in life when you're likely to start having hefty medical bills combined with 20 years' worth of inflation that may have diminished your resources. This approach also makes long-term planning easier because the payout is determined when you buy the policy. You can confidently spend more of your other assets if you know they'll be replenished at a predetermined point.

The biggest drawback is that if the grim reaper comes early, you won't get your money's worth.

"It's really inexpensive," says Ted Mathas, chief operating officer of New York Life Insurance Co., "because half the people will never get there, and if they do, they'll only live three or four years beyond that threshold. So the cost is a fraction of what it might be if they had to manage these assets for 20 years. It provides great security in a defined period of time."

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If instead you decided to manage the money yourself, you wouldn't get any guarantee of income that lasts for many years beyond age 85. For instance, if you kept the $25,000 in a tax-advantaged account earning 8 percent a year, you would have $116,524 in 20 years. If you then started drawing $3,000 a month at age 85, earning 4 percent on the money, it would last slightly more than 3.5 years.

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