No one likes the thought of running out of money at a time in life when you have no capacity to earn more. The idea of running out of money before you run out of retirement years is odious to most people. Very few people find themselves with absolutely no money. The government has many programs that make it difficult not to be able to qualify for some type of income if it is needed. You may subsist rather than have a life of ease, but you will have money.
Establish income streams.
These income streams should not be the type that depletes assets. Royalties, dividends, drop ship sales from a web business, and other types of ways to produce income are possibilities. It is never too late to start such an income stream, but starting earlier will give you a better opportunity to make it larger and more durable.
Have a government pension source.
This type of income can come from any source that is dependent upon the government. Social Security, teachers’ pension funds, military and government employee pensions all qualify. These sources will last as long as the government stands. If the government fails, you will have enough other problems that income will just be one of many things you are facing. With one or more of these sources for your income, you will never run out of money. Obviously, you may need a little more than some of these will provide to live the type of lifestyle that you may be envisioning for your retirement years.
Build up significant investments prior to retirement.
Not running out of money does not exactly depend on a large investment portfolio. Actually, the rate at which you have to spend your investments matters more. If you can keep your annual distributions at a low percent of your total investments, you will have income from your investments for many years.
Withdraw at a rate that is less than your interest earned.
If you can earn 5% and withdraw 4%, you will never exhaust these cash reserves regardless of their size. Obviously, larger investment totals means that it is less likely you will use them up prematurely if you have to take extra amounts out from time to time.
Pay your house off before you retire.
Any debt at retirement is a negative for you financial future. A mortgage can be an anchor that is too much to allow you to live freely in retirement. On the other hand, a house that is owned free and clear is a fantastic asset. You can sell it, rent it, borrow against it, or even get a reversed mortgage and turn it into income. Given the large value of most homes, selling the house will float your financial needs for many years if necessary.
You may want to consider an annuity or a large insurance policy.
Most financial planners discourage going in either of these directions. An annuity that pays out a monthly sum starting at a certain age and continuing for the rest of your life is appealing to some people. You have to be careful that you buy one that pays out for as long as you live instead of a definite length of time. This way you do not have to worry about outliving your income. You have to commit a large amount of money to fund the annuity. If you draw on it for 20 or more years, you will pretty much come out good financially.
A large whole life policy can furnish similar security.
Because these policies build cash value, you can tap that money if you need it. Buy a policy that pays for itself after 15 or 20 years. This way it continues to grow without costing you additional money. You can contribute to its value in most cases if you want to do so. During retirement, if you need immediate cash, you can borrow against the equity in the policy or simply cash it in for its cash value.
