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Do you want a reliable retirement income? Use this safer strategy

Do you want a reliable retirement income?  Use this safer strategy

fizkes / Shutterstock.com Editor's note: This story originally appeared on NewRetirement.One of the biggest fears you are likely to have about retire

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Editor’s note: This story originally appeared on NewRetirement.

One of the biggest fears you are likely to have about retirement is whether your money will last as long as you do.

It is likely that you are also asking: How much can I spend? How much do I need? How much do I actually have? There are so many questions.

Good news: the Stanford Center on Longevity in partnership with the Society of Actuaries (SOA) has some answers. They analyzed 292 retirement income strategies and recommended the “safe spending in retirement strategy” as the best way to spend in retirement.

Leading Stanford researchers Steve Vernon, Wade Pfau and Joe Tomlinson wanted to find out which retirement income strategy would give the highest number of retirees the greatest possible income that would last their lifetime.

They also wanted a retirement income system that:

  • Almost anyone can actually implement on their own – without the help of a financial advisor
  • Reduce the risk of volatility
  • Can keep up with inflation
  • Limit the possibility of failure (shortfall)

Here’s what they found out.

Owner with his cat
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The spending safe in retirement strategy is designed to help middle-income workers and retirees decide when to retire, how much to spend in retirement and how to best deploy their financial resources.

The main goal of the strategy is to help you turn your assets – Social Security, ability to work, savings and housing equity – into the most possible retirement income.

Senior man holding money
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You’ve probably read about hundreds of different retirement income strategies. Why is this one different?

Well, to begin with, this concept is suggested by some very smart guys who have done incredible amounts of detailed research and calculations to make this recommendation. Not only are these professionals smart, but they also apply expertise that is not always used in retirement planning.

As the expenditure safely states in retirement reports: “Professionals with investment expertise tend to favor investment solutions that generate retirement income, while professionals with expertise in insurance products tend to favor annuities. Both types of professionals may not consider or advise their clients on other financial resources such as home equity and reverse mortgage lending. ”

Safe spending in retirement strategy is a more holistic approach. There are basically five parts to the strategy.

Social security checks, social security card, cash
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To maximize the value of this benefit means to wait to start until at least your full retirement date. The longer you wait to start social security, the greater your monthly benefit will be.

If you are married, learn about the smartest social security decision you can make.

Stanford researcher Vernon writes: “Social security benefits are an almost perfect generator of retirement income, protecting you from various risks: longevity, inflation, stock market crashes and cognitive decline. It only makes sense to value these maximize essential benefit. ”

Seniors receiving social security payment
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Stanford researchers recommend investing your retirement savings in low-cost mutual funds, target date funds or index funds.

And then use the required minimum spread (RMD) formula to determine your annual withdrawals from these savings. (And do not make withdrawals earlier. But if you do, keep it up to 3.5% of the value of your accounts.)

RMDs start at age 72. You are expected to withdraw a percentage of your savings at this age and this percentage will increase each year.

Man uses laptop and calculator to plan finances
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Now comes the hard part. You need to see if the income from the above sources – as well as a pension if you are lucky enough to have one – is sufficient to cover all your projected expenses.

The more accurate you can be with the projection of your expenses, the more reliable your plan will be. (The New Retirement Planner allows you to set spending in more than 70 different categories and change your spending over time.)

Senior man without money
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Once you have determined how much income you can get by maximizing social security, any pensions you may have, and modest annual withdrawals from savings, and compared it to your projected expenses, you can now start working out how to supplement any deficits.

Spending Safely in Retirement Strategy recommends that you consider postponing retirement, reducing expenses, getting a retirement job, and / or utilizing your home interest to fill in the gaps.

Senior woman with a bag full of lettuce
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If you have significant savings, you may prefer something more sophisticated with your assets: annuities, a bucket approach, varying your withdrawal amounts based on investment returns (applying floor and catch rules), setting up a mortgage ladder, or establishing ‘ a more sophisticated allocation for your assets.

Explore 18 retirement income strategies.

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