How to Make Your Money Last in Retirement

(The following is excerpted from How to Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn. Copyright © 2016 by Jane Bryant Quinn. Reprinted by permission of Simon & Schuster, Inc. All Rights Reserved.)

I started this book because my head was popping with questions about the life phase we call “retirement.” After decades of working, we’re finally free — but free to do what? A whole generation is reinventing itself as it moves away from the role of earner toward the new status of “engaged and interested citizen, retired.”

As we gradually find our footing, we’re also trying to find a way of paying for it. None of us knows how many years we have ahead — 20? 30? More? Last year, my family celebrated my mother’s 100th birthday. (She’s sharp and happy, thank you for asking!)

Centenarians are rare, but our lengthening life expectancies continue to surprise us all. On average, you’ll reach your mid-to-late 80s. The 90-plus population has tripled over the past three decades. So we have every reason to worry that our money will run out before we do.

When you enter retirement’s door, suddenly you have to take the money you’ve saved and turn it into a reliable income for life. These regular withdrawals from your savings and investments amount to “homemade paychecks,” landing in your bank account just the way your working paychecks did.

How large will the income provided by these paychecks be?

In a perfect world, you’ll work on this question well before you leave your job. The answer will tell you when (and whether) you can afford to quit. In today's imperfect world, however, you might be pushed into retirement unexpectedly. Then, you’ll need to figure out, pronto, how to manage with what you already have.

As you contemplate retirement, you’ll want to answer some key questions: What kind of standard of living can you afford? Will you have to keep working? And how do you stretch your savings to make the money last?

When I started asking those questions for myself, I looked around for information. There isn’t much. I did, however, find plenty of bad advice from financial firms and their salespeople (a.k.a. “advisers,” “financial consultants,” and brokerage firm “vice presidents”).

I was shocked when I looked at the menu of so-called “safe” and “guaranteed” investments we’re being offered. They’re loaded with hidden costs and risks. Maybe the firms are unscrupulous, maybe just careless. Either way, people like us — with savings that we need to both hoard and spend — are walking around with targets on our backs. We’re where the money is and, believe me, they’re coming for it, or trying to.

What surprised me — really surprised me— is how simple a retirement income plan can be. So simple that you can manage the investments and withdrawals yourself.

I also learned, while researching this book, that people are often leaving money on the table, particularly when it comes to Social Security. I found people taking it at age 62 — not because they had to but because it was there. They had no idea how much their monthly benefit would increase if they waited a few years to collect.

Then there’s the question of what percentage of your retirement savings to put into stocks (or, rather, stock-owning mutual funds — the best bet for you and me). There’s a lot of research linking the percentage you hold in stocks to the size of the sustainable income you can withdraw from your savings for life.

Having read it, I’ve come to think of retirement as being split in half.

For the first half — the near-term 10 years or so — holding safe or low-risk CDs or bond mutual funds makes a lot of sense. You need a reliable source of money in case stock prices decline.

But to fund the second half of retirement — starting 10 or 12 years from now — you’ll need to own investments that grow, by buying and holding two or three well-diversified stock-owning mutual funds. When you do this, you’ll still be an “income investor.” Future capital gains create spendable income just as interest and dividends do.

While working on this book, I changed my mind about a few things.

For example, I developed a new respect for immediate-pay annuities that convert a lump sum of savings into an income for life. They offer a higher monthly income than you can prudently withdraw from investments that you manage yourself. (Don’t confuse “immediate-pay” with the variable annuities that promise lifetime benefits. “Lifetime benefit” annuities are on my “no” list due to high costs and misleading sales.)

Another example: I learned a new use for reverse mortgages. These loans against home equity are often a poor deal for people in later age, especially for those who have almost run out of cash. But if you take the loan earlier, in the form of a credit line, you can use it to increase the size of your monthly income. The credit line grows every year, which gives you a nice hedge against potential inflation.

A homemade paycheck isn’t intended to cover everything. You need it only to fill the gap between your retirement expenses and your other sources of income, such as Social Security, a pension, rents, part-time work and whatever. Figuring out that gap is the entryway to retirement planning.

Don’t feel bad if you have to trim your expenses so as not to take too much from your savings every year. Almost everybody trims, whether they confess it or not. Peace of mind is finding a way of life that works.

The biggest thing I learned, after digging into this subject for a couple of years, is the significance of our sense of self as we approach or enter this change of life.

We need to find a new way of being — a fresh identity, different passions and pastimes and a deeper involvement with family, community and friends.

We’re not on the shelf (yet!). We have lots to contribute and the time to find our place. What gives us this freedom of mind and action is having an income that we’re sure will last for life. After you build that income, adventure calls.