Making Retirement Money Last as Long as You Do Part 2

In my last post, I briefly examined about a half-dozen risks faced by retirees, leading to one of the most challenging financial problems facing anyone who plans to retire: how to pace your income and expenses in retirement. Spend too fast in the early days of retirement, and you run out of money later. Spend too little in the early days, and you under-live your golden years. Thus we want to find the “Goldilocks” level of retirement income—the “just-right” amount to spend each year.

One strategy is to take a three-prong approach. First, allocate whatever level of retirement resources you need to meet your “essential” living expenses (housing, utilities, food, predictable healthcare expenses, etc.). Typical products that can provide lifetime income (or near lifetime income) include immediate annuities and long-term bonds. For example, you could create a portfolio of 30-year treasury bonds. The income from those bonds is about as safe as it gets; if you’re still alive 30 years later when the bonds mature, you could roll them into another set of treasury bonds.

The second prong is to create an additional layer of income that covers the next level of expenses: your lifestyle expenses. These expenses might include travel, hobbies, gifts to charities and family members, etc.—the fun stuff. Typical products that can create lifestyle income include mutual funds, dividend-paying stocks, rental property, CDs, and so forth. In years of bumper-crop income, have your fun; in bad years, you cut back on the fun stuff, but you have the peace of knowing your basic living expenses are always covered by that first layer of income.

The third prong is the “rainy day” fund. Unexpected emergencies will no doubt occur, such as a major car repair, replacing a roof after a storm, a broken hip requiring six months’ stay in a nursing home for recovery, etc. There’s obviously no way to anticipate every type of problem that may arise, but you can nonetheless plan well for these potholes in the road of life. Typical products you can use for rainy day protection include life insurance (health, long-term care), an untapped line of credit on your home, a high-limit credit card with no balance on it, or even an emergency fund with several months’ (maybe even years) of living expenses in it. You could hold your emergency fund money in a money market fund or a short-term CD, for instance.

So even though there is a lot of uncertainty about the amount and timing of your expenses in retirement, the good news is you can still plan for the unknown. In doing so, you can address many of those risks I talked about in the last post. And doing that can lead to greater peace of mind in your retirement years. Though I don’t have a study off the top of my head, I’m sure someone somewhere has done a study showing the positive effects of low stress on aging well. That’s a physical/mental side benefit of handling your money well as a retiree.

The three-pronged approach mentioned here is just a general guideline. Your circumstances are unique, and you’ll want to develop your approach in more detail, customizing it to fit your particular needs. But that’s the nice thing about an approach like this; it can work to some degree for nearly everyone in retirement. And it can help make sure you don’t outlive your money.


About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at
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