Retirement 101: Making Your Savings Last as Long as You Do

We spend a lot of time swinging away at ballpark figures for how much money we're going to need for retirement. We run the numbers, talk to financial advisers and stash away as much as we can every month, hoping to hit the 15% of your income that people like me recommend.

For some reason I've yet to figure out, we spend a lot less time thinking about how we're going to withdraw that money in retirement and, more important, what we'll need to do to make the money last as long as we do.

The fact is, we are living longer. People you know -- your parents, grandparents, family friends -- may be cruising past age 85 or 90 with little to no trouble, and that means you have to think about the possibility that you might do the same. You don't want to spend your last five or 10 years struggling to make ends meet. Here's how to cover your bases:

Find Your Target. Listen, a lot of retirement planning is based on estimates. There's just no way around it, because we can't predict exactly how long we're going to live or what we're going to spend. What we can do is err on the side of caution, and then make adjustments along the way as needed. So, start by figuring out your life expectancy. Various calculators on the Internet can help you do it, but I like this one. If that's too technical for you, you can take a stab at a number based on how long family members have lived, your medical history and your current health. In any case, however, I'd plan on living to at least 90 or 95.

Remember Social Security. You're going to get a check from the government every month (if you're lucky, you may also get a pension), and that should absolutely be factored into your budget.

"I look at retirement income as a bicycle," says David Petersen, a certified financial adviser and president of Financial Services Advisory in Maryland. "You get it from two sources -- the front wheel is the guaranteed income from Social Security or a pension if you have one, and the back wheel is your nest egg. For the bicycle to be balanced, you have to take a look at what's in the front wheel, and then the back wheel is complimenting that." If you're getting a lot of monthly income from those other sources, you can pull less from your retirement savings.

Set a Withdrawal Rule.
When it comes time to start distributions, you're essentially giving yourself an allowance. "I tend to use 3% or 4% as a withdraw rate, depending on what their current age is. I use that to allow for a cost of living adjustment and to cover unexpected expenses and market drops," says Petersen. If you're a bit older when you start taking distributions -- maybe you'll work into your 70s -- you may be able to push the envelope a bit. And remember that the percentage you withdraw is a moving target: When the market is down, your 4% may be less than it was the year before. Adjust your spending accordingly.

Don't "Set It and Forget It." Even though you're adhering to your rules, you need to check in with your portfolio once a year or so and make sure your money is still on track to last. You can run the calculations yourself, or use this tool on T. Rowe Price's website.