Top5 Ways to Make Retirement Last

By Kelli B. Grant,
SmartMoney.com

SAVING UP FOR retirement is a worry that hangs over the heads of most working Americans. And with the average life expectancy for men hitting 75 and for women 80, making sure your hard-earned retirement savings last is a well-founded concern.

Try these five tips to preserve the "gold" in your golden years:

1. Scale Back Spending

Which to buy first: top-of-the-line golf clubs, a speedboat or a vacation home in Key West? It's a tough choice, but without careful planning "none of the above" might have to be the answer. "Some people see retirement as a green light to do every bit of spending that they never did while they were working," says Gary Schatsky, a fee-only certified financial planner based in New York City. "But to make retirement last, you need to spend less, spend less, spend less."

That's not to say you shouldn't enjoy your work-free days -- just resist the urge to treat the contents of your accounts like mad money. Withdrawing too much, too soon leaves you with lower balances and less potential to earn retirement-sustaining returns. And forget about that cushy 15% income tax rate most retirees are eligible for, warns Schatsky. As soon as you have more than $63,700 in retirement income, the tax rate skyrockets to 25%.

Impact: To you, nothing says "retired" like a fast, wind-in-your-hair drive to the beach in a swanky convertible. Forgo the brand-new 2007 BMW 3-Series (MSRP $49,100) in favor of one that's coming off a two-year lease ($37,300). You'll save 24%, and leave $11,800 of your retirement stash untouched. As part of a $250,000 portfolio growing tax free and earning 8% annually, that's an extra $29,138 (including $17,338 in earnings) over five years.

2. Admit You're a Senior

"No one likes to admit that they're over the hill; that they're a senior citizen," says Joan Rattner Heilman, author of "Unbelievably Good Deals and Great Adventures That You Absolutely Can't Get Unless You're Over 50." Her advice: "Get over it." Senior discounts kick in when you're as young as 50 -- and can add up to significant savings. Modell's and Banana Republic both offer discounts of 10%, for example, while Marriott reduces its room rates by 15%. If you're self-conscious about announcing your senior status to the entire store, consider signing up for AARP, suggests Heilman. The annual membership quickly pays for itself. Plus, presenting your ID card at the register is a quick (and silent) way of inquiring about discounts. (Click here for more memberships worth signing up for).

Impact: A roundtrip adult ticket on Southwest Airlines from Washington D.C. to Seattle on Sept. 13-16 costs $698. A senior ticket, for fliers ages 65 and older, is just $328. You'll save 47%.

3. Be (Somewhat) Aggressive

Two things determine the success of your assets post-retirement: the percentage of stocks in your portfolio, and the market's performance immediately after you retire Considering that it can be tough to control the latter, most retirees are far too conservative with their investments, says Richard Salmen, a certified financial planner based in Overland Park, Kan. (Click here for more ways to manage your retirement money).

"We're talking about 30 to 40 years of your life where you're not earning money," he notes. New retirees should still have 50% to 70% of their portfolio in equities to offset inflation and bolster balances as money is withdrawn. Balance out the risk with diversification in both your bonds and stocks. "That's critical," says Salmen. "Retirement isn't the time to put everything in small caps, or have your money chase a hot new investment."

Impact: Stocks have an average annual return of 12%; bonds, 5%. By that measure, a 65-year-old retiree with $250,000 in tax-deferred retirement accounts could expect it to grow by $141,979 over five years if he kept assets split 60/40 between stocks and bonds. In comparison, moving to a much more conservative asset allocation of 20/80 between stocks and bonds would reel in just $93,373.

4. Hands Off the Roth

The math is simple: The longer you leave your Roth accounts untouched, the more tax-free cash you'll have to play with when you eventually make withdrawals. "You don't want to forgo what could be decades of tax-free growth," says Schatsky. Pull from your tax-deferred IRA and 401(k) accounts first, dipping into the Roth accounts only if you need distributions of more than $63,700 annually -- at which point pulling more from your taxable accounts would bump you from the 15% tax bracket up to 25%.

Impact: Start tapping into your $100,000 Roth IRA balance at age 65 with $10,000 annual withdrawals, and you'll run out of cash in a little more than 14 years -- even with the account earning an 8% annual return. Leaving the account untouched for five years buys you an additional $46,933. >

5. Cut Prescription Costs

"If you get past age 65, you're going to need health care," says Marc Steinberg, deputy director of health policy for Families USA, a consumer advocate. "Even the baby boomers won't be young forever." With the average senior regularly taking three brand-name prescription drugs for a chronic condition, drug costs are nothing to sneeze at.

Start by talking to your doctor. "Doctors tend to think about the drugs they're most familiar with first," says Steinberg. "They're not necessarily thinking about cost, but may be able to come up with an alternative -- cheaper -- drug that works just as well if you ask." Buying generics is one cost-cutting solution, as are larger doses that can be halved with a pill splitter.

Another consideration is where you purchase you prescriptions. Mail-order options can provide up to three months' worth for a fraction of the per-month pharmacy price. Also, Wal-Mart and Target both offer $4 co-pays for more than 200 generic drugs. Rite Aid knocks 10% off prescription costs for seniors through its free Living More program.

Impact: Seniors cough up an average $1,495 out of pocket for prescription drugs each year, according to the Kaiser Family Foundation, a nonprofit organization that provides information and analysis on health-care issues. Picking the right prescription drug plan can save you 28%, or $419 a year. Snag Rite Aid's 10% discount and save an additional $108. Total annual savings: $527, or 35%. (Click here for more tips on retiree health-care options.)


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