How to Make Your Retirement Savings Last 30 Years Without Running Out

You've worked hard to build your retirement nest egg. Now what? How do you make sure your savings last at least as long as you live? There are several things to do. Here are the three most important.

Don't forget you still need investment growth

It's easy to assume the right thing to do the day after you retire is simply convert all of your growth holdings into income holdings. That's not a winning strategy, though. The fact is, most people will need a combination of growth and income once your work-based paychecks stop. How much of either depends on your situation, although a 50/50 allocation isn't a bad target to start with. Adjust accordingly based on your age, the amount you've saved up, and your income needs.

Just keep in mind this growth needs to be reliable even if it means somewhat muted gains -- you can't afford to take major investment losses in retirement. Also remember there are plenty of dividend-paying stocks that also produce respectable capital gains.

Organize your savings into "buckets," each with a different purpose

While you were contributing money to a retirement account for the purpose of producing capital growth, holding different stocks and funds in the same account worked fine. After all, they were all owned with the same goal in mind.

When you've got multiple goals for your money in retirement, though, it's tricky to know if you're on the right track. It may actually be easier to separate your assets into multiple accounts -- or "buckets" -- each with its own distinct purpose. For instance, many retirees have a short-term account with nothing but a year's worth of cash needs in it, an intermediate-term account that generates reliable income, and a long-term account that's strictly for growth investments. As time marches on, money flows from longer-term buckets to shorter-term ones.

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The biggest of these accounts, of course, is usually going to be the intermediate-term account that achieves some growth, but is mostly intended to continually replenish the short-term cash account.

Sure, you could do the same within one single account. Again, though, doing so can be tricky. The use of distinct buckets ensures you're remaining on track while also managing your risk.

Start with a withdrawal of 4%, and then increase this amount every year in step with inflation

Finally, some financial planners suggest it's possible to begin living on your retirement savings by withdrawing more than 4% of your nest egg in the first year of retirement, and then raising this annual withdrawal amount rate for the next 29 years by the prevailing inflation rate in those years.

But, it's better to be safe than sorry -- starting with just 4% of your portfolio's value is a well-proven rule of thumb. As an example, if you've saved $1 million for retirement, a 4% withdrawal means taking $40,000 out of your account in your first year of retirement. If inflation is 3% in the following year, that year you'd withdraw $41,200 from your retirement savings, and so on. Your nest egg may still shrink over time, but you'll leave enough invested to significantly limit how quickly it might get smaller

Just know that this model assumes a quality 50/50 (stocks/fixed income) allocation.