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Smart strategies, careful planning extends life of retirement funds

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How long will you live? It’s a key question in retirement planning. If you’re healthy and your family tree has branches with staying power, you may figure that you have decades ahead. If your parents died early of natural causes, you may assume a shorter life.

Yet research shows that behavior is more crucial than genes in determining longevity. If you are eating better, smoking less, and exercising more than your parents did, there’s a good chance you’ll live longer than they did.

You’ll also need to consider how much money to live on. With low expenses you may be able to get by with as little as 55 percent of your preretirement income. But based on a survey of recently retired readers, Consumer Reports estimates that 85 percent of income from your last year of work is about right.

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So how can you ensure your nest egg’s longevity? Here are smart steps:

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Put off claiming Social Security. Delaying Social Security is the least costly way to boost income later in life. For instance, folks born in 1949 — who are now reaching “full retirement age” —can earn a benefit that’s 8 percent higher each year they delay, up to age 70.

Strategy: At the least, wait to claim until your full retirement age, which ranges from 66 (for people born from 1943 to 1954) to 67 (for people born in 1960 and later).

Buy a simple annuity. Consumer Reports’ surveys of retired readers show that having a pension — guaranteed income — correlates with satisfaction in retirement. As traditional pensions disappear, insurers are stepping up their marketing of annuities, which promise pension-like, lifetime income.

Strategy: The smaller your nest egg is, the less you’ll want to devote to an annuity, which effectively locks up your savings. Wade Pfau, a professor of retirement income at the American College of Financial Services, projects that a 65-year-old could cover all spending after age 85 by devoting 10 to 15 percent of current assets toward purchasing a longevity annuity.

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Consider long-term-care insurance. Genworth Financial, the largest seller of long-term-care insurance, estimates the average cost of nursing home care in a semiprivate room at $80,300 per year. You probably won’t end up facing such frightening bills for years on end. The Center for Retirement Research at Boston College estimates that although 44 percent of men and 58 percent of women currently age 65 will need nursing home care at some future time, stays will average less than a year for men and less than 18 months for women.

The bulk of care will be provided in the home or another community setting. About half of nursing home and retirement care expenses are covered by either Medicare or Medicaid. However, assisted living facilities, where the median stay is 22 months and the median cost is $43,200 annually, may not accept Medicaid. Long-term-care insurance can help fill the gap.

Strategy: Ask a financial planner whether you can afford it.

Mind your withdrawals. If costly insurance premiums aren’t options, consider changing your lifestyle and expectations. Working longer and ramping up savings for just a few years longer can improve your prospects.

Strategy: Work with a financial adviser to draw up a realistic retirement budget and savings withdrawal rate, usually no more than 4 percent of assets.

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Don’t overlook Medicaid. If there’s a chance that you might need long-term care, whether at home or in a facility, it’s wise to at least know your options through Medicaid.

Strategy: An elder law attorney can help you transfer certain assets in advance of applying.