ONE QUESTION LOOMS LARGE for retirees: “Will I have enough money to last the rest of my life?” For 45% of Americans, the answer is no.¹ But with thoughtful planning, “there are a number of things retirees can do to control how long their money might last,” says Merrill Financial Advisor Eric Breemen. “As long as you’re prepared to stay somewhat flexible, you and your advisor can work together to create a customized plan that accounts for your priorities and adjusts for hurdles you may encounter along the way.”

Here are three things to consider that can make a big difference in making your money last.

Step 1: Develop a sustainable spending rate

While conventional wisdom often pegs the ideal annual spending rate for retirees at 4%, you should view that only as a starting point. After taking increasing longevity and other factors into account, your actual drawdown rate could range from 3% to 5%, depending on your retirement age, savings, income sources and health status. Assuming a 4% spending rate, someone with $1,000,000 in savings, for example, would have $40,000 in the first year of retirement to cover their living and leisure costs.

“Your optimal spending rate is one of the first questions you’ll want to address,” Breemen adds. Your advisor can show you how different spending rates could affect how long your money might last and help you adjust your strategy as needed to account for things like inflation or market downturns.

Women may want to stick closer to the lower end of the 3% to 5% withdrawal range to maximize their income because they tend to live longer than men, says Nevenka Vrdoljak, Chief Investment Office, Merrill and Bank of America Private Bank. If it’s looking like your income won’t be quite enough to support the retirement you’ve envisioned, says Vrdoljak, consider delaying claiming Social Security until age 70, adjusting your spending rate or working longer to bring in more income.

Step 2: Let your investments work harder for you

“Some investors tend to play it too safe as they begin retirement,” says Vrdoljak. Taking the cautious path often means putting money in lower-risk — but also lower-yielding — investments such as bonds, CDs, money market funds and Treasury bills. “But over a retirement of 30 or more years, a portfolio that's all cash and bonds can barely keep up with inflation or the likelihood of rising health costs,” says Anil Suri, a managing director for the Chief Investment Office, Merrill and Bank of America Private Bank.

If the stock market’s potential for volatility is what’s causing you to invest defensively, Breemen sometimes advises putting aside a “liquidity bucket” of several years’ worth of desired annual spending into cash, high-interest savings accounts, money market accounts and other liquid investments. The rest can be invested in a mix of stocks and bonds that could offer the potential for greater growth. “A liquidity bucket is a psychological safety net,” he notes. “You know you have that money to fall back on no matter what happens.” 

Inflation poses another risk to making your money last. For example, a 2% rise in inflation could whittle $1 million in cash down to $603,465 over 25 years.² To hedge against inflation, consider adding assets that often keep pace with it, such as commodities like gold and real estate investment trusts, suggests Breemen. Owning real estate as an investment is another option. “Rental property is a very natural hedge against inflation. As inflation goes up, so does the rent.”

Step 3: Plan for long-term care costs.

As we live longer, healthcare tends to take up more of our retirement budgets. About 70%³ of Americans 65 and older will need some form of long-term care, which, for a semi-private room in a nursing facility, averages $111,325 per year.⁴

If you don’t already have traditional long-term care insurance — or, alternately, hybrid or permanent life insurance with a long-term care rider — you’ll want to earmark a certain percentage of your savings to help you cover future healthcare costs, says Breemen. “You could place those assets in a separate investment account designated for your future care,” he adds. Your advisor can help you estimate potential future costs, explain what Medicare does and doesn’t cover, share information about long-term care insurance options and talk you through various strategies to help close the gap.

Stick with your plan and review it regularly. “This may be the most important advice of all,” says Suri. It’s always tempting to blow up your spending plan for something you’ve suddenly decided you really want. Similarly, it’s sometimes easy to get spooked by turbulent markets and make spur-of-the-moment investment decisions that might not support your long-term investment goals. “The key is to have a plan you’re comfortable with. That way, you’re more likely to stay the course.”

Check in regularly with your advisor to adjust for any changes — both in the markets and in your life — so your investments can continue working toward your financial well-being, now and in the future. “These are evergreen principles,” says Suri. “They have stood the test of time.”