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How not to outlive your retirement savings

By Paul Sisolak/GOBankingRates

Planning for retirement these days can be daunting, as people are living longer, healthier lives. According to the Social Security Administration, 65-year-old baby boomers can expect to live to the age of 84.3 years old if they're men and 86.6 years old if they're women. However, a Retirement Confidence Survey conducted by the Employee Benefit Research Institute in 2013 found that 60 percent of workers age 55 and older had less than $100,000 in retirement savings.

Outliving one's retirement fund can be a disconcerting financial prospect for people who've spent decades building up a nest egg, and even more so for those who haven't saved and aren't well positioned to live on their Social Security checks or current savings. Plus, it's hard to anticipate where you'll be in a decade or two in order to predict just how to best manage your money.

"You can only estimate how many years you will live, and you have to manage your finances so your savings will last for that unknown number of years," said Emily Brandon of U.S. News & World Report.

Already retired or approaching that goal? It's possible to keep your finances ahead of you.

1. Ease your way into retirement

Instead of cutting off your career completely, keep working on a part-time or reduced basis and take retirement for a "test drive." You'll see if retiring is something you're ready for and might even find an opportunity to try your hand at trades you previously didn't have the chance to pursue. On top of that, if you're under 66 years old, working, and claiming your Social Security benefits all at once, you might be able to have your benefits partially or completely withheld, according to Brandon, buying you more time before you'll need to live off those funds.

2. Delay claiming your Social Security benefits

Good things can come to those who wait. If you decide to keep working, consider putting off your Social Security benefits until you turn 70. Delaying them until this age can mean up to an 8 percent higher annual payout in the benefits owed to you. While you can begin collecting them nearly a decade earlier (age 62), if you're healthy, able to work and have an job, don't be so quick to cash in those benefits when you don't need to yet.

Because married couples (of 10 years or more) are eligible for Social Security payments based on their own work or up to 50 percent of the higher earner's payout, those who continue working can delay using their own benefits and instead tap into those of the retired spouse. Maintaining this strategy until the age of 70 will lead to higher payouts.

3. Switch from a Traditional to a Roth IRA

It's a good idea to wait as long as you can before tapping into your tax-deferred accounts, such as 401(k)s and IRAs, since they'll have more time to compound earnings before withdrawing them (think of a high-yield CD) and you'll avoid early withdrawal penalties. Choosing the Roth over a traditional IRA means tax-free withdrawals, so it's OK to hold off on using these funds for retirement if you're worried about rising taxes. As of this year, you can contribute up to $5,500 to your IRA.

4. Budget using the bucket approach

It's basically budgeting per priority, keeping liquidity your main concern.

"Bucket cash for different short- and longer-term needs, such as living expenses, short-term goals, and emergencies," states Fidelity Investments.

For daily expenses, keep funds readily on hand for groceries, bills, utilities and the like. Look into time-shared investments like CDs for shorter-term goals that you don't need money for right away. You should also have an ample emergency fund for the unexpected and a health savings account for medical expenses. To make crunching the numbers easier, there are many retirement calculators online to choose from.

5. Relocate to a more affordable area

More than 9 million senior citizens in 2012 didn't have enough money to cover even the most basic necessities, according to Walter Hamilton of the Los Angeles Times, citing U.S. Census Bureau data.

"Though there is a chasm between income and living expenses in every state, it's especially pronounced in some urbanized states where the rising cost of living has outstripped the fixed incomes on which many seniors depend," Hamilton said.

Moving to a cheaper area or smaller space can cut costs significantly. Use Zillow or Trulia to research where you'd like to retire to. Downsize to areas popular with seniors for better costs of living and climate. Sell your home, buy new in a cheaper area, and reinvest your earnings in an annuity or other savings vehicle.

6. Pay down debt sooner, rather than later

Retirement will quickly outlive your savings if you don't aim to decrease or completely eliminate any debt you have as soon as possible, especially the high-interest kind like your credit cards, auto loan, mortgage payments or children's student loans. If you decide to delay some of your investment or benefit payouts until 70, try to set an earlier debt payoff goal.

There are often two schools of thought on paying your debts: The debt snowball or the debt avalanche. The former suggests paying off smaller debt first and "snowballing" to your larger expenses; the latter involves the opposite, reducing your high-interest debts first. These methods are both practical ways to clean your finances of any outstanding debts that could negatively impact your retirement funds.

How much should you save for retirement?

That's not an easy question to answer. Retirees should have 70 to 90 percent of their pre-retirement income per year saved to live comfortably in retirement, according to many experts, but you should save and spend according to what your individual needs and goals are in retirement. Make a list of your financial priorities for the next few years, and configure these tips into your life for a happy and healthy retirement no matter how long it is.

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