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These Proven Strategies Will Make Sure You Never Run Out of Money

Saving for retirement is a daunting task. With a lot of things to consider, it can be tempting to put off planning for it. The good news is that there are plenty of strategies that can simplify and keep the process low-cost for you.

The American College of Financial Services professor Wade Pfau has come up with an optimal retirement strategy that focuses on just two concepts: Social Security and investments. Let’s find out how it works.

Social Security as ‘Floor Income’

Wavebreakmedia/Deposit Photos — Pfau’s strategy means that you’ll use your Social Security benefits to pay for the majority of your bills and expenses

The first and most important component of Pfau’s strategy is maximizing your Social Security benefits so you can rely on it to become your ‘floor income’ in retirement. He sees Social Security as the foundation of retirement for retirees who belong in the middle-income category, which includes those with $100,000 up to $1 million in savings.

These benefits would ideally cover about three-fourths of a retirees’ income. To see how much income you’d need in retirement, calculate all of your essential expenses from housing to utilities to food.

Another recommended move experts have for future retirees is to wait until they’re 70 before accessing their Social Security benefits even though they can start getting it at 62. Doing so would increase the monthly sum they’d receive.

Investing for the Fun Stuff

kudla/Shutterstock — Investment earning can fund your ‘fun’ expenses like traveling

The second component of Pfau’s investment strategy is your investment portfolio. Since these liquid savings aren’t earmarked to pay for your necessities, you can invest them in more aggressive instruments that offer higher returns.

A mutual fund that tracks the stock market is a recommended investment vehicle in this case. Of course, you can also err on the safer side and choose a more conservative type of mutual funds such as those that invest 50% on bonds and 50% on stocks.

Once you’ve set up your investments, the next thing you should determine is how much you can withdraw each year to make your money last. A useful guide is the IRS’ required minimum distribution worksheet.

Having a Transition Fund

szefei/Shutterstock — The average fiftysomething has a median retirement savings of $117,000

Aside from following the two-pronged strategy proposed by Pfau, you may also want to create a transition fund. This would benefit those who find themselves needing to retire earlier than they planned.

You can take out this fund from your investment portfolio and use it to cover your expenses until you start claiming your Social Security checks at age 70, as recommended. Make sure to put this fund on safer investments like a short-term bond fund or a money market mutual fund.

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