If you're looking for a way to stretch those retirement dollars, a good place to start is with the recommendation of the U.S. Government Accountability Office (GAO). After all, these are the folks responsible for identifying and eliminating wasteful spending in the government.
Based on their research and experience, they've written and released a report called, "Ensuring Income throughout Retirement Requires Difficult Choices." In a nutshell, the GAO has two main recommendations for you:
- Don't start collecting Social Security until age 67.
- Convert any defined benefit pension you have into an annuity.
Social Security: Not So Secure
It might not surprise you to learn that the benefits paid by the Social Security Administration will probably decrease by the time you start collecting them yourself. The GAO's report clearly states that by 2036, the program won't be able to meet the demand for currently scheduled benefits. The program is already paying out more than it's receiving, so the system is shaky at best.
To help you offset the uncertainty surrounding Social Security, the GAO looked at ways Americans can find other sources of retirement income. While it's unlikely that Social Security will vanish, it's also unlikely you'll be able to live off Social Security alone. This means you'll need multiple income streams to maintain your standard of living, as well as help pay for your increasing healthcare and long-term care costs.
Collecting Benefits: The Later, the Better
To help make the most of your Social Security checks, the GAO suggests you wait to collect them. You're allowed to claim Social Security at age 62. However, if you delay taking benefits until age 67, your money will go a lot further.
For example, if you start taking Social Security at age 62, you'll receive less money per month—a full 25% less—than you would if you started taking it at age 67. The way to receive the most money per month is to wait as long as possible. If you're working part-time or able to support yourself without taking Social Security, the GAO suggests waiting to collect those benefits. The dollars will go even further if you wait until age 70 start collecting.
Annuities: No Risk Necessary
The second part of the GAO's recommendation is to convert a good portion (at least 50%) of your retirement savings into an income annuity. Annuities offer guaranteed income for life. You'll receive a check every month until the day you die. If you add a survivorship benefit to your policy, your spouse can keep getting the checks even after you pass away.
Here's another tidbit many casual investors don't know. Annuities can offer higher returns than many stocks, bonds, or mutual funds because they get what's called "mortality credits." This means that when someone with an annuity dies early, the company that issued the annuity has a little extra money left over. Those "credits" get spread around between the other annuity holders.
Overall, the point of converting at least 50% of your existing retirement savings into an annuity is so that you remove risk. Not only do you remove the risk of outliving your assets, you also remove the risk of (a) having to manage your investments, and (b) losing a chunk of your nest egg when the market fluctuates. Income annuities offer a safe, stable rate of return based on a set percentage of interest. You aren't vulnerable, and the steady monthly check removes a lot of worry about monthly budgeting. All that's left to do is enjoy your golden years!