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It’s the million-dollar question in retirement planning: how do I make my money last as long as I do?

New research offers up a tantalizingly simple solution. The study, from the Stanford Center on Longevity Studies and the Society of Actuaries, is aimed at middle-income households with some savings, but not bucketloads (under $1 million) and no pension to fall back on. Here’s what it recommends:

Step 1: Delay claiming Social Security until you are 70 years old, to earn the highest possible benefit. (For married couples, the advice is for the highest earner to hold out until 70.)

Step 2: Invest 50% to 100% of your 401(k) and IRA assets in stocks and limit your withdrawals to the required minimum distributions (RMD) levels set by the IRS. The authors recommend low-cost, balanced index funds or target-date funds. Waiting until RMDs are mandated (once you turn 70 ½) is the best strategy for stretching your savings, but the authors note that if you need to tap your IRA to meet your living expenses before then you’re still better off doing that than starting Social Security before age 70. (If you do decide to take RMDs before age 70 ½, page 10 of the report includes help on how to calculate your withdrawal.)

This straightforward, two-step strategy outperformed when study authors Wade D. Pfau, Joe Tomlinson and Steve Vernon compared it to nearly 300 other retirement income strategies in an earlier report they published in 2017. Their new study explores the mechanics of how best to pull off their Spend Safely in Retirement Strategy and tests how it might perform out over a 30-year retirement based on different market returns.

Pfau, a retirement-income planning expert and author, educates advisors on best practices. (He recently fielded questions from Retire with Money Facebook group members.)Tomlinson is an actuary and certified financial planner. Vernon is an actuary who is a research fellow at the Stanford Center on Longevity Studies.

How to Nail Step 1: Wait for Social Security

The authors hold out this tasty carrot: “Many middle- income retirees may have all the guaranteed lifetime income they need,” if they wait until age 70 to start collecting Social Security retirement benefits. That’s because waiting earns you a much higher benefit than claiming earlier (you can start as early as 62.) The authors estimate that by waiting, middle-class households could cover between two-thirds to 80% or more of their basic living costs from Social Security alone.

Working “just enough to replace the Social Security benefit that is being delayed” is a smart way to bridge the income gap, the three retirement income pros write. With the average monthly benefit around $1,500 a month, that’s not likely to require a full-time gig.

If you don’t want to work at all, the advice is to still wait until 70 to start Social Security. You can use a portion of your retirement savings to pay yourself the equivalent of what you would have received from Social Security if you had started earlier.

Because these withdrawals will be needed for a short period (no more than the eight years from 62 to 70, to tide you over until you claim benefits) the researchers recommend your money be tucked into “safe” investments such as a short-term bond fund, money market or a stable-value fund, if it’s offered in your 401(k).


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How to Nail Step 2: Investing Your 401(k) and IRAs

Following Step 1 means you can load up your retirement accounts with stocks, the researchers write. That’s because, with the majority of your income guaranteed by Social Security, you can afford to be more aggressive with your investment portfolio.

The researchers ran models to see how the strategy might work if you took only RMDs from a portfolio 100% invested in the S&P 500, or a portfolio split equally between stocks and intermediate-term Treasuries, or a portfolio 100% in Treasuries.

Under the more conservative assumptions, there's a 50% probability that the all-bond portfolio keeps up with inflation for just 10 years (age 65 to 75). The all-stock and 50-50 portfolios have a better chance of generating inflation-beating RMDs until age 90.

Under most conditions, as you would expect, the estimated RMD from the all-stock portfolio is higher than the 50/50 portfolio over a 30-year retirement. However, if returns are worse than expected (a 10% probability in their modeling) the 50/50 portfolio outperforms over the 30 years and will result in fewer years of decreasing withdrawals. Page 15 of the report shows the income each portfolio would generate from age 65 on.

From a purely number-crunching perspective, the authors favor all-stock allocation. But they're not blind to the stress this could cause during periods when the market is down: “We acknowledge that most retirees will feel uncomfortable with such a high allocation to stocks.”