How to Avoid Outliving Your Retirement Savings

Jul 26, 2023

If your retirement lasts longer than you expect, will you be ready? Here’s how to make your money last.

Dan Hunt

Key Takeaways

  • Americans are living longer; more than a third of today’s 65-year-olds expected to reach age 90.
  • A longer-than-expected lifespan can put considerable strain on even a well-funded retirement plan.
  • Aligning investment strategy with income needs, taking steps to help reduce taxes and, in certain cases, delaying Social Security payments can help stretch your nest egg.
  • Long-term care insurance and annuities may provide additional financial safeguards.

Most people look forward to retirement and the prospect of new hobbies, travel and quality time with family. Improvements in medical care have increased the length of time that retirees may have to enjoy these years. However, with longer retirements comes a new challenge: Will your retirement savings last?


You might be surprised how long you need to plan for. In 1970, the average retirement lasted between 12 and 16 years. Now it’s common for retirements to span 20 years or more1–and that number may continue to increase in light of potential future medical advances. Current data suggests more than a third of 65-year-olds will live to age 90, and the likelihood that at least one member of a couple will live to that age is nearly one in two.2 And higher income and education levels tend to increase the likelihood of longer lifespans even more.

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What that means for your savings is that it has a steeper hill to climb. Consider a hypothetical 65-year-old retiree with a retirement fund. Morgan Stanley analysis suggests that if she has a median lifespan, the probability is just 9% that she won’t be able to maintain her planned spending without eventually running out of money. However, if we assume the longer lifespan typical of higher-income retirees, her odds of outliving her nest egg jump to 30%.


Fortunately, there are a variety of strategies you can use to reduce longevity risk in retirement savings. Here are five to consider:

  1. 1
    Maximize your savings

    If you’re saving for retirement, consider increasing your pre-retirement savings: Contribute the maximum allowed to your workplace retirement plan and individual retirement account (IRA), which offer tax advantages, as well as using taxable investment accounts and potentially even certain insurance products.


    If you’re retired, taking less out of your accounts may help you stretch your nest egg if necessary. Certain types of investments, such as bonds or dividend-paying stocks, can also help you generate income for your spending needs in retirement without necessarily having to sell those securities.

  2. 2
    “Smooth out” your taxable income

    A strategy known as “income smoothing” aims to help reduce your future tax liability once your required minimum distributions (RMDs) kick in at age 73. For example, you may decide to withdraw more money than you need from tax-advantaged accounts, such as traditional IRAs (but not Roth IRAs), earlier than required in order to lower your balance. Why? Even though you’d have to pay taxes now on those higher withdrawals, that strategy could help you avoid being pushed well into higher tax brackets that can result in significantly larger tax payments when your RMDs eventually kick in. 

  3. 3
    Delay Social Security

    Social Security benefits can provide a significant boost to the sustainability of your nest egg. Though you can begin collecting reduced Social Security benefits as early as age 62, you won’t be entitled to full benefits until you reach what the federal government considers “full retirement age,” which for most retirees is 66 or 67. However, it often pays to defer Social Security longer to lock in a higher income stream, adjusted for inflation. In general, your Social Security benefit can increase by an additional 7.4% for each year you wait to claim it after your full retirement age, up to age 70.


    Even accounting for the delay in receipt of benefits, we estimate that deferral pays to the tune of over 3% per year more in cumulative benefits plus cost-of-living adjustments, which is a very attractive return. There are caveats, of course. For example, very high withdrawal rates may increase the risk of the sustainability of your plan, so retirees with lesser funding levels may be better off claiming at full retirement age, or potentially even earlier.

  4. 4
    Consider annuities

    Annuities are a financial product that offer guaranteed payments for the rest of your life or for a set number of years, potentially reducing the risk that a longer life will jeopardize your comfortable retirement. There are different types of annuities to consider. Variable annuities, for example, have a value based on the performance of a portfolio of professionally managed investments. Fixed index annuities are benchmarked to the performance of an index, like the S&P 500, with minimum and maximum returns. Fixed annuities offer contractually specified growth and payout rates. Your Financial Advisor can help you determine the best solutions for you based on your personal financial situation. 

  5. 5
    Consider long-term care insurance

    Long-term care insurance, including riders on life insurance and annuity products, provide access to tax-efficient benefit dollars enabling flexibility and choice in paying for services required due to an extended care event. Funds may be used for nursing homes, health aides, or potentially care provided by family members. Such care can be very expensive without insurance. For example, in 2021, the national annual median cost of an in-home health aide was more than $61,000 and the median cost of a private room in a nursing home facility was more than $108,000.3 Complicating matters, such expenses typically arrive at the end of life, when you may have already spent much of your nest egg. 

Your Financial Advisor can help you determine the best solutions for you based on your personal financial situation.

How a Morgan Stanley Financial Advisor Can Help

The prospect of planning for a longer retirement can be intimidating but using the strategies above can help minimize the risk of outliving your assets. Your Morgan Stanley Financial Advisor has a variety of tools that take into account the many factors that matter to strategy, from longevity to sequential return risk to tax efficiency and beyond. Such resources and expert guidance can be critical to help you decide the right portfolio strategy and distribution plan for your specific situation and preferences. Your Financial Advisor can also help you figure out how much you need to save for a longer retirement—and help make sure you’re on track to start that retirement from a place of financial security.

Find a Financial Advisor, Branch and Private Wealth Advisor near you. 

Check the background of Our Firm and Investment Professionals on FINRA's Broker/Check.

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