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How to Make Sure You Have Enough Money in Retirement

How old do you think you're going to get? Chances are whatever number popped into your head, you're going to outdo it.

That's because in the past three decades, life expectancy rates for U.S. men have jumped from 70 to 79 and for women from 77 to 83. And the longer you live, the longer you're going to live. Today, the average 65-year-old will live until age 84. But that means half of all 65-year-olds will surpass that.

That's why you need to be "AgeProof," which happens to be the title of my new book. My co-author, Dr. Mike Roizen of the Cleveland Clinic, and I define it as living longer without running out of money or breaking a hip.

You need control of both your health and your money to make AgeProofing possible. Because if you're not healthy, you're going to spend all your money trying to get there. And if you're not financially secure, even one health incident has the potential to wipe you out.

How to know whether you have enough money for your old age 3:59

Let's start with not running out of money. Here's how to be sure you have enough and make it last:

1. Save 10 times your salary for retirement.

If you want to be able to maintain your pre-retirement lifestyle for as long as you live, you should aim to amass 10 times your final salary in savings by retirement. If you're not there yet, don't panic. Just try to sock away 15 percent of your income each year. Consider reducing your current cost of living to make it happen. Yes, it's that important.

You can know if you're on the right track if you can hit these benchmarks:

At age 30: 1x your salary

At age 40: 3x your salary

At age 50: 6x your salary

At age 60: 8x your salary

At retirement: 10x

2. When you retire, keep withdrawals at 4-ish percent.

Ask soon-to-be retirees how much they think they can pull out of their retirement plans each year and the numbers are double or sometimes triple that much. That's a recipe for running out of money fast. The "ish" is because in years when the markets are down, you'll want to withdraw a little less (3.5% or so), but in years when your portfolio is doing well you can pull out a little more (4.5% or so). The good news is that current retirees are showing us they're able to be flexible like this.

3. Know what you mean by retirement.

The folks at AgeWave and Merrill Lynch just conducted a large piece of research on finances in retirement and they found that many people who say they're retired are also working an earning an income. They just may be working part time instead of full-time, or taking sabbaticals along the way. If this is how you envision retirement, it means your money can stay in your retirement accounts longer and continue to grow.

Image: Book cover, "Age-proof" by Jean Chatzky, Dr. Michael Roizen, and Ted Spiker
"Age-proof: Living Longer Without Running Out of Money or Breaking a Hip" by Jean Chatzky, Dr. Michael Roizen, and Ted Spiker. Grand Central Life & Style

4. Course correct.

The AgeWave research also looked at what happened if people made changes that would enable them to dramatically reduce their cost of living now and save more for later. A pack of cigarettes a day, for example, given up at 35, means $360,000 more at 65 (plus greater health of course.) A 60-year-old couple planning to retire decided they'd each work part time, 20 hours a week, instead. That gave them $300,000 more for retirement and enabled them to take Social Security later. A 65-year-old couple ready to retire sold their $325,000 New Jersey home and moved to South Carolina where they bought a $115,000 home for cash. Adding the savings in property taxes and the cost of living, it saves them $28,000 a year in living expenses.

5. Consider an annuity.

I like the idea of using an immediate or deferred income annuity, which essentially takes a chunk of money in retirement and converts it to a paycheck. You don't want to put all of your money into one, but if you buy one that — combined with Social Security — will cover your fixed expenses, you know that you've dramatically reduced the chances that you'll have to scale back your lifestyle because you're in a financial pinch.

6. Maintain an emergency cushion.

We used to think that you could get rid of the emergency cushion once you weren't working anymore. The trouble is, that may not give you enough flexibility to handle the car bill, a large unexpected medical expense or home repair. Having some money set aside specifically for these emergencies in retirement is a way to deal and can still be a life-saver.

These tips will make your money last a lifetime (to age 100 and beyond) 5:00