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June 08, 2021

How to avoid outliving your money

By Gordon Powers, Sympatico / MSN Finance

When it comes to retirement planning, most people think in terms of scrambling to put something aside early enough to take advantage of compound interest.

But, once you switch from the savings stage to the spending stage, the math is entirely different, says Jim Otar, an advisor who spends a lot of his time counselling advisors on what they should be telling their clients when it come to not outliving your money

Here are his top three challenges for those leaving work … and the people trying to help them plan the journey. 

Living too long. Not only are boomers living longer than previous generations but, unlike their parents who had pensions to support them into old age, less than 35% of baby boomers will retire with guaranteed pensions. That’s why, when looking out, it’s important to use an age of death that might otherwise seem a bit optimistic. In most cases, that means planning until age 95, Otar suggests. Don't look at the average life expectancy, because it only tells you the age at which half of all people die, he adds. 

Not taking any risk. The amount of risk you assume in your portfolio determines how likely you are to run out of money. In his analyses, Otar suggests that the sustainability of income has to have a high probability of success, 90% or better. In other words the probability of going broke can be no more 10%.

Less than this expected success rate can lead to irreversible calamities, he says, since you need a solid buffer to recover from even a routine market correction – like the one we’ve recently been enjoying. At the same time, that generally means still having at least a third of your money in stocks long after your retirement party.

Ignoring inflation.
It’s essential that you protect your purchasing power, Otar maintains. That means ensuring that any calculations are in constant dollars when considering the amount you hope to withdraw. One approach is to use annuities whose payouts are adjusted annually to cover inflation even though their initial payout rate is much lower than for fixed annuities.

What’s the last thing you do before you climb on a ladder? You shake it, of course. For a glimpse of your possible future, test out a free trial version of Otar’s Retirement Optimizer here. It uses actual historical data going back to 1900 to work out how your nest egg would have survived beginning in each of those years.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo),,, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...