Dodge These Financial Bullets
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How to Protect Yourself from Financial Ruin in Retirement

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Dodge These Financial Bullets
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Dodge These Financial Bullets

Most of us work decades to create a sufficient nest egg to fund retirement. But after you bid farewell to the 9-to-5 grind, it's important to manage that money carefully in order to avoid a crippling financial disaster during your golden years. This effort includes everything from avoiding risky financial moves to keeping on top of your cash flow, and preparing for life's unexpected emergencies. We asked financial experts across the country to weigh in on the best ways to avoid financial ruin during retirement. Here's what they had to say.

Related: 13 of the Biggest Retirement Regrets Among Seniors

Know How You Want to Live in Retirement
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Know How You Want to Live in Retirement

It's hard to know just how much money you'll need to survive in retirement if you don't know what you want your retirement to include, advises Deacon Hayes, a financial expert and founder of Well Kept Wallet. "For instance, do you want to travel in retirement? Or, would you rather stay home and live simply and quietly?" Hayes asks. "Each of these scenarios requires very different income levels." Hayes suggests sitting down with your spouse or partner and figuring out how you want to live in retirement. "Then you can more accurately plan so that you'll have the income to live the way you want," he said.

Related: 22 Costs and Challenges of Relocating for Retirement

Do Away With Significant Expenses Ahead of Time
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Do Away With Significant Expenses Ahead of Time

Lay the groundwork for a financially secure retirement by minimizing as many of your ongoing expenses as possible ahead of time, says Paul Moyer, founder of SavingFreak. "The main way you do this is by being completely out of debt by the time you retire," suggests Moyer. "If you don't have a house payment, car payment, or any other debt payments, the cost of living is very low.

Conduct a Self-Audit
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Conduct a Self-Audit

Yet another important step to secure your financial footing after leaving the workforce is conducting a thorough self-audit, says Logan Abbott, president of Wirefly, an online comparison site that helps people save money on monthly services. Such an audit includes reviewing your credit card balances, the cost of monthly services such as cable and cell phone fees, and monthly subscriptions that may be billed to your credit cards on a recurring basis. Go over every expenditure, and find ways to spend less in each area.

Maintain a Detailed Understanding of Your Cash Flow
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Maintain a Detailed Understanding of Your Cash Flow

One last point on the same general theme, Steve Adcock, creator of ThinkSaveRetire.com, says maintaining a detailed understanding of your monthly cash flow (what's coming in and what's going out) is critical to avoiding financial disaster. "We don't realize how much we are spending until we take this step," explained Adcock, who retired at 33. There are plenty of online tools designed specifically for cash flow tracking such as Personal Capital and also Mint, Adcock said. "Using this knowledge, we can instantly make more informed decisions about where our money is going and how our cash flow is affecting our retirement," Adcock said.

Budget
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Budget

It may sound boring, but budgeting is the No. 1 way to spend smartly and also avoid financial problems, says consumer finance and debt expert Tanya Peterson, vice president of brand at Freedom Debt Relief. "The starting point should be your goals — whether they're trips you want to take, a college education for a grandchild or something else, write all the goals down, and then build your budget with the goals in mind," Peterson said. You need a realistic picture of what you have and where you want your money to go.

Maintain a Six-Month Emergency Fund
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Maintain a Six-Month Emergency Fund

An emergency fund that includes enough money to cover a minimum of six months' expenses will help save you when curve balls and surprise expenses inevitably crop up in post-retirement life, said Adcock, creator of ThinkSaveRetire.com. "I always recommend at least six months, but a year of living expenses in an easily accessible account, like an interest-bearing savings account, is even better," Adcock said. "Though we won't need to worry about losing a job during retirement, we do need to think about those expenses that have a statistically higher likelihood of happening later in life, like healthcare and divorce."

Related: 15 Ways You Will Lose Money By Getting a  Divorce

Diversify Your Income Sources
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Diversify Your Income Sources

Relying on a single income source is among the most frequent reasons people go broke in retirement. Many people rely on Social Security as their primary source of income for instance, which is not likely to be enough to cover all of one's expenses comfortably during retirement. Diversifying income is a safer bet and could involve relying on some combination of a pension, 401k, IRAs or annuities.

Don't Overlook Tax Requirements When Budgeting for Retirement
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Don't Overlook Tax Requirements When Budgeting for Retirement

As you develop estimates of how much money will be required to fund retirement, don't make the mistake of overlooking taxes you might need to pay on distributions. "A $1 million nest egg will only last a decade or so if you take a $100,000 distribution annually so that you can live on approximately $75,000 a year," said financial educator Jennifer Harter, of Jennifer Harter Consulting. While her example pertains to the New York state tax rate, the point applies across the country. Distributions from a 401(k), 457s, 403(b), traditional IRA, Simple IRA and SEP IRA, will all be taxed at the individual's tax rate at the time of the distribution, Harter explained.

Maintain a Healthy Credit Score
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Maintain a Healthy Credit Score

Credit scores may not be the first thing on one's mind when approaching retirement. However, a solid credit score remains important during your golden years for numerous reasons, says Oliver Browne, a credit industry analyst for Credit Card Insider. "Credit scores can still impact numerous areas of a retiree's life such as auto loan approvals, credit card approvals, insurance premiums, and your ability to refinance a mortgage if rates drop," Browne said. "If a retiree found themselves in a situation where they needed to borrow money due to an emergency or otherwise, having poor credit scores could lead towards financial ruin." Subpar credit scores might result in significantly higher loan interest rates or can prevent someone from accessing a loan altogether, Browne said.

Related: 20 Things You Can't Do With a Low Credit Score

Expect to Live Longer
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Expect to Live Longer

The reality is that people are living longer. According to the Centers for Disease Control and Prevention, the average life expectancy in the United States is 78.6 years. Such longevity has impacted the retirement preparedness of countless Americans. CPA Logan Allec, owner of Money Done Right, suggests that in order to avoid financial ruin, people need to save more money than they think they'll need or use. "Do expect to live longer and plan to have enough money for a longer life," Allec said. "Save enough to live to 100, not just 90."

Related: 40 Secrets of People Who Lived Past 100

Insure Yourself for Longevity
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Insure Yourself for Longevity

Income annuities are designed to protect you from financial ruin if you live to a very old age, explained Ken Nuss, CEO of AnnuityAdvantage, an online annuity marketplace. They do this by providing a guaranteed lifetime income. "The longevity annuity, also called a deferred income annuity, combines tax-deferral with a future stream of income. It defers payments until a future date that you choose. Most buyers choose to start taking payments when they turn 80 or older," Nuss said. Options include single-life annuities and joint-life annuities, which typically covers both spouses.

Reduce Risk Exposure in Your Retirement Accounts
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Reduce Risk Exposure in Your Retirement Accounts

When a person is within five years of retirement, they should begin to reduce their risk exposure in retirement accounts, says Robert Johnson, professor of finance at Creighton University's Heider College of Business. "A large downturn in the market immediately preceding retirement can have devastating effects on an individual's standard of living in retirement," Johnson said. "The five years prior to retirement can be considered the retirement red zone … the retirement investor can't afford a big downturn in the retirement red zone." Johnson suggests reducing the percentage of investments in stocks during this time frame and shifting that money into bonds.

Maintain a High Level of Personal Health
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Maintain a High Level of Personal Health

Racking up significant healthcare costs during retirement can be devastating, says David Bakke, a Money Crashers contributor. "Eat a healthy diet, get required rest, and eliminate unhealthy physical habits, like smoking and drinking. Get the right amount of exercise, too," Bakke said.

Have Proper Health Insurance in Place
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Have Proper Health Insurance in Place

High medical bills are the No. 1 cause of personal bankruptcy in the United States, said Michael Stahl, executive vice president of HealthMarkets, an independent health insurance agency. Planning ahead to ensure you have the proper insurance coverage is one way to help alleviate such steep costs and financial disaster. "It's especially important to have an understanding of what Medicare does or does not cover and determine if there may be gaps in your insurance you should consider filling to avoid paying out of pocket for medical issues."

Do the Math on Long-Term Care
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Do the Math on Long-Term Care

Do you have enough assets to cover long-term care or do you need to buy long-term care insurance? The truth is, most people spend only one to four years in long-term care, making self-funding an option for some, said Michelle Brownstein, vice president of private client services for Personal Capital. AARP provides a long-term care calculator that can be a good place to start. "When you calculate this, try entering the average cost of long-term care in your area as an expense for up to four years," Brownstein said. "The results will give you an idea whether you can self-insure or should purchase protection."

Stop Supporting Other People
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Stop Supporting Other People

If you have family members or relatives who rely on you in any way financially, it may be a good idea to consider ending those agreements as you prepare for retirement unless you're entirely certain you can continue to meet them, said Bakke, of Money Crashers. "Remember, when you retire, you have your money and your money alone, rarely anything else," Bakke said.

Find a Trusted Adviser
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Find a Trusted Adviser

A good adviser will advocate for your best interests and protect you from your own emotional reactions to the financial changes that will come during retirement, whether those changes are in the market or in your own family life and income stream, said Todd Murphy, a facilitator at Yale School of Management and financial adviser at Prime Financial Services. "A trusted adviser should talk with you about all the options to protect and to grow your savings; market investments, annuities, life insurance with long term care protection built in," explained Murphy. "An adviser who doesn't review and educate you on all the options is a salesperson not an adviser."

Create a Go-To Cash Account for Larger Expenses
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Create a Go-To Cash Account for Larger Expenses

As homes and our bodies get older, large expenses inevitably pop up, says Amy Merrill, principal wealth adviser and director of family wealth strategies at TrueWealth. "The deductibles and co-insurances on health insurance can be substantial, as can the joys of home ownership expenses," said Merrill, who suggests setting a fixed amount in your large expenses account, perhaps $12,000 to $15,000, and replenishing it when it the balance decreases.

Create A Spending Plan
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Separate Your Retirement Funds into Two Distribution Strategies

Joseph Polakovic, owner and CEO of Castle West Financial, suggests dividing your retirement funds into two distribution categories in order to balance your money wisely and for longevity. Those two categories should be: lifestyle spending and discretionary spending. "Lifestyle spending is the amount that's needed from your assets each month in order to pay your bills, buy food and essentially live your day-to-day life," Polakovic explained. "The portion of your investments designated in this way should be invested with a conservative approach and have a conservative distribution strategy attached to it. Fixed indexed annuities or dividend stocks are usually recommendations for this part."

Invest Discretionary Funds More Aggressively
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Invest Discretionary Funds More Aggressively

Continuing with Polakovic's theory, the remainder of your liquid assets, money that's not needed for lifestyle spending, can be earmarked for discretionary spending. "This can be individualized to traveling, home improvement or whatever else you may want to spend on, but don't necessarily need to," Polakovic explained. "This does not include emergency funds and can be more aggressively invested." Distribution from this account should follow basic tactics of buy low and sell high and tailor your discretionary spending habits to the performance of this account, he said.

Don't be Too Conservative
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Don't Be Too Conservative

"I believe one of the biggest roads to financial ruin is being too conservative," said Polakovic, of Castle West Financial. "Often, I see clients averaging a lower return than inflation and therefore they are essentially losing purchasing power and will need to dip further and further into their investments as time passes." By dividing your investments between lifestyle spending and discretionary spending, it's possible to protect yourself from market volatility while also increasing wealth and discretionary spending, Polakovic said.

Get a Grip on Social Security
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Get a Grip on Social Security

In order to be fully prepared for retirement, find out how much money you can expect to receive from Social Security, suggests Brownstein, of Personal Capital. You can view your latest Social Security statement at ssa.gov. "It's a good idea to review it from time to time to make sure there aren't any errors," Brownstein said. "Your Social Security benefits are primarily based on your highest earnings over 35 years and your age when you file for benefits. Review your statement and check your earnings history. Let the Social Security Administration know right away if you find an error because your benefits will be based on their record of your lifetime earnings."

Related: No Pension. No 401(k). How to Get by on Social Security

Practice for One Year Prior to Retirement
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Practice for One Year Prior to Retirement

Conduct a retirement test run, suggests Merrill at TrueWealth. "I think it's critically important for people to 'practice' living on what they perceive their retirement income needs to be for one year prior to retirement," Merrill said. "That way, they can figure out for themselves if their figure is doable. If it's not (many times the perceived income need and the actual can be different), then they could work longer, save more, or adjust their spending habits if the retirement date is in stone."

Children's and Grandchildren's Inheritance
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Be Flexible

Retirement may be different from what you expect it to be. You might think you want to retire to the country, and then find yourself missing the culture of the city, says Brownstein, of Personal Capital. "Or you might think you want to stay in your home and then decide to move nearer to your children and grandchildren," Brownstein continued. "It's okay to change your mind, if you have a solid retirement plan in place."