Retiring without $1 million? 8 strategies to stretch your savings

Approaching retirement without a $1 million nest egg does not mean retirement is out of reach. For savers with a six-figure portfolio, the key is knowing what to do — and what to avoid — so their money can last.

Know your number

Start with the amount you will need in retirement, not the size of the balance you have already built. Your spending needs may ease as you get older. Social Security should also be treated as inflation-protected lifetime income, along with any pension you may have.

Do not rely only on interest and dividends to cover spending. That approach can hold back returns and leave you unprotected against inflation. A diversified mix of stocks and bonds can help, and some withdrawals may need to come from capital gains while keeping a cushion for rising prices.

If your savings will not fully cover the gap between Social Security and the income you need, options may include downsizing, using a reverse mortgage, or working part time. If you are still employed full time, increasing retirement plan contributions can help.

A qualified financial adviser can help run the numbers and estimate your chances of success.

Build a safety net

Protect against major setbacks with health insurance if you are not yet eligible for Medicare, along with long-term-care insurance and umbrella coverage. Meet with an attorney to create or review estate documents. And do not enter retirement without an emergency fund equal to at least three to six months of living expenses.

Do not claim Social Security without a plan

If you begin collecting Social Security while continuing to work part time or full time, your benefits may be reduced. Before full retirement age, benefits are lowered by $1 for every $2 earned above $24,480.

It is usually better to wait until you know you will not be penalized. Delaying beyond age 67 can increase benefits by 8% a year, up to 124% of your standard monthly payment. Think about:

1. Your life expectancy and how long it would take higher benefits to make up for missed payments earlier.

2. How urgently you need the money now.

3. Whether claiming benefits would limit your ability to do Roth conversions.

Manage taxes before and during retirement

Roth conversions can be especially useful in the years between retirement and required minimum distributions. An accountant or adviser can help decide how much to convert each year so you do not:

4. Move into a higher tax bracket

5. Convert more than needed to balance pre- and post-RMD tax brackets

6. Trigger higher Medicare premiums by crossing income thresholds, known as income-related monthly adjustment amounts

Converting too much can mean paying taxes at higher rates before RMDs begin, only to owe little or nothing later when RMDs are reduced. That can raise your total lifetime tax bill and speed up payments unnecessarily.

Do not overlook RMDs and Medicare

As taxable income rises, Medicare premiums can climb too. For instance, a single filer with modified adjusted gross income of $109,000 would pay the standard Part B premium of $202.90 a month. If income rises by just one dollar to $109,001, that premium jumps to $284.10.

Eliminate high-cost debt

One of the best moves for financial security is avoiding credit card debt because the interest is high and not tax-deductible. Paying the balance in full each month is the safest approach.

Other debts, including car loans, leases, mortgage debt and home equity loans, can also shape retirement cash flow. Review the interest rate and the trade-off involved in paying them down.

Stress-test and update your retirement plan

Run your plan under different scenarios so you can make smarter decisions about routine spending and possible adjustments if conditions change, such as:

7. Stocks dropping 30%

8. Inflation staying elevated

9. The death of a spouse

10. The need for long-term care

11. A delay in Social Security

12. A major home repair

13. A retirement that lasts into the 90s

Revisit the plan after major life events, including the loss of a spouse, a move, tax law changes or an inheritance.

Do not assume six figures is enough — or not enough

Your financial stability depends more on purchasing power than on the size of your account balance. Inflation can push up costs such as healthcare, groceries, entertainment and rent, while fixed mortgage payments stay the same.

That means annual withdrawals may need to rise even if your lifestyle does not change. A tax-efficient investment and withdrawal strategy can help. It also makes sense to use a flexible spending plan that trims discretionary expenses when inflation is high or market returns are weak.