Make Your Money Last Forever, and the E-Shaped Economy

0:04How to make your money last as long as you do, and are we now in an E-shaped economy? That and more on this Saturday personal finance edition of Motley Fool Money.

0:21I'm Robert Brokamp, and this week I provide eight ways to increase the odds you won't run out of money in retirement. But first, let's get to some headlines from last week. You've likely heard that some experts have described the current economy as K-shaped, in which financial conditions are heading upward for higher-income Americans, but trending downward for lower-income Americans. By financial conditions, I mean spending, wealth, and income growth. And that last one is particularly notable. For years before, during, and after the pandemic, the lowest quartile of wage earners actually saw the fastest pace of income growth.

0:52But now it's the slowest, according to the Federal Reserve. What about people in the middle? Well, a recent CNBC article by Cameron McNair quotes Heather Long, the chief economist at Navy Federal Credit Union, as saying we're actually in an E-shaped economy with middle income households treading water and showing signs of strain. The top tier is doing well and spending a lot. The highest 20 % of earners account for nearly 60 % of all U.S. consumer spending, according to Moody's Analytics. Middle earners spending growth was close to those of higher earners until the end of 2025, according to Bank of America.

1:25These folks are now in what Long calls the Costco economy, increasingly looking for better deals at places like Costco and Walmart. As for the lower tier, they're getting by with a little help from their debt. They're more likely to carry a credit card balance from month to month and use buy now, pay later services. According to a LendingTree survey, a quarter of buy now, pay later users reported using the loans to buy groceries in 2025, up from 14 % in 2024. The increasing levels of stress can also be seen in the declining U.S. personal savings rate, which was 3.6 % in December, the most recent month for which we have the figure.

2:01That's the lowest number since a string of months in 2022, and before then, you have to go back to 2008 for a savings rate below 4%. Higher gas prices are going to help matters, which brings us to our next item. According to AAA, the average price of a gallon of gas in the U.S. is$3.60 as of March 12th, up from$2.94 a month ago. The reason, of course, is surging oil prices as a consequence of the Iran War. Consumers can gradually absorb these higher prices until they can't, a point called the Hamilton Trigger after University of California economist James Hamilton. According to this metric, an oil shock is defined as when oil spikes to its highest point in three years and then can really have an effect on the economy.

2:47I have to say I had never heard of the Hamilton trigger until it was recently mentioned by Neil Dutta, the head of economics at Renaissance Macro, who discussed it on his podcast as well as the Full Signal podcast. And according to Dutta, that trigger would be$95 a barrel. And we're just about there as of this taping on Thursday morning, but fortunately down from when oil was briefly trading at around$120 a barrel on Monday. On Wednesday, the U.S. announced that it would release 172 million barrels of oil from the Strategic Petroleum Reserve, and the International Energy Agency announced that it would release 400 million barrels, the largest such action in the organization's history.

3:24Hopefully, that all will help. And now for the number of the week, which is 36%. That's America's share of global GDP, up from 24 % in 1900. Meanwhile, U.S. equities have grown from 15 % of the global stock market in 1900 to 62%. This is all according to the Global Investment Returns Yearbook 2026, published this week by UBS. It's updated every year and is always chock full of interesting stats about worldwide economic and investing history. The current edition highlights that$1 invested in U.S. stocks in 1900 grew to$124 ,854 by the end of 2025, compared to just$284 for bonds and$69 for bills, in other words, cash.

4:13And that outperformance didn't just happen in the U.S. The yearbook finds that stocks were the best-performing long-term asset class in all 21 countries included in the yearbook's annual analysis, though certainly with some major disruptions along the way. Remarkably, this outperformance happened despite the fact that 80 % of the U.S. stock market in 1900 was in industries that are small or extinct today. Back then, more than half of American equity value was in railroad companies. Meanwhile, 70 % of today's companies in the U.S. come from industries that were small or non-existent in 1900. Two of today's biggest three sectors, technology and healthcare, were almost totally absent from the stock markets in 1900.

4:56And finally, despite the decline of the railroad industry, UBS finds that railroad stocks have actually outperformed the market over the past 125 years. While you likely won't be around that long, you do want to make sure you don't run out of money before you run out of life, which is our next topic of conversation when Motley Fool Money continues.

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6:14Robert Brokamp:Claude.ai slash fool. when it comes to retirement what's your biggest fear if you're like most americans you worry about running out of money in fact a survey published by allianz last year found that 64 of americans worry more about running out of money than death fortunately there are steps you could take to mitigate the risk that you'll have a penniless future as for death i don't have any solutions but here are eight ways to increase the odds that you'll pass away with money in the bank Number one, don't retire until you have enough money. And yeah, I know this one's obvious, but over the almost 30 years I've been in the financial planning field, I've come across countless people who retired without doing any sort of analysis of whether they saved enough or how much they could safely spend each year.

6:56Something happened in their lives and they just felt it was time to retire. You know, they turned 62 and became eligible for Social Security. They got laid off and couldn't find a new job they liked or that paid as much as their previous job. Their spouse retired. They inherited some money, but not nearly enough money. I've heard their stories because at some point in their 70s or 80s, their portfolios began running low and they hoped they had a solution. Don't make the same mistake. Use high-quality retirement calculators to ensure your portfolio is big enough to safely replace your paycheck, and strongly consider hiring a fee-only financial planner who works maybe by the hour or project to give you a professional assessment before you kiss the boss goodbye.

7:33Number two, choose a safe withdrawal rate. In the beginning, there was the 4 % rule created by financial planner William Bengen in 1994. He has since updated his research in a book published last year, and based on the results of having a more diversified portfolio than used in his original study, Bengen finds that a 4.7 % initial withdrawal rate has historically survived 30 years during the worst bear markets and bouts of inflation experienced in the U.S. since 1926. And that rate is the historical worst-case scenario. The average safe withdrawal rate over the past almost 100 years was a little bit over 7%.

8:09Even a 6 % initial withdrawal rate lasted for 30 years 75 % of the time. So a 4.7 % rate is historically pretty darn safe. In his book, Bangen explains how the initial withdrawal rate can be adjusted for stock valuations and inflation levels at the start of retirement. In an interview for our August 30th, 2025 episode, Bangen told me that he'd recommend a 5 % withdrawal rate for someone retiring at that time. Number three, reduce withdrawals when your portfolio loses value. Over the past 30 years, other experts have done their own research into safe withdrawal rates, including some folks at Morningstar.

8:44In their most recent analysis, which is based on the firm's projected returns for bonds and stocks, not on historical returns, they determined that 3.9 % is the base case rate. However, retirees could withdraw more, in some cases close to 6%, if they are willing to be flexible with how much they withdraw from year to year. When the portfolio is up, retirees can withdraw more, but when it's down, they have to cut back. The evidence here is clear. One of the best things retirees can do for their portfolio's longevity is to reduce withdrawals during a bear market. This limits how much the investments are sold at a loss and gives them more time to recover.

9:20To learn more about Morningstar's research, listen to our January 10th episode in which I interview Christine Benz. Number four, run your retirement like an endowment. Much of this research on safe withdrawal rates assumes that the rate is just used in that first year of retirement, and then that dollar amount withdrawn in year one is adjusted for inflation for each subsequent year. However, another method is to withdraw a percentage of the assets each year, as do endowments for colleges, charities, and other nonprofits. The percentage used by endowments varies from anywhere between 4 % and 6%.

9:55Morningstar's research found that 5.7 % could survive 30 years of retirement. Withdrawals could also be based on the percentages used to determine required minimum distributions, RMDs, which increase as we get older. This accounts for the fact that we should be able to draw more each year as we age because the money needs to be spread across fewer years. Just know that any withdrawal methodology that is based on a percentage of the portfolio each year could result in wide fluctuations in spending, depending on the portfolio's performance. 5. Assume a Prudent Life Expectancy As I've suggested at various points already, people who retire in their mid-60s should base their number crunching and withdrawal rates on a 30-year retirement, in other words, living to their mid-90s.

10:39That said, most people won't live that long. According to the Centers for Disease Control as of 2024, life expectancy for a female who reaches age 65 is 20.8 years. That figure is 18.4 years for a 65-year-old male. However, people with higher levels of education and wealth, which is true of the typical Motley Fool money listener, are more likely to outlive the averages. So the safer assumption is that you'll live to your 90s. To see the odds that you'll live to certain ages based on your health, marital status, and other factors, visit the Longevity Illustrator from the Society of Actuaries. 6.

11:15Optimize Social Security So even if your portfolio runs dry, you'll still receive Social Security. Yes, the trust funds that help cover the cost will be depleted in the next several years. Hopefully Uncle Sam will come up with a solution before then, but even without the trust funds, payroll taxes are estimated to be able to cover 75 % to 80 % of the benefits. Social Security will last as long as you do and get adjusted for inflation along the way. These days, many experts recommend delaying Social Security for as long as possible, up to age 70, since the benefit gets bigger with each month of delaying.

11:46However, that may not be the best strategy for you or your spouse if you're married. So there are calculators and services that help choose the optimal claiming age. Some to consider are OpenSocialSecurity.com, the T. Rowe Price Social Security Optimizer, and Maximize My Social Security. 7. Consider an annuity. And I know, most annuities are complex, complicated, expensive, and not recommended. However, one to consider is the oldest and simplest version, the single premium immediate annuity, or often called a SPIA. You hand over a lump sum to an insurance company in exchange for monthly or annual income that will continue until you pass away.

12:25Now, many investors are reluctant to consider a SPIA since they fear that they'll die soon after buying the annuity. Makes sense. Fortunately, there are versions that guarantee a certain number of years of payments, such as 10 years, or that heirs will receive a refund of any premiums not paid out. However, these features come at the cost of lower payouts. You can visit immediateannuities.com to get an idea of how much SPIAs are paying these days. Here's how much annual income a 65-year-old could receive after investing$100 ,000 in a SPIA. So if it's a single female and payments just continue for life, she would receive$7 ,608 a year.

13:04A female with life but 10 years certain,$7 ,440. And then life with a cash refund,$7 ,128. For a male, for payments that would just last as long as he lives, the annual payouts are$8 ,220. For life and 10-year certain,$7 ,908. And then life with a cash refund, it's$7 ,356. Now, there's no doubt that there are plenty of downsides to SPIAs, right? You can't get more than the annual monthly payouts if you run into any emergencies. The payments don't adjust for inflation. And although the word guaranteed is often used when describing annuities, the guarantee is only as good as long as the insurance companies in business.

13:45So make sure you choose a highly rated insurer. Fortunately, states have guarantee funds that cover anywhere between$100 ,000 and$500 ,000 of losses, depending on the state and the type of annuity. Final word on annuities here is that generally the money used to purchase these should come from the safer side of your portfolio. So, for example, if you decide that the right asset allocation for you is 60 % stocks and 40 % bonds cash, you dip into that latter 40 % for the money to buy the annuity. Then finally, number eight, have reserve assets. Everyone should have an emergency fund, including retirees.

14:20This is a pot of money that you don't touch unless you absolutely need it. The classic advice is to have three to six months worth of expenses set aside in a high yield savings account. However, retirees might want a bigger fund to cover medical emergencies and maybe long-term care. I plan to set aside 10 % of my wife's and my portfolio for such a fund when we retire. I hope we don't need it and that money will just go to our kids, which is fine with us since leaving a legacy is one of our financial goals. But we'll have that money as a backup if the rest of our portfolio runs low. And you likely have other assets that could be used as backup reserves.

14:53If you own a home with significant equity, you could downsize or take out a reverse mortgage. You may have other valuable assets that could be sold in a pinch, you know, a vacation home, a boat, an RV, maybe collectibles. If you own a cash value life insurance policy, you can take out a loan that may not need to be paid back, though it'll reduce the death penalty and could cause the policy to lapse or work with your insurance agent to do it properly. Ideally, you won't need to rely on any of these assets, but it's good to know they're there if you need them.

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15:56Robert Brokamp:All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement. It's time to get it done, fools. And in the previous segment, I recommended that you optimize your Social Security. So this week, I encourage you to download your Social Security statement to see how much you're projected to receive at various claiming ages. Visit ssa.gov forward slash my account to create a my social security account and download your latest statement. Once you log in, you'll see quote unquote, your social security benefit at the very top.

16:29Click on it to be taken to a page that will allow you to download your latest statement as a PDF or Excel file. At the top right of your statement, you'll see your quote unquote, personalized monthly retirement benefit estimates depending on the age you start. That's how much the Social Security Administration estimates you'll receive based on your past work record, which is included in the statement, and assuming you'll earn the same annual income in the future as you did in the most recent year for which the SSA has information, which is currently 2024. As illustrated in the statement, the benefit gets larger for each year you wait to claim benefits.

17:04However, it's important to remember that the benefit actually increases with each month you delay. Keep in mind that the projected benefits are expressed in today's dollars, so the benefit will actually be bigger in nominal dollars. For example, if your statement says that you'll receive$3 ,000 a month a decade from now, and inflation averages 3 % per year between now and then, the actual benefit you receive may be closer to around$4 ,000, but it will have the purchasing power of$3 ,000 today. While a bigger benefit is the most compelling reason to delay claiming benefits, the number you see in your statement might overstate how much delaying will pay off.

17:40The estimates assume that you'll continue to earn what you did in the last year for which Social Security has information up until you claim benefits, but that might not be what ends up happening. So you may earn less, perhaps because you'll transition to a lower paying career, or you'll phase into retirement by working part-time, or you may retire at one age, say 65, but not claim benefits for another two to five years. These scenarios could result in a slightly lower benefit than what's shown in your statement, since your benefit is based on your 35 highest earning years adjusted for inflation.

18:11Also, if you're married and your spouse earns significantly more than you did over your careers, you may receive a higher spousal benefit that won't be included in your Social Security statement.

18:21Robert Brokamp:And finally, as I mentioned earlier, Social Security is certainly facing funding challenges. So for those who are not near or in retirement, it might make sense to assume you'll only get 75 to 80 % of your projected benefit just to be safe. And that, my Foolish friends, is the show. Thanks so much for spending part of your weekend with us. And thanks to Bart Shannon, the engineer for this episode. As always, people on the program may have interest in the investments they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell investments based solely on what you hear.

18:52All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on, everybody.