Retirement: Make your savings last as long as you do

— -- Most of us would like to live long and prosper, even if we can't perform the Vulcan salute of Star Trek's Mr. Spock. But the sad reality is that it's difficult to do both.

The decline in traditional pensions means most retiring Boomers will have to rely on income from savings and Social Security. Even before the stock market slammed millions of 401(k) plans, most workers weren't saving enough to maintain their standard of living in retirement.

Consider: If a man retires at age 65, it's likely he'll live at least another 21 years, according to the Institutional Retirement Income Council. There's about a 10% chance he'll need enough money to last 30 years or more. For women, the numbers are even scarier: About 25% will live to 93 or older, and 10% will live past 98.

You could gamble that you won't live that long. But if you're wrong, you could find yourself impoverished at a time when you're too old and frail to go back to work.

If you're near retirement, you don't have a lot of time to increase the size of your nest egg. But there are steps you can take to make the money you've saved last longer.

Work longer: The average age of retirement is 64 for men and 62 for women, according to an analysis of Census data by the Center for Retirement Research. That's up from 20 years ago, but it still means that many Boomers could spend 25 years or more in retirement.

Working longer, even for a year or two, increases your retirement security in two ways. First, it gives you more time to contribute to your 401(k) or other retirement savings plan. In addition, working longer will reduce the number of years you'll need your savings to generate income.

An analysis by T. Rowe Price found that working an additional three years and continuing to save 15% of your salary could increase your annual investment income by 22%. Working an additional five years could boost your annual investment income by 39%.

Working longer doesn't necessarily mean staying at the same job. Increasingly, older workers are pursuing second careers in the non-profit sector, and some employers are helping them make the transition. Intel recently partnered with Civic Ventures, a think tank that focuses on "encore careers," to help older workers find jobs in non-profit organizations for six months to a year. Intel will provide workers with a $25,000 stipend and health insurance coverage.

Another alternative is to work part time. Some employers offer flexible work arrangements for older employees, particularly those with specialized skills, says Marina Edwards, a retirement consultant for Towers Watson.

Before you switch to part-time or contract work, talk to human resources. Some companies don't allow part-time employees to contribute to their 401(k) plans, Edwards says.

Postpone taking Social Security: Another advantage to working longer is that you'll be able to postpone filing for Social Security benefits. Most seniors file for benefits at age 62, even though that results in a permanent haircut in their monthly benefits.

If you're in poor health or unemployed, postponing benefits may not be an option. But if you can afford to wait, delaying Social Security is one of the most cost-effective steps you can take to improve your retirement security. An analysis by the U.S. Government Accountability Office found that nearly half of retirees who filed for Social Security before their 63rd birthday passed up 25% to 33% in additional inflation-adjusted benefits that would have been available if they had waited until full retirement age. This is significant, the GAO noted, because Social Security represents the primary source of income for most retirees.

Delaying Social Security will give you a guaranteed annual rate of return of between 4% to 8%, says Christopher Jones, chief investment officer of Financial Engines, a company that provides financial advice to 401(k) plan participants. "There are very few guaranteed real returns in today's marketplace anywhere near 4% to 8%," he says.

Some seniors may feel compelled to claim benefits as soon as possible to protect them from potential deficit-reduction measures. It's unlikely though, that any change in Social Security benefits or the way they're calculated will affect Americans who are within 10 years of retirement, says H.K. "Bud" Hebeler, author of J.K. Lasser's: Your Winning Retirement Plan. A more likely scenario is that any changes, such as an increase in the full retirement age, will be phased in so that workers will have time to plan for them, he says.

Don't forget about taxes: Retirement plans, such as 401(k)s and traditional individual retirement accounts, allow you to defer taxes while you're working. But once you start taking money out, you'll have to pay taxes on it. For that reason, you should include taxes when calculating whether you can afford to retire, says Christine Benz, director of personal finance for Morningstar, the Chicago-based investment tracker

It's also important to diversify the tax treatment of your savings plans, Edwards says.

If 100% of your savings is in pretax accounts, you'll have to increase your withdrawals to pay the tax bill, which will have the perverse effect of increasing the amount you owe the IRS. To avoid that scenario, you should have some savings in an after-tax account that you can use to pay the tax bill, Edwards says.

The same rule applies if you plan to convert a traditional IRA to a Roth. Once you convert, future withdrawals are tax-free. When you convert, though, you must pay taxes on all pre-tax contributions and earnings. This transaction only makes sense if you have money outside your IRA to pay the tax bill.

Don't rely on the 4% rule: There was a time when financial experts said you could withdraw 4% a year from a diversified portfolio of stocks and bonds and never run out of money. These days, that's a dangerous assumption, says Steve Vernon, an adviser with the Institutional Retirement Income Council. The rule made sense when investors were earning 5% or more on bond portfolios, Vernon says. These days, interest rates are so low, investors are lucky to eke out 3% from bond holdings, he says. Returns from stocks are also below the average returns used to calculate the 4% rule. Times like these demand flexibility, Hebeler says. Sit down every December and figure out how much you can withdraw in the new year, based on your expenses and your portfolio's performance in the past 12 months.

Buy an annuity: One way to stretch your savings is to purchase an immediate annuity. When you buy an annuity, you give an insurance company a chunk of money in exchange for a monthly paycheck for life. Think of it as a DIY pension plan.

In an analysis of retirement shortfalls, the Government Accountability Office concluded that middle-income households, which it defined as households with at least $191,000 in assets, should consider using a portion of their savings to buy an annuity (higher-income households don't generally need annuities, the GAO said). To date, though, it isn't widely used. About 6% of households with a 401(k) type of savings plan have purchased one, the GAO said.

If you worry that a double-dip recession or bear market will flatten your portfolio, annuities offer a way to eliminate that risk, Vernon says.

That doesn't mean annuities are risk-free. You'll give up control of money you may need for health care or other emergencies, which is why experts recommend annuitizing only a portion of your portfolio. Inflation is another concern: An increase in the cost of living could erode the value of your monthly payment.

Insurance companies sell inflation-adjusted annuities, but they're a lot more expensive than fixed-payment annuities. Another option: annuities that increase by a fixed amount every year, such as 3%. They tend to be less expensive than those that adjust for inflation, Vernon says.

The cost of buying an immediate annuity goes down as you age, so you may want to wait until you're in your 70s or older to buy one. That way, you'll have access to your money in the early years of your retirement, when most retirees tend to spend more. Another strategy is to invest a small amount of your savings in an annuity every few years, Hebeler says.

The phased-in approach makes a lot of sense now, Benz says. Annuity payouts are tied to interest rates, which are currently at historic lows, she notes. Spreading out your annuity purchases over several years increases the likelihood that you'll buy some with more favorable returns, she says.

Since you're counting on a lifetime stream of income, you want to make sure your insurance company doesn't expire before you do. You can check an insurance company's financial wherewithal at