A generation ago, it was easy to make your money last through your lifetime: You retired at 65, bought bonds and lived off your pension and Social Security. You weren’t expecting to live much past 70 anyway.

Things have changed. Interest rates are at historic lows, pensions are rare and longevity is rising.

Making your money last will be the single greatest financial challenge you and most of this generation will face. 

Too Many People Focus on the Wrong Levers

Five financial planning levers decide your ability to make your money last. Three of the five are largely out of your control: investment returns, inflation and longevity. Today’s world makes these three unknowns difficult even to model. Current stock market valuations and historically low interest rates may reduce investment returns over the next decade, inflation may be affected by uncertainties in the healthcare market, and lifespans are longer than ever. That means that you will need to plan to make your money last until age 95 or longer, depending on your health and family history. (You can use this life expectancy calculator prepared by the New England Centenarian Study to begin thinking seriously about how long you’ll live.)

Unfortunately, too many people focus on the wrong levers when they try to make their money last. They focus on investment returns, which are extremely important, of course. But the reality is that you have relatively little control over returns. Ironically, if you try to beat the market, you’re much more likely to terribly underperform it, and that’s a very effective way to not make your money last.

It’s so easy to underperform the market. One false move – a few speculative buys that don’t pan out or an attempt to time the market– is all you need to wreck your performance and your chances of making your money last.

At the same time, your upside is largely limited to the market rate of return, which most experts agree over the long term could be 6 percent for a stock portfolio or less for a portfolio of stocks and bonds. Chances are, if you beat the market you’re probably assuming too much risk; but you got lucky this time. It’s not likely to happen often. Beating the market is usually a matter of luck, and that’s not something on which to base your future.

Focus on Levers You Can Control

But, you have two levers at your disposal that you can usually control:

  1. How long you work
  2. How much you spend 

It’s amazing to understand the impact these two variables have on financial plans. The length of your productive work career has a double-barreled effect on making your money last. Working longer extends the positive cash coming into your investments; at the same time, it reduces or eliminates the need to take portfolio withdrawals during those years.

Spending usually has the biggest impact on a financial plan. Even a relatively modest reduction in spending can have a huge effect on making your money last. The reason? Long-term cuts in expenses have long-term impacts that really add up over time – it’s the consistency of the spending cuts that makes spending such an effective lever. The Center for Retirement Research at Boston College has this effective tool to look at your saving and spending habits.

Troubleshooting Your Financial Plan

If your financial plan isn’t quite working out, spending less is your best way to get back on track. Planning to work longer is also a good option, but one with some uncertainty. You could plan to work until 70, but be forced to retire earlier for health reasons, for instance.

Spending less is often a matter of examining your priorities and then making difficult choices. Consider these questions:

  • Can I move to a lower-cost residence?
  • Could I drive a less expensive car?
  • Can I cook more and eat out less?

Sure, it’s more fun to try and boost your investment returns, but the goal of investing is to make your money last and that requires discipline.

Instead, focus your energy on what you can control. Reducing spending can be a dreaded process filled with difficult choices, but if you focus on what makes you happy, you might realize that much of your spending is unnecessary. In any case, spending less and saving more are usually multi-year endeavors, and the compounding effect can be surprisingly powerful: $250 a month saved over 20 years equals more than $100,000 at a 6 percent annual interest – and you get the bonus of learning to live happily on less. If you question whether you can make your money last, look for ways to cut spending: Today’s pain will provide tomorrow’s peace of mind.