Navigating retirement finances is increasingly challenging, and a growing number of Americans fear outliving their savings more than they fear death itself. According to a 2023 poll by Allianz Life, 61% of Americans express this fear, with 40% uncertain about how to recover their retirement plans after setbacks. Here’s what to know and what actions you can take if you’re concerned about running out of money in retirement.
Running out of money doesn’t mean you have zero income; it means you’ve exhausted your savings and liquid assets like a home or car. However, you might still receive income from pensions, Social Security, or even part-time employment.
Signs You Might Run Out of Money in Retirement
- Rapidly Declining Accounts: High living costs can lead to decreased savings and increased withdrawals from retirement accounts. If this trend continues, you risk depleting your funds prematurely.
- Action: Implement a strict budget to monitor and control your spending.
- Increasing Debt: In retirement, aim to live debt-free. Accruing new debts for everyday expenses is a red flag.
- Action: Prefer using a debit card for transactions to ensure you live within your means.
- Unexpected Taxes: Taxes can erode your retirement savings unexpectedly, from reduced benefit checks to higher property taxes.
- Action: Regular consultations with a financial advisor can help anticipate and manage tax impacts.
- Lifestyle Inflation: If retirement spending exceeds your working years’ budget, it’s crucial to adjust.
- Action: Reassess and realign your budget to cut unnecessary expenses.
- Lack of Income Streams: Without additional income streams, your savings may dwindle.
- Action: Invest in avenues like dividend-paying stocks or bonds to generate regular income. Consider part-time work or freelancing as flexible work options.
Steps to Take if You’re at Risk of Running Out of Funds
- Consult a Financial Advisor: An advisor can provide personalized strategies based on your current financial situation and help identify potential income sources or benefits you might be eligible for, including tapping into life insurance through a life settlement.
- Budget and Reduce Expenses: Sharpen your budgeting skills to extend the lifespan of your savings. Consider downsizing your lifestyle, such as moving to a smaller home or reducing transportation costs by owning fewer vehicles.
- Explore Income Opportunities: Look for ways to generate income through part-time jobs, consulting, or hobbies that can be monetized.
- Utilize Government and Community Resources: Investigate whether you qualify for additional government benefits such as Medicaid, especially if your financial situation is dire.
- Reevaluate Your Investments: Work with a financial planner to ensure your investments are appropriately aligned with your current risk tolerance and income needs. Consider more conservative investments that provide steady returns.
Long-Term Planning
To prevent financial distress in retirement, engage with financial planning services early and review your plans regularly, especially leading up to and during retirement. Financial advisors can help adjust your strategy to better withstand market fluctuations, unexpected expenses, and changes in income.
Running out of money in retirement is a serious concern for many, but with proactive planning and informed decision-making, you can improve your financial security and enjoy your retirement years with peace of mind.
