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Blog Your guide to financial planning and retirement
March 30, 2023 • 8 minutes
Running out of money in retirement is one of the biggest fears for retirees. It’s not just a casual worry. For most people, it’s the number one concern when leaving the workforce. And the fear makes sense. Retirement can last 20 to 30 years or longer. During that time, you must pay for daily expenses, healthcare, and unexpected emergencies. Without careful planning, savings can disappear faster than expected. That’s why it’s so important to build a strategy to help your money last.
Let’s explore this fear. What can you do about it?
Study after study reveals that running out of money is the number one thing that scares people about retirement.
Research from Allianz Life suggests that more than 60% of baby boomers are more afraid of running out of money than dying.
And younger cohorts are even more fearful. Among people aged 44-49, it’s 77% (and a whopping 82% if they’re married with dependents.)
A study released by the American Institute of CPAs (AICPA) reported that 57% of financial planners said that running out of money was the top retirement concern for their clients.
Having enough savings for retirement isn’t the only fear. The Transamerica Center for Retirement Studies found that only 37% of their survey takers replied that running out of savings was the biggest worry. Declining health that requires long-term care worried 47 percent of respondents. A reduction in or elimination of Social Security scared 47%. Losing their independence was the primary fear for 38%.
According to a detailed report by the Employee Benefit Research Institute (EBRI), many of us are in fact very likely to run out of money, no matter the income level. The Retirement Security Projection Model predicts that 40.6% of U.S. households led by someone aged 35 to 64 will run short of money in retirement.
While the data varies dramatically with people’s pre retirement income levels, not even those in the highest income quartile are immune from running out:
Yikes!
The above data applies to people who will spend 35 years in retirement. But, the data is only slightly better if you are living in retirement for 20 years. At a shorter retirement, a full 81% of the lowest income quartile and 8% in the highest income quartile will run out of money.
Almost one out of 10 of the very richest among us really will run out of money in retirement.
There are a variety of very real and tangible factors that are contributing to increased concern and increased risk of running out of money.
Longer lives, less proactive saving, higher costs, stagnant wages and fewer people with pension plans are some of the key reasons that more of us are at risk of outliving our assets.
Running out of money in retirement in these scenarios doesn’t mean you’re completely penniless.
Running out of money means you’ve used all your retirement savings and home equity. You must then rely on remaining income streams, such as Social Security or a pension if you have one.
Most people who run out of money in retirement continue to scrimp by, living on Social Security income, pursuing a part time job, and dramatically cutting costs.
You may no longer live in your own home. In some cases, people enroll in low-income programs or rely on family for shelter or support. Others now receive Medicaid instead of Medicare. Living in poverty or with a very low income is also common.
The answer of course depends on hundreds of different factors.
To find out if you’ll run out of money, create an account with Boldin and you will be able to immediately see if you are at risk. In fact, the system will even evaluate your risk for running out of money using both optimistic and pessimistic scenarios.
Check the charts to see your out-of-money age and gauge your readiness. Stress test your plan by adjusting life expectancy.
If you don’t want to run out of money, you need to take action.
Unfortunately, not enough people are doing what it takes. The Transamerica study found that:
Use the Boldin Planner to take action now. It’s a comprehensive tool that uses your specific numbers to give you a clear visualization of your long-term retirement outlook, so that you can plan with confidence.
Here are three steps you can take:
The best way to avoid running out of money in retirement is to have a very good, detailed and completely personalized retirement plan, based entirely on your numbers and your needs.
To start, you’ll want to:
High medical costs and long term care costs are big reasons why people run out of money in retirement. These costs usually occur near the end of your life.
About 70% of of people who turn age 65 will need some type of long term care in their lifetime, according to the U.S. Department of Health and Human Services, but few are prepared to pay for that care. The costs of long term care are exorbitant — ranging, on average, from $51,000-$102,000 a year according to this survey — and are not covered by Medicare.
If you worry about running out, start planning now to cover these costs. The Boldin Planner will help you estimate medical costs. You can also run scenarios for different ways to cover long term care.
Try out any of the following tweaks to your plan to strengthen your prospects and feel more confident about your future:
You don’t have to worry. Take action now to build and improve your retirement plans
The data in this article is worth sitting with. Most people who run out of money in retirement don’t see it coming, they just didn’t have a clear picture of where they stood until it was too late to adjust. That’s the problem the Boldin Planner is built to solve. It shows you your out-of-money age under different scenarios, so the adjustments you need to make are visible while you still have time to make them.
This depends on your savings, spending habits, and lifespan. Use a planner to model different scenarios and plan proactively.
It means you’ve used all retirement savings and home equity. You then rely on limited income sources like Social Security or pensions.
If you run out of money in retirement, you may have to rely on Social Security, pensions, or public assistance. You might sell assets or downsize your home. Many turn to part-time work or family support. The impact can be stressful without advance planning.
Start with a detailed retirement plan. Save early and often. Adjust spending to match your income. Use a retirement calculator to project future needs. Stress test your plan for different life expectancies and market conditions. The earlier you prepare, the lower your risk.
The model predicts a high risk of running short, even for many in higher income brackets. It highlights the importance of planning for long retirements.
First, reduce expenses and explore part-time work. You can also tap into safety net programs or adjust your housing situation.
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