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I read an online survey that was conducted from February to March 2024 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. According to this 2024 Annual Retirement Study from Allianz, there are three interesting retirement findings:
- 43% say high inflation contributes to their worry about running out of money.
- 63% are more worried about running out of money than death!
- 35% say putting a portion of retirement savings in a product that provides lifetime
Income payments (e.g., annuities) were a top solution to their concern about running out of money.
Persistent inflation over the past 3-4 years makes the already common fear of running out of money in retirement a much more stressful concern for older Americans. Only two years ago, our inflation rate ballooned to a 40-year high of 9% in June-July of 2022!
According to the Wall Street Journal, inflation is putting “more retirees at risk of running out of money,” as “rising prices require bigger withdrawals from retirement savings.”
As is usually the case, this situation is likely to hit less wealthy retirees harder.
The study projects that inflation will reduce the financial wealth of retirees in the top third of the wealth distribution by an average of 4.3% by 2025,” said the Journal, whereas “those in the bottom third, who rely more heavily on cash and bonds in their retirement savings, are likely to experience an 18.8% reduction by 2025 due to inflation.
While this can become an increasingly stressful financial situation, there are steps you can take to ensure that your retirement funds see you through. Let’s discuss these concepts more fully.
1. Reassess Your Retirement Income Needs
Whether you are planning your retirement or you have already retired, it is never too late to develop a budget or take a second look at your retirement budget. Determine how much you need to withdraw each month to cover necessary expenses while keeping an eye on other spending areas.
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My wife and I reviewed our retirement spending plan with our financial advisor well in advance of our full retirement in July 2021. At that time, we determined we could enjoy a comfortable retirement based on spending $12,000 monthly. Per my budget analysis, my wife and I are spending about 5 percent more than anticipated due to eating out more often, enjoying lots of nearby shows and concerts, and dealing with the higher inflation over the past three years.
We have had to readjust our monthly spending plan each year based on changing conditions.
One of the lessons we learned, particularly from the study above is to watch your debt closely. If it’s growing, it’s a red flag. This means you’re spending more than you earn. To fix this, reduce spending or find ways to make more money.
My wife and I reached the best of all worlds in 2017 when we sold our Outer Banks, NC beach house and liquidated ALL our debt four years before our retirement! I strongly recommend that you reduce most, if NOT all, of your debt before retirement so that debt payments are not a cash outflow in your retirement planning.
2. Reinvest Some Funds
While the general rule of thumb is often to shift your assets to an 80/20 mix between low-risk investments (e.g., bonds) and growth investments (i.e., equities) as you near retirement, experts do not recommend that you take your money out of the market entirely.
While I have collaborated closely with our financial advisor to move some of our retirement assets that we will need in the short term of one to two years into more conservative certificate of deposits (CD’s) and money market accounts, we are still aggressively invested in equities for our longer-term investments.
If you have concerns about running low on money, consider reinvesting some of your funds to capture higher potential returns. Just make sure to be measured about any additional risk, otherwise, you could end up in an even worse financial situation.
Plan your spending. Match your essential costs with reliable income like Social Security. For extras, use investments that can grow but also have some risk. This way, you can adjust your spending if needed.
3. Tap Your Social Security and Retirement Strategically
As we know, it is possible to collect Social Security as early as age sixty-two. But the longer you wait to collect Social Security, the larger your monthly payment will be for life.
So, waiting longer can have huge long-term impacts on your cash flow and financial stability. Another way to secure some more retirement income for yourself is to hold off on Social Security benefits until at least your full retirement age (FRA).
While you are entitled to your full Social Security benefit, based on your personal wage history, once you reach full retirement age, you can give your monthly benefit a healthy boost of a guaranteed 8% per year return if you hold off on claiming it, up until the maximum age of 70.
Tapping other retirement accounts (e.g., 401k, 403b or IRAs) should involve careful planning. As it turns out, tapping your IRA or 401(k) whenever you “want” money could put you at risk of depleting those funds sooner than expected.
Rather than taking your withdrawals at random, you should have a plan for when you will make withdrawals and how much you will take out. This task is best done in conjunction with your financial advisor, especially considering various tax implications of retirement account withdrawals.
4. Consider Some Part-Time “Fun” Work
While most of us associate retirement with the end of our working days, sometimes, our income needs in retirement will force us to take another course of action.
As much as you may dread this, it is important that you remember that work in retirement can be redefined as to how you want it to be. Once you are in retirement, you only need to work enough to supplement the other income sources that you have.
After three years of retirement, I have a steady stream of supplemental income coming in monthly from book sale royalties as well as income from various part time jobs such as writing articles for the POF readership as well as odd jobs from such sites as Upwork.
Based on my financial background, I have helped others with their Social Security withdrawal plans as well as served as a tutor to students.
This part-time work in retirement can mean doing a role that is very different from what you did throughout your long career, or a little more of the same, depending on what you prefer.
My wife, who was a busy pathologist during her working years, has always wanted to give back in her retirement.
Thus, she started volunteering in 2022 at a local social services agency, called Broad Street Love, whose mission is to create connection and community, restore hope and dignity, and increase security and self-sufficiency.
They serve over 5,000 homeless guests who are living in deep poverty in Philadelphia. Late last year, she was asked to work on a part-time basis to assist with the busy mailroom operation. This work, while only 24 hours per week, is incredibly fulfilling to her in retirement.
What Happens If You Do Run Out of Money in Retirement?
Running out of money in retirement does not mean that you are completely penniless. Instead, it usually means that you have used up all your retirement savings and your home equity and are left with whatever income streams you have remaining, such as Social Security or a company pension if you are lucky.
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 their living costs.
Whether you are concerned about running out of money in retirement or think you are set, develop a retirement plan to ensure you and your loved one are financially set for the rest of your lives.
While I have shared some tips to help your money last the rest of your life, it is your responsibility to act today to put one of these (or a variety of them) into place. When you are still kicking and enjoying life in your golden years, you will be happy you did.
