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Is Your Retirement on Track? 3 Signs You Will Run Out of Money In Retirement

Is Your Retirement on Track? 3 Signs You Will Run Out of Money In Retirement

August 10, 2021

"Will I outlive my retirement money?" That's one of the top fears of retirees. Rising inflation, market changes, and unexpected events can upend your retirement. But how do you know if you're on track? Here are 3 common signs that your funds might not last. 

1. You Are Spending or Withdrawing Too Much

It can be easy to miscalculate how much you are going to spend in retirement. Workers often dream of reading a book by the pool every day. However, take into consideration that the average 65-year-old woman can expect another 20.5 years, to 85 1/2.1 Eventually, the novelty of laying by the pool wears off. Many retirees end up spending more money in retirement to keep themselves entertained. 

When every day is Saturday, expenses like shopping, travel, food, and drinks can add up. Having a robust spending plan will help you establish what you will be able to afford in retirement. 

Be wary of withdrawing too much from your retirement savings. Yes, unexpected expenses happen (as we will discuss in more detail below.) As a basic rule of thumb, 4% is considered by many to be a good starting point for choosing a withdrawal rate in retirement. 

Most retirees are more active in the early part of retirement. They often devote more time to hobbies or travel, and their spending is often higher. Spending then falls in the middle part of retirement, before rising again due to costly healthcare expenditures late in life.

The rule can be adjusted, but the key is to not overspend too much early in retirement. 

2. You Haven't Accounted for the Unexpected

Inflation, healthcare, and debt. Those are three scary words for anyone with a retirement plan. While no one wants to imagine themselves in the hospital, extended care may be an expense that can undermine your financial strategy if you don’t prepare for it.  

Fidelity Investments estimates that a 65-year-old couple retiring in 2019 would need $285,000 to cover medical expenses in retirement.So, being prepared is crucial to a well-rounded retirement plan. 

In addition to healthcare, prices for consumer goods are climbing faster than many expected. The Fed just raised its inflation expectation to 3.4%, up from its March projection of 2.4%, effectively raising its inflation expectation by 42%.A record number of older Americans also have mortgages, credit card debt, and even student loans. This debt will be an anchor as inflation rises. 

3. You Don't Have a Plan

A big part of getting on track for retirement comes down to your investment strategy. Not having a plan for retirement income, or even just a spending plan at the beginning of your retirement, can greatly increase the risk of running out of money as you age.

Without a plan, you're really just hoping that you've accumulated enough and that can be like trying to shoot a target in the dark.

Keeping your assets in cash or a money market account doesn't build wealth, yet 25% of retirees report their retirement assets are in cash. Cash!2 It’s unlikely savings interest rates will exceed inflation, so even well-placed cash will erode in value. Savers must take on some risk. 

A plan allows you to understand how much you really need to retire, identify any shortfalls, and give you time to adjust your savings strategies. The advice of a trusted professional can help you consider things you would likely overlook when trying to do it alone, like making sure you're allocated correctly or creating a withdrawal strategy for your retirement income. Give us a call today for a free retirement review. 

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How Women Can Maximize Their Social Security Benefits in Retirement

Women face unique financial challenges when it comes to their retirement plans. They generally live longer, and unfortunately many retire with lower assets. So how can women make their assets last? 

How Rising Inflation Could Affect Your Retirement Plan

As our nation continues to recover from the effects of COVID-19, one economic trend has been capturing news attention as of late: inflation. While some experts argue that the rising inflation is transitory, the rise has raised some eyebrows and some important questions. 

1. AARP, How Much Money Do You Need to Retire?, 2020

2. Forbes, only 27% of Workers Say They're on Track for Retirement, April 2021

3. Gobankingrates, July 2021