If you are worried about running out of money in retirement, you are not alone. Running out of money is the main concern of most people in or approaching retirement. And, there is VERY good reason to be concerned — VERY concerned.
Let’s explore this fear. Are you right to be scared? What can you do about your concerns?
Study after study reveals that running out of money is the number one thing that scares people about retirement.
Scarier than Dying: 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 is 77%. (And a whopping 82% if they are 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.
However, having enough savings for retirement is not the only fear. The Transamerica Center for Retirement Studies found that only 37% of their survey takers replied that running out of savings and investments is the biggest worry. The Transamerica respondents most frequently cited declining health that requires long-term care (47 percent), a reduction in or elimination of Social Security (47 percent) and losing their independence (38 percent) as the primary fear.
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 your income level. Their Retirement Security Projection Model predicts that overall 40.6% of all U.S. households where the head of household is between 35 and 64, are projected to run short of money in retirement.
And, 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:
- 83 percent of baby boomers in the lowest income quartile will run out of money in retirement
- 47 percent of boomers in the second lowest quartile will run out
- 28 percent of boomers in the second highest quartile will run out
- 13 percent of boomers in the highest income quartile will run out
The above data refers to people who will be retired for 35 years. The data is only slightly better if you are living in retirement for 20 years — but even then a full 81 percent of the lowest income quartile and 8 percent in the highest income quartile will run out of money.
Almost one out of ten of the very richest among us will run out of money in retirement? Yes!
Yikes! Yikes! YIKES!
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 — does not mean that you are completely penniless.
Running out of money usually means that you have used up all of your retirement savings and your home equity and are left with whatever income streams you might have — Social Security or a 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 they have perhaps dramatically cut costs.
You are likely no longer in your own home and may be enrolled in low income programs and/or are relying on family for shelter or support. You are probably now part of Medicaid instead of Medicare. You are probably living in poverty or at a very low income level.
The answer of course depends on hundreds of different factors.
To find out if YOU will run out of money, create an account with NewRetirement 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.
There are multiple charts that will help you assess your out of money age and if you are adequately prepared or not. Stress test your plan by trying out different options for your 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:
- Only 18 percent of the survey respondents were taking proactive steps to address the issues around planning a secure retirement.
- And, 35 percent were weighing the issues but had not yet decided on a specific course of action.
The NewRetirement Retirement Planner makes it easy to get started and take action.
NewRetirement offers the best do it yourself retirement planning software online. The system is completely comprehensive and it provides you with reliable answers about your prospects for a secure future.
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 — totally based on you and your needs.
To start, you will want to:
- Document your current situation in as much detail as possible.
- Imagine the specifics of your future and plan for big and small tweaks and changes that will enable you to achieve the retirement you want to have — without running out of money.
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 are worried about running out, it is best to plan for covering these costs. The NewRetirement 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. Get started, create and improve your retirement plans now.