Will you run out of money during retirement?
Written by Joseph Regan on November 21, 2018.
I think running out of money when we are no longer capable of earning a crust is a prospect which flits across many of our minds as we start to get older and realise that we are not in fact indestructible beings destined to live forever and will one day have to stop working! Often this moment of reflection coincides with having children and turning 40 – both prescient reminders of our human mortality.
And it turns out that most of us are right to worry as the average person’s retirement saving is generally a pretty woeful state of affairs. This is confirmed by the findings of a report from the American Employee Benefit Research Institute (EBRI) which includes some downright terrifying facts.
Amongst other things, the report reveals that 20 years of retirement, a massive 81% of the lowest income quartile will run out of money as well as 8% of the highest income quartile.
Running out of money in this sense means exhausting all assets and savings, including private retirement savings and equity, leaving individuals living solely off income i.e. any pension they have accrued (if indeed they have one) and social security payments. No prizes for guessing what quality of life that usually brings.
The time to make sure that you don’t run out of money is… NOW! Yes, the future is in your hands so you need to start planning. That means working out how much you need to retire, how much income you will need in retirement and whether your income will cover your retirement expenses. These aren’t easy questions but a financial planner will be able to work with you to find the answers.
Once you have them, you will be able to ascertain the likelihood that you will run out of money. If that is a very real prospect, you are faced with the following options:
Save more than you do currently
Spend less now
Spend less in the future
Work for more years before you retire
Optimise your investment strategies
For the twenty and thirty somethings amongst you, my advice is not to wait until the dawning realisation of your fallibility hits to start saving but to pre-empt them by getting into a serious savings habit right now. Your future financially secure self really will thank you for it.
If you are in your forties or fifties it’s true that time is not on your side but don’t panic. You do however need to take a serious look at your financial habits and work out which of the options above, or more likely combination of options, you can realistically take.
Whatever your age, financial planning is a task for which two heads are better than one. A financial adviser can be invaluable in gaining clarity about your current situation and helping you define a financial roadmap to ensure that you don’t run out of money in retirement. If you’re looking for a second head (!) why not give me a shout on email for a free, no-obligation appointment? You can reach me at jregan@infinity solutions.com.