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Can you avoid outliving your retirement savings

Can you avoid outliving your retirement savings

May 08, 2023

Living too long may be the greatest threat to your retirement plans.


Will you have enough money to last your whole retirement?

Research from Allianz Life indicates that more than 60% of people over 50 worry more about running out of money than dying! Unfortunately, fears about living too long in retirement (“longevity risk) are legitimate, especially considering we live in an economy plagued by inflation and market volatility.

Retirees who live too long may find themselves without the financial resources to cover their living expenses and medical bills. This situation can lead to multiple problems, from having to sell off assets and raiding savings to being unable to afford necessities. For most people, running out of money means they’ve burned through their cash savings or home equity and are now reliant on any income streams they may have, such as Social Security or pensions.

Since Americans are living longer than ever, longevity risk threatens retiree wealth more than it has in the past. In 2022, the average time a person who retires at age 65 will need income is 20 years. 25% of those reaching age 65 will live past 90.

Longer lifespans mean people must plan for the possibility of living much longer than they may have anticipated. Fortunately, there are some steps that retirees can take to help protect against the dangers of living too long in retirement.

You are never too young to develop and implement a retirement savings plan. Time is on your side when you are younger. Save enough and create a plan while you are still working. Thanks to compound interest, you’ll gain a sizeable account fairly quickly by regularly investing small amounts.

One of the best ways to avoid cash shortfalls in retirement is to have a realistic and thorough retirement plan in place. A viable retirement blueprint will outline the specifics of what you want your money to do and how you want your life in retirement to look. This written blueprint should detail your current financial situation, considering your goals, risk tolerance, and general attitudes about money.

Obviously, you’ll need to set aside enough money to cover all your expenses when you no longer work. Typical retirement costs include medical bills, insurance, food, housing, utilities, travel, and recreation expenses. Saving enough money to cover these costs means sticking to a budget and perhaps paring back on luxuries. But saving money is critical since it is the first step in protecting your financial security when you stop working.

Develop a strategy for addressing potential Long Term care costs.

Unexpected medical bills, including those for long-term care (LTC), are a primary reason people run out of money in retirement. LTC needs can happen anytime during retirement, but they most often occur near the end of your life.

US government statistics indicate that around 70% of Americans will need long-term care in their lifetimes. Few, however, have the funds available to pay for that care. Long-term care costs can average $51,000-$102,000 a year. Contrary to what many seniors think, Medicare does not cover most LTC expenses.

Unfortunately, for many people, standalone long-term care policies are prohibitively expensive. Many seniors also don’t like that most standalone LTC policies are “use-them-or-lose-them.” If you are fortunate and do not need a nursing home or other long-term care, you usually don’t get back any of the money you’ve paid in premiums. And, if you have certain pre-existing conditions, you may not qualify for coverage. Some alternatives to long-term care standalone policies include particular types of annuities that provide some LTC benefits and have much less underwriting. Ask your retirement advisor to explain these alternatives and determine if they’ll work for you.

Re-engineer your life before you retire.

You can apply several “tweaks” to your retirement plan to increase your chances of success. For example, if you’re healthy and can still tolerate working, consider working 3-5 years longer than you planned. Multiple studies demonstrate that working longer can help you retain your mental sharpness, provide social interactions, and improve your financial status.

Along the same lines is working part-time after leaving your current career. For many seniors, having a part-time job gives them a sense of purpose and helps them avoid draining their retirement accounts too quickly.

Other ways to tweak your life now and save more for your retirement include:

  • Renting out a room in your home or getting a roommate for your apartment.
  • Cutting out the “fat” in your budget by reducing or eliminating spending on anything except what you need.
  • Downsizing your home or moving to a less expensive area.
  • Finding passive income sources, such as rental property or a small business.
  • Purchasing an income annuity to ensure you have at least one source of predictable income when you retire.
  • Delaying the start of Social Security payments until you’ve reached full retirement age.
  • Getting rid of as much high-interest debt as you can. Debt is seldom your friend in retirement.

Bottom line: Living too long is arguably the greatest threat to retirement security that many of us will face. However, addressing potential longevity issues while you are still working is one way to buffer against negative consequences, especially running out of retirement income before running out of life.  I have many more ideas in my new book, Fortifying Your Financial Kingdom.   US residents can get a free copy HERE.