Don’t Run Out of Money in Retirement

With stock markets down in recent months, many Americans are talking about retirement. It is good to focus on what you can control and that includes how much you are saving each paycheck and where you invest your money.


When you visualize retirement, what is your greatest fear, or obstacle you dread facing?

"What is your greatest retirement fear?"
Opened wallet with no money inside
Outliving money is the number one fear among pre-retiree Americans.

If you ask pre-retirees this question, "outliving my money" may be one of the top answers. In fact, 42% of workers say they fear outliving their savings and investments. One proven strategy to remove the risk of running out of money is to purchase an annuity that guarantees a set monthly amount of income during retirement. Or, you can invest to build a nest egg using stocks, bonds, and mutual funds of sufficient size that your risk of running out of money is almost nonexistent. With the latter strategy, you have the possibility to leave money to your children. Some financial planners combine the use of an annuity with a traditional investment portfolio of stocks and bonds.


Retirees face greater "longevity risk" today.

The Census Bureau says that Americans retire around age 63 for women and 65 for men. Social Security projects that today's 63-year-olds will live into their mid-eighties, on average. This is average life expectancy, so while some seniors may pass away earlier, others may live past 90 or 100.


If your retirement lasts 20, 30, or even 40 years, how well do you think your retirement savings will hold up? What financial steps could you take in your retirement to try and prevent those savings from eroding? One strategy to consider is using a cash bucket. As you think ahead, consider the following possibilities and realities.


Create a financial plan to make sure you won’t run out of money.

How will Social Security work in the future?

For decades, Social Security took in more dollars per year than it paid out. That ongoing surplus – also known as the Social Security Trust Fund – may face funding challenges as early as 2034. Congress may act to address this financing issue before then, but the worry is that future retirees could get slightly less back from Social Security than they put in. It's critical that pre-retirees estimate the amount of Social Security benefits they are expected to generate in the future. And, stress test your financial plan to see what it looks like if Social Security is cut.


It's critical that pre-retirees estimate the amount of Social Security benefits they are expected to generate in the future. And, stress test your financial plan to see what it looks like if Social Security is cut.

Preparing for out-of-pocket health care costs.

You can enroll in Medicare at age 65, but how do you handle the premiums for private health insurance if you retire before then? Striving to work until you are eligible for Medicare makes economic sense and so does setting aside money to pay for health care costs. A healthy couple retiring at age 65 can expect to pay nearly $208,000 in lifetime out-of-pocket healthcare expenses, even if they have additional coverage such as Medicare Part D, Medigap, and dental insurance.


Luck is not a plan, and hope is not a strategy.

Those who are retiring unaware of these factors may risk outliving their money. Whether you have $2 million saved or $10 million saved, creating a plan with your financial advisor could help you avoid running out of money during retirement.


Final thought.

Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals?


Peak Wealth Planning meets with clients in Champaign and Chicago, Illinois, as well as in Colorado near Denver, Winter Park, and Fraser.


If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.

Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future.


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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.


Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.