It can be easy to worry about having enough income to support your retirement lifestyle. These anxieties naturally increase during an economic downturn and periods of inflation. Retirees living on a fixed income might feel their budget tightening or find it harder to pay regular bills.
If you’re concerned about outliving your retirement savings, take steps to evaluate your current financial situation. Reviewing your habits and priorities could help you stay on track.
When concerned about running out of money in retirement, consider these factors:
How much you spend plays a role.
Your retirement account withdrawal rate matters.
Your Social Security benefits will continue.
Work opportunities can make a difference.
Having cash reserves may help.
Use the following criteria to evaluate your current cash flow and how you can use it to pay for retirement.
How Much You Spend Plays a Role
You might anticipate spending less money in retirement than you did during your working years, but your retirement lifestyle plays a role in how fast your funds are used. “Most people think they will spend about 15% to 20% less in retirement, but in reality end up spending about the same if not more,” says Kevan Melchiorre, co-founder and managing partner of Tenet Wealth Partners in Champaign, Illinois.
Take some time to look at what you are paying for each month. The expenses might include a mortgage payment, rent, food, utilities, fuel and insurance. There could be some items that fluctuate like entertainment, clothing and travel. You might find you’re spending more than you planned, or discover areas where costs can be reduced to help your dollars stretch. If you have two vehicles, you could decide to sell one. There may be opportunities to downsize to a smaller place to save on home maintenance.
Your Retirement Account Withdrawal Rate Matters
The amount you regularly take out of retirement accounts can make a difference over the course of your retirement. “A general rule in financial planning is that if you are in your early to mid-60s, you don’t want to spend more than 4% of those assets per year, adjusting for inflation annually,” says Joseph Favorito, founder of Landmark Wealth Management in Melville, New York. “In order for that to work, there needs to be a reasonable balance maintained between stocks, fixed income investments and possibly other forms of passive income such as real estate.” During periods of inflation, you might talk to your financial advisor to see if adjustments could be made.
Your Social Security Benefits Will Continue
If you’ve started to receive Social Security payments, that income will continue for the rest of your life. Finding ways to keep your essential retirement expenses below the amount you receive from Social Security could help relieve tension over your finances.
If you haven’t yet started to collect Social Security benefits, look up how much you can expect to receive at various start ages on your Social Security statement. You might decide to wait several years to begin your benefit in order to get higher monthly payments. If you take Social Security checks before your full retirement age, the benefit amount will be reduced. After your full retirement age, the monthly amount you receive will increase, up to age 70.
Work Opportunities Can Make a Difference
You may have envisioned retirement as a chance to step away from work entirely. However, if you’re concerned about running short on money, you could continue working past retirement age. “A graduated retirement is much healthier physically, mentally and financially than a hard stop,” says Keith Heritage, a financial advisor and managing partner at Heritage Financial Services in Newberry, Florida.
If you haven’t yet retired, you might consider another year or two of work to save for the years ahead. Some employers may be interested in having additional help on a part-time basis. You could also offer to consult in your area of expertise or mentor employees with less experience.
For those already in retirement, a remote part-time position could give you the chance to work from home and boost your income. If you love to interact with people, you might look for a job at a local retailer, restaurant or specialty shop.
Having Cash Reserves May Help
If you don’t have an emergency fund, it could be helpful to create one. “Having a sizable cash reserve amounting to around six months of expenses will give you some peace of mind and also provide liquidity needed for larger, unknown expenses,” Melchiorre says. You could fix a damaged roof without having to take out a loan. A car repair could be paid for with emergency funds as well. “This is especially beneficial in times like these when the stock market is down significantly,” Melchiorre says. Rather than selling stocks to get the cash you need, which could lead to losses, you could draw from the reserve account.
