What Happens if You Run Out of Money in Retirement? (2024)

What Happens if You Run Out of Money in Retirement?

If you run out of money in retirement, you may face financial hardship and reduced quality of life. You may need to rely on family members or government programs for financial assistance, reduce your standard of living, or make significant lifestyle changes.

Retirement is a period of leisure, introspection, and pleasure, but it also requires individuals to handle their finances with great care.

One of the retirees' most significant concerns is the possibility of running out of money.

This is an uncomfortable topic for many, but understanding the risks of running out of money in retirement is critical to avoiding financial hardship later in life.

To avoid this situation, saving for retirement, planning for retirement income streams, managing expenses carefully, and investing in a diversified portfolio are essential.

The Risks of Running Out of Money in Retirement

Retirees face several risks when it comes to running out of money. One of the most significant risks is the uncertainty of how long they will need to rely on their retirement savings.

People live longer and will need more money to cover their expenses. With this in mind, there is a higher chance that retirees will outlive their retirement savings.

Another significant risk is the unpredictability of future expenses. Healthcare costs are rising rapidly, and retirees are particularly vulnerable to these costs. The potential consequences of running out of money in retirement can be severe.

Retirees who run out of money may be forced to rely on family members for financial assistance or government programs like Medicaid or Supplemental Security Income (SSI). This can be a significant burden on family members and can cause emotional distress for the retiree.

Retirees may have to reduce their standard of living and make significant lifestyle changes, such as moving to a less expensive area or downsizing their homes.

Strategies for Avoiding Running Out of Money in Retirement

There are several strategies that retirees can use to avoid running out of money for retirement.

Starting Saving Early

Retirees can avoid running out of money in retirement by starting to save as early as possible. This means contributing to a 401(k) or another retirement account, investing in stocks and bonds, and taking advantage of employer-matching contributions.

Plan for Retirement Income Streams

Social Security, pensions, and annuities are potential sources of retirement income. Retirees should work with a financial planner to determine how much they can expect to receive from these sources and plan their retirement budget accordingly.

Manage Expenses Carefully

Managing expenses is crucial in retirement.

Retirees should create a budget and stick to it, avoid taking on unnecessary debt, and make lifestyle changes as necessary to reduce expenses. This may include downsizing a home, selling assets, or moving to a less expensive area.

Invest in a Diversified Portfolio

Investing in a diversified portfolio is another way to protect against the risks associated with running out of money in retirement.

A diversified portfolio includes a mix of stocks, bonds, and other investments, which can provide both growth and income. Working with a financial planner to determine the right combination of investments for a specific retiree's needs and risk tolerance is crucial.

What Happens if You Run Out of Money in Retirement? (1)

Options if You Run Out of Money in Retirement

Despite careful planning, some retirees may still find themselves in a position where they need more money in retirement. If this happens, there are several options that retirees can explore to supplement their income.

Part-Time Work

Part-time work can provide additional income for retirees who want to continue working but cannot work full-time. This can also help retirees maintain social connections and a sense of purpose.

Reverse Mortgages

A reverse mortgage is a loan that allows homeowners over the age of 62 to access the equity in their homes. Reverse mortgages can provide additional income in retirement, but they should be carefully considered as they may come with high fees and interest rates.

Financial Assistance from Family or Government Programs

Retirees may be able to seek financial assistance from family members or government programs.

Medicaid and SSI are two government programs that provide financial assistance to low-income individuals. Retirees should work with a financial planner to determine eligibility for these programs and how to apply.

What Happens if You Run Out of Money in Retirement? (2)

Conclusion

Running out of money in retirement is a serious concern that can have severe consequences for retirees. However, individuals can take steps to minimize this risk by adopting a proactive approach to retirement planning.

Strategies such as saving early and often, planning for retirement income streams, managing expenses carefully, and investing in a diversified portfolio can all help to safeguard against running out of money in retirement.

If retirees find themselves in a difficult financial position, options such as part-time work, reverse mortgages, and government programs may be available to provide some relief.

We encourage you to hire a retirement planning professional to ensure that you are well-prepared for retirement and take advantage of the many benefits professional financial advice offers.

A retirement professional can help you develop a customized retirement plan that aligns with your goals and risk tolerance so that you can enjoy a comfortable and stress-free retirement.

What Happens if You Run Out of Money in Retirement? FAQs

If you run out of money in retirement, you may need to rely on family members or government programs for financial assistance. You may also need to reduce your standard of living or make significant lifestyle changes.

To avoid running out of money in retirement, saving early and often, planning for retirement income streams, managing expenses carefully, and investing in a diversified portfolio are essential.

Signs that you may be at risk of running out of money in retirement include overspending, taking on too much debt, failing to save enough, and experiencing unexpected expenses.

If you are already running out of money in retirement, consider part-time work, reverse mortgages, or financial assistance from family members or government programs.

It is always possible to start saving for retirement, even in your 50s or 60s. You may need to save more aggressively and make some lifestyle changes, but building a comfortable retirement nest egg is still possible.

What Happens if You Run Out of Money in Retirement? (3)

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

What Happens if You Run Out of Money in Retirement? (2024)

FAQs

What happens if retirees run out of money? ›

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.

What happens if you dont have enough money when you retire? ›

You may have to rely on Social Security

Many retirees with little to no savings rely solely on Social Security as their main source of income. You can claim Social Security benefits as early as age 62, but your benefit amount will depend on when you start filing for the benefit.

What do seniors do when they run out of money? ›

There is help available for older adults who have run out of money, if you know where to look. The government has many programs that help with needs like healthcare, housing, food, and energy bills. Your local community offers hubs of information like libraries, city hall, and the parks district.

What percentage of people don t have enough money for retirement? ›

Do You? 20% of adults ages 50+ have no retirement savings, 61% worry they won't have enough at retirement, as per new AARP survey.

Is it possible to lose your retirement money? ›

If your employer goes bankrupt, you probably won't lose your retirement money, but it's possible. Most 401(k) plans go into trusts that are kept separate from your employer's operating funds, and that money should not be available to the employer's creditors.

How many people have $1,000,000 in retirement savings? ›

You're not alone if your retirement account balances are far from the $1 million mark. While many people may aim for that goal, most don't reach it. Employee Benefit Research Institute (EBRI) data estimates that just 3.2% of Americans have $1 million or more in their retirement accounts.

How do people retire with no savings? ›

Individuals who have not saved for retirement and who still own homes can turn to their homes as a source of income. For some, this could mean renting a portion of their space as a separate apartment. Another option is to take a reverse mortgage on a home, although doing so can be costly and complicated.

How much do I need to retire and never run out of money? ›

Key takeaways. There is no one-size-fits-all plan when it comes to how much you'll need to retire, but there are a few common benchmarks. Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age.

What happens when you get old and have no money? ›

Elderly individuals who are unable to turn to family for financial support and have no money can become a ward of the state. This may be the case if the senior develops a health emergency and is no longer able to live alone.

How many people run out of money in retirement? ›

The average retiree doesn't have anywhere close to $1 million saved. Most retirees have just $142,500 in savings, according to Clever's study. Almost half (46%) of retirees are unprepared for the possibility of running out of retirement savings.

What to do with elderly parents with no money? ›

5 Ways to Financially Support Elderly Parents
  1. Provide them with financing. ...
  2. Hire an outside planner to manage care and finances. ...
  3. Look for government savings. ...
  4. Set your parents up with a private reverse mortgage. ...
  5. Invite your parents to stay in an “in-law” apartment on your property.
Sep 4, 2023

What happens to old people who have no one to care for them? ›

Loneliness, Isolation, and Declining Mental Well-being

This can lead to feelings of abandonment, depression, anxiety, and a decline in cognitive abilities. Without regular social interactions, the elderly can feel a diminished sense of purpose and overall satisfaction with life.

How much money does the average person retire with? ›

What are the average and median retirement savings? The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.

How many Americans live paycheck to paycheck? ›

How Many Americans are Living Paycheck to Paycheck? Recent MarketWatch Guides survey results indicate that 66.2% of Americans feel like they're living paycheck to paycheck. Respondents struggling to make ends meet span demographics, including genders, generations and incomes.

How to retire at 60 with no money? ›

Get a Part-Time Job or Side Hustle. If you're contemplating retirement with no savings, then you may need to find ways to make more money. Getting a part-time job or starting a side hustle are two ways to earn money in your spare time without being locked into a full-time position.

What happens when a pension runs out of money? ›

Private pensions collect contributions during peoples' working lives, invest the money, and then pay benefits when they retire. If that money runs out, no more benefits. Social Security isn't like that. About 83 percent of the benefits come from current payroll taxes.

Can the federal government take your retirement money? ›

Can the Government Take My Retirement Money? If you owe federal income taxes, the Internal Revenue Service is allowed to garnish your 401(k) or other retirement accounts to collect, provided you are eligible to take distributions. However, state and local governments are not allowed to follow suit.

How long will $400,000 last in retirement? ›

This money will need to last around 40 years to comfortably ensure that you won't outlive your savings. This means you can probably boost your total withdrawals (principal and yield) to around $20,000 per year. This will give you a pre-tax income of almost $36,000 per year.

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