The current generation of retirees faces a greater risk of running out of money during retirement than any previous generation.
Most retirees estimate they will spend less after retirement, but that is not always the case. Some expenses like travel and clothing may go down, but other expenses, such as medical bills and home maintenance, can be higher in retirement.
Having said that, let’s look at possible causes of running out of money after retirement and some solutions to this problem.
There is no one-size-fits-all answer to why people run out of money in retirement. Several factors can contribute, such as:
The forces of the stock market, such as bear markets and recessions, can cause savings to decline. This can make it difficult for retirees to keep up with their expenses.
Therefore, retirement planning should include diversifying investments so that retirees are not too reliant on the stock market. During a downturn, retirees can look for other sources of income to supplement their savings. This could include taking on part-time work or accessing Social Security benefits.
Retirees who invest in stocks, bonds, and other investments can find their returns are not as high as expected. Therefore, it’s essential to understand the risk involved with any investment before committing to it.
It is advisable to pick investments tailored to retirement needs, such as bonds and annuities. These investments can provide a steady income stream during retirement when stock market returns may be lower.
Although a good thing, advances in medical research have allowed people to live longer. This means that people are more likely to outlive their retirement savings.
In addition, living longer also means that healthcare costs will be higher for retirees. The cost of medications and treatments can add up quickly, making retirees use more of their savings than expected.
Now that we have looked at some potential causes for running out of money after retirement, let’s look at some solutions:
It’s important to start saving for retirement as early as possible. Contributing to a 401(k) or IRA can help set aside money for retirement and provide tax advantages.
Most financial advisors suggest that people save 10-15% of their pre-tax income for retirement. This percentage can be adjusted according to individual needs and goals.
Working longer before retiring can help build up savings and provide an additional source of income during retirement. Working into one’s late 60s or even 70s is becoming more common among retirees, who may want to continue to work to supplement their retirement income.
Being mindful of monthly expenses is essential to avoid running out of money in retirement. Creating a budget can help track spending and identify where money can be saved. Lowering expenses by downsizing homes or eliminating unnecessary luxuries is also advisable.
These are just a few ways to avoid running out of money after retirement. With careful planning and foresight, retirees can ensure that their savings last through their retirement years. Speak with a financial professional today to learn more.
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