It can be easy to worry about having enough income to support your retirement lifestyle. These anxieties naturally increase during economic downturns and periods of inflation. Retirees living on a fixed income might feel their budget tightening or find it harder to pay their regular bills.
If you’re worried about outliving your retirement savings, take steps to assess your current financial situation. Reviewing your habits and priorities could help you stay on track.
When you’re worried about running out of money in retirement, consider these factors:
- How much you spend plays a role.
- The withdrawal rate from your retirement account is important.
- Your Social Security benefits will continue.
- Work opportunities can make the difference.
- Having cash reserves can help.
Use the following criteria to assess your current cash flow and how you can use it to pay for your retirement.
How much you spend matters
You may plan to spend less money in retirement than in your working years, but your retirement lifestyle plays a role in how quickly your funds are used. “Most people think they’ll spend about 15% to 20% less in retirement, but in reality, they 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 the time to look at what you pay each month. Expenses can include a mortgage payment, rent, food, utilities, fuel, and insurance. Some items may fluctuate, such as entertainment, clothing and travel. You may find that you are spending more than you planned or discover areas where costs can be reduced to optimize your budget. If you have two vehicles, you can decide to sell one. There may be opportunities to downsize to a smaller location to save on home maintenance.
The withdrawal rate from your retirement account
The amount you regularly withdraw from retirement accounts can make a difference during your retirement. “A general rule of thumb in financial planning is that if you’re in your 60s, you don’t want to spend more than 4% of those assets per year, factoring in inflation each year,” says Joseph Favorito, founder of Landmark. Wealth Management in Melville, New York. “For this to work, a reasonable balance must be maintained between equities, fixed income investments and possibly other forms of passive income such as real estate.” During periods of inflation, you could speak to your financial advisor to see if adjustments could be made.
Your Social Security benefits will continue
If you started receiving 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 ease the strain on your finances.
If you haven’t started collecting Social Security benefits yet, look up the amount you can expect to receive at different starting ages on your Social Security statement. You may decide to wait several years before starting to receive your benefits in order to obtain higher monthly payments. If you take Social Security checks before full retirement age, the benefit amount will be reduced. After full retirement age, the monthly amount you will receive will increase until age 70.
Work opportunities can make the difference
You may have viewed retirement as a chance to get away from work altogether. However, if you are worried about running out of money, you can continue to work after retirement age. “Phased retirement is much healthier physically, mentally, and financially than abrupt retirement,” says Keith Heritage, financial advisor and managing partner at Heritage Financial Services in Newberry, Florida.
If you’re not yet retired, you might consider another year or two of work to save for years to come. Some employers may be interested in additional part-time help. You can also offer to consult in your area of expertise or mentor less experienced employees.
For those who are already retired, a part-time remote position could give you the opportunity to work from home and increase your income. If you enjoy interacting with people, you might seek employment at a local retailer, restaurant or specialty shop.
Having cash reserves can help
If you don’t have an emergency fund, it might be worth setting one up. “Having a large cash reserve amounting to around six months of expenses will give you some peace of mind and also provide cash for larger, unknown expenses,” says Melchiorre. You could repair a damaged roof without having to take out a loan. A car repair could also be paid for with emergency funds. “This is especially beneficial at times like these when the stock market is down significantly,” says Melchiorre. Rather than selling stocks to get the cash you need, which could lead to losses, you can dip into the reserve account.