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Five Signs You Might Run Out of Money in Retirement and How to Prevent It


It’s the worst-case scenario of retirement. You have worked, saved and built up the nest egg. You haven’t got a care in the world until one day you notice it… the money seems to be getting a little bit tighter. The bank accounts seem to be a little weaker than they should be. The bills are getting a little more stressful. You’re running out of money. The idea of outliving your retirement savings is terrifying. Fortunately, there are ways that you can keep an eye out for this problem to catch it and prevent it before things go too far. Here are five warning signs that you may be running out of money in retirement and what to do if you see it happening. You may also want to consult with a financial advisor if you’re worried about this being a possibility for your retirement.

1. Your Accounts Are Declining Too Quickly

What To Do – Set A Monthly Budget

This is a general issue for personal finances. When it comes to money, most people use an approach called “intuitive spending.” That is, they spend and save money as it feels reasonable. Unfortunately, most people are also quite bad at intuitive spending. They lose track of their money and it starts to go faster than they realized. 

The best way to address this is with monthly budgeting. In retirement, don’t simply raid your savings at need. Instead, treat your monthly drawdown like an income. Move the money into checking and savings each month, then build a spending budget around that income. 

The more you treat your portfolio as a simple pool of cash, the more likely you will make too many withdrawals without realizing it. The more you judge your spending by reasonability, the more likely it is that you will need more money than you’ve paid yourself. Both situations can lead to quickly diminishing savings. 

2. You Are Adding Debt

What To Do – Look For Spending Patterns

Your debt should not grow in retirement.  Ideally, getting entirely out of debt will be the first step of any retirement plan. You want to have the mortgage, car, credit cards and (these days) student loans paid off before it’s time to stop work, if possible. Either way, aside from the occasional mortgage if you move into a new home, you don’t want to start adding new debt.

So it’s a huge red flag if your debts start rising in retirement. That rule goes double for credit card debt. If you begin to rely on loans and credit, it’s a sign that you need more money than you have and that debt service will only grow as you age. 

There are two best steps here. First, keep an eye out for this early. Don’t miss the warning signs if your credit card bill goes up from one month to the next, because small upticks can grow quickly. Second, if your debt does begin to grow, look for your line items. Figure out what you are spending this money on and how you can change your spending to reduce those areas. 

This is an early-detection issue. If you begin debt-spending in retirement, you need to figure it out early and shut it down fast.

3. Your Lifestyle Expands

What To Do – Revisit Your Monthly Budget

This is another perspective of intuitive spending. For some retirees, their first sign of a problem comes with a declining bank account. For others, it shows up in the things they’re buying. Are you going out to eat more often? Taking nicer vacations? Wearing better clothes? Have you recently bought a boat? This is known as lifestyle creep and it’s probably the most classic signal of trouble ahead. 

Now, it’s important to understand that this isn’t always a bad thing. You might have decided to spend your retirement enjoying things you never had time or patience for during your working life. That’s excellent. Delayed gratification is sound financial planning. Just make sure that this is a plan rather than a combination of intuitive spending and (often enough) boredom.  

As always with intuitive spending issues, the best step is to make a budget. Come up with clear numbers around what you can afford to pay yourself and what you can afford to spend. After all, if you never take this money out of bonds then you can’t spend it.

4. Taxes And Fees Take You By Surprise

A man reading a book because he ran out of money during retirement

What To Do – See A Financial Planner Immediately

This might be one of the single most common financial problems for retirees. Certainly, it’s one that almost all financial advisors reference when it comes to retirement surprises. You get to retirement, you start collecting your drawdowns and Social Security benefits and the numbers are smaller than you expected. Maybe much smaller.

You forgot to plan for the taxes. The good news about this warning sign is that it will almost certainly show up early. If you forgot to include taxes and broker fees in your plan, you should notice it right away. The bad news is that this can lead to a very substantial gap between your expected income and your actual numbers.

If this happens, the best thing to do is seek professional advice immediately. Your savings are worth significantly less than you thought they were, both in terms of income and long-term growth. You need to know the real numbers and only an accountant or advisor can reliably help you with this. Then you can make a plan for how to manage taxes over the long run. 

5. You Have No Investments

What To Do – Reinvest Your Money

Almost all retirement plans suggest moving your money to safer, low-risk assets when you enter retirement. This advice ranges from S&P 500 index funds at the very riskiest end of the spectrum to the mainstream advice of shifting mostly into bonds and annuities. The rule of thumb is often to shift your assets to an 80/20 mix between safe investments, like bonds and growth investments, like an equity index fund.

What they do not recommend is that you take your money out of the market entirely. This is because generating little or no return in your portfolio can easily lead to an empty retirement account. If you are holding mostly low-return products like depository accounts or Treasury bonds, notice that account balance early and act on it. 

There are many reasons for this. One is the eroding effect of inflation. A good rule of thumb is that, at the Federal Reserve’s 2% benchmark rate, inflation will cause prices to double every 35 years or so. This means that even during ordinary times inflation will cause your portfolio to lose significant value unless it can generate offsetting growth. 

Beyond that, there’s the simple fact of duration. In an era of steadily increasing health and longevity, you should plan to be retired for 30 years or more. This will cost a lot of money and it’s an opportunity for a lot of growth. For many people, capturing that growth is essential to making their retirement work. 

Bottom Line

A couple talking about running out of money during retirement

Running out of money is a danger that every retiree needs to plan for. Fortunately, as long as you have a good plan and keep an eye on your finances, you can prevent this from happening. For every concern or risk, there are things you can do to put yourself in a better position overall. The last thing you want is to run out of money in retirement. If you’re not sure your own plan will do the trick, you may want to work with a professional.

Retirement Planning Tips

  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • The best way to handle a problem is to prepare for it. With this simple checklist, you can plan for your retirement, prepare for it and know if you’re ready well in advance. 

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