2 Signs You May Be Closer to Running Out of Money in Retirement Than You Think
Key Points
Running out of savings is many retirees' worst nightmare.
You may be closer to running out than expected if you're not sticking to a withdrawal plan.
You also need to be mindful of how your portfolio is keeping pace with inflation.
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Running out of money is a major concern among retirees -- and understandably so. A recent Allianz survey found that 67% of Americans are more concerned with running out of money than actually dying.
After working hard your entire life to build retirement savings, you don't want your nest egg to get whittled down to nothing. But if these signs apply to you, you may be running that risk.
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1. You're not following an actual withdrawal strategy
There's nothing wrong with tapping your IRA or 401(k) year after year. After all, that's what the money is there for.
What is problematic, though, is taking withdrawals from your savings without an actual strategy or plan. So if you don't have a framework in place, now's the time to make a change -- either on your own or with the help of a financial advisor.
If you're not sure how to land on a safe withdrawal rate, you could use the 4% rule as a starting point. It has you withdrawing 4% of your savings your first year of retirement and adjusting future withdrawals for inflation.
If you have a fairly even mix of stocks and bonds in your portfolio and retired at a pretty "average" age (meaning, sometime in your 60s), a 4% withdrawal rate may work for you. If you're looking at a retirement that may be slightly longer than average, or if your portfolio leans more toward bonds than stocks, then you may want to adjust that rate downward. That could mean 3.3%, 3.5%, or another percentage that's suitable for your situation.
You can also adjust your withdrawal rate upward or downward with market conditions. In a strong market, you might withdraw 4.5%. In a weak market, you might limit yourself to 2.8%.
These are tweaks you can make along the way. But the key, either way, is to be mindful of your withdrawals and have an actual strategy.
2. Your expenses are rising at a faster pace than your investments
Inflation has a sneaky way of making life more expensive. If your costs are rising at a faster pace than your portfolio, though, then you may be headed for trouble.
In that scenario, it pays to look at your portfolio makeup. It may be that your fixed income assets aren't as strong as they could be -- such as if the bonds you hold don't have the most generous yields. Or, it could be that you're invested too conservatively on a whole. If that's the case, some changes to your asset mix could help your savings better keep up.
It's natural to be fearful of running out of money. And unfortunately, that concern doesn't go away just because you have a larger nest egg. But if you stick to a plan and are mindful of your investments, you can lower your chances of depleting your savings substantially.
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