Retirement is often imagined as a time for relaxation, family, and long-awaited hobbies, but financial stability ultimately determines how enjoyable those years can be. Many people worry about whether their savings will last, especially as living costs rise and lifespans lengthen. The good news is that thoughtful planning can reduce the risk of running out of money. Understanding common missteps and making intentional choices can help you protect your nest egg and maintain long-term financial security.
Plan for 30+ Years of Retirement
Underestimating your life expectancy is one way to set yourself up to run out of money. People are living longer than previous generations, so Kiplinger recommends planning for at least 30 years of retirement. In fact, the Transamerica Center for Retirement Studies (TCRS) found most respondents anticipate living to age 90. However, they may not be building a large enough nest egg.
While workers estimate they’ll need $500,000 in retirement savings, the survey found the median amount of money in retirement savings is currently $144,000 for Baby Boomers, $64,000 for Gen Xers, and $23,000 for millennials. Of course, that’s not the whole story. Things like Social Security benefits and downsizing can help shore that up.
To calculate a solid estimate of how much money you’ll need, CNBC suggests adding up your annual expenses (mortgage, groceries, insurance, etc.) and using the Social Security Administration’s online calculator to estimate your benefits. Then, subtract your estimated benefits from your estimated expenses and multiply that number by 30.
Set a Practical Spend-Down Rate
When you retire, estimate a sustainable withdrawal rate for your portfolio so savings last. The familiar “4% rule” suggests withdrawing 4% of your savings in the first year and then adjusting that amount annually for inflation — a guideline designed for a 30-year retirement horizon with a balanced portfolio.
However, recent research from Morningstar and other financial advisors argues that a lower starting withdrawal rate — around 3.5%–3.7% — may be safer given today’s market conditions, longer life expectancies, and inflation risks.
Using a conservative rate keeps more principal invested, giving your portfolio a better chance to outpace inflation and reduce the risk of running out of money if markets falter or retirement lasts longer than expected.
Close the Bank of Mom and Dad
Considering the price tag of a college education, it’s understandable to want to help your kids or grandkids pay for it. But that help shouldn’t come at the expense of your retirement savings. While students can take out loans, there aren’t any loans for retirement.
Similarly, think twice about helping your kids or grandkids with other expenses like buying a house. You might be able to cover these costs without putting your financial security at risk — just consider the implications for your retirement before opening your wallet.
Be Strategic About Your Portfolio
Another potential pitfall is putting all of your eggs in one basket, so to speak. Diverse retirement portfolios of stocks, bonds, and cash are typically recommended. That’s because the combination can help protect you from market volatility and inflation.
“The risk in abandoning stocks,” Kiplinger explains, “is that the spending power of your money in the bank erodes every year with inflation.” Stocks offer a growth opportunity that can outpace inflation. The source says 40% to 60% of most people’s portfolios should be in stocks.
However, there is no one-size-fits-all answer. A qualified financial expert can help you work out the details and land on the right allocation for your situation. They can also help you figure out if that allocation should change after you retire.
Think About Your Discretionary Spending
Not scaling back discretionary spending after retiring can rapidly deplete retirement savings. So, you may want to prioritize certain purchases over others. For instance, NPR says, “research has shown that experiences tend to make people happier than material possessions.”
Experiences like vacations and special dinners are something to look forward to with anticipation. And they can be enjoyed with friends and family, creating lasting memories. As a result, retirees might choose a more budget-friendly car in order to afford a trip with loved ones.
Work Longer (But Have a Backup Plan)
If you’re able to continue working, then it can pay to delay complete retirement. For one thing, CNBC says waiting to collect Social Security benefits until age 70 results in higher payments. Plus, you’ll continue socking away a salary, whether you stay in your current position for a few extra years or take a part-time job for retirees.
TCRS found that 34% of workers plan to work past age 65 and 52% plan to work in retirement. However, circumstances like your health or layoffs may get in the way. Should complete retirement come sooner than expected, it’s important to build up your emergency fund. Disability insurance is something else to consider.
Understand State and Local Taxes
Some people make the mistake of only factoring federal taxes into their retirement strategies. “Depending on where you live,” Kiplinger cautions, “high state income taxes, state and local sales taxes or property taxes – or a combination of all three – could eat up your hard-earned savings quickly.”
Several states even tax Social Security benefits. Low taxes are part of the reason certain states like Florida and Arizona are popular retirement spots. Moving isn’t a realistic option for everyone, but everyone should make sure they understand how state and local taxes will impact their finances in retirement.
Watch Out for Scams That Target Seniors
Unfortunately, seniors are prime targets for scammers. According to CNBC, most people’s “median net worth peaks between ages 65 and 74.” So, criminals view them as a demographic with more money to steal. That means seniors need to stay vigilant to protect their retirement savings from criminals. Common scams involve fraudsters posing as officials from agencies like Medicare, Social Security, or the IRS. Government agencies will contact you by mail. Hang up if you get a call asking for personal information or payment.
Make Sure You Have Enough Insurance
When you retire, you’ll want to take look at your insurance needs. After all, health typically deteriorates with age, and health care expenses can bust retirement budgets. Medicare is helpful for basic coverage, but you may want to look into adding a Medigap supplemental insurance plan or a Medicare Advantage plan.
There’s also a possibility you’ll need long-term care at some point. According to Genworth Financial, 7 in 10 people will need long-term care, and the median price for a private room in a nursing home is $9,034 a month. So, you may want to consider investing in long-term care insurance to help with the steep cost.
The Bottom Line
Whether you’re decades from retirement or already retired, it’s important to do everything you can to put yourself in the best possible financial position. That way, your golden years are less likely to be spent on the edge of going broke.
It’s ideal to start investing in your retirement as early as possible, but there are steps you can take at any point in your retirement journey to avoid running out of money. Consider talking with a qualified financial expert to get advice for your situation.
