Will You Outlive Your Money in Retirement?


Hello, groovy freedomists. Are you still recovering from the most remarkable election in the history of the United States? We are. And nothing helps the recovery process like a good dose of sanity. Welcome our good friend, Gary, who blogs over at supersavingtips.com. Gary is a former retail executive who also worked in banking as a financial advisor. Now retired, he uses his professional and personal experiences to help others save money and master their personal finances.

Mrs. Groovy and I are big fans of Gary because we love saving money. And no blogger we know can match the “super saving tips” that emanate from Gary’s fertile mind. Want to save money on transportation? He’s got you covered. Want to save money on food? Look no further. Want to save money on health, entertainment, and travel? Take a gander at this, this, and this. Gary is a freakin’ saving machine!

And in his guest post today, Gary explores how to make a dollar stretch in the most critical stage of your life—retirement. Enjoy.

I’ve been retired officially for a couple of years now and I did a pretty good job of trying to save and prepare for my golden years. But truth be told, almost every month I wonder if I will have enough to last. Is it possible to outlive your money that you’ve stashed away in retirement plans? Actually, it’s the biggest fear of retired folks today and that’s according to experts. Over 44% of all persons and 41% of all retirees think they may and actually fear they might outlive their money!

Prepare yourself right now and avoid these pitfalls than can make your retirement a lot less than “golden” if you don’t get it right.

  1. Your stock holdings are a mess

There are two huge problems that can sink you when it comes to something you may have been totally comfortable with most of your life.

First of all, you already know that the markets are risky (most of the time just by their nature), but as a retiree, it can be really dangerous. A lot of people get completely out of the market to avoid any risk and that can be a big mistake. The market over time has been making and will make money and it’s money you will need as you live 15, 20 or even 30 years into your retirement. The 60-40-20 rule is what I have heard it called and it goes like this:

While you’re at your peak earning years, you allocate your investments to include 60% of it into stocks, bonds and funds that you believe in. Then use the time frame of your 30’s and 40’s to make those numbers climb.

As you enter you 50’s, your risk tolerance shrinks somewhat as you are thinking about your retirement and can actually see that day coming. The advice here is to reduce the risk and cut your allocated investment to 40% of your retirement funds.

Finally, in retirement the one thing you don’t ever want to happen is to overinvest. As you enter retirement, keep just 20% of your money in the market. That reduces your risk and it also will allow you to continue to earn a bigger return than your CD’s and money markets will. Playing the investment game with target date based funds or tried-and-true market performers will help your results and avoid big losses. Get some advice before you take any real risks. It can provide you with that edge you need in your old age.

  1. You might just live too long

Of course living to a ripe old age is a joy, at least in theory. If you do make it to say 85, 90 or older (and we are living longer than ever these days!) it can also wind up being a painful experience. For one, you may be ill or infirm and yet still alive. There’s not a lot you can do about it when you’re in you 80’s, but there are some things you can do to prepare right now. You should plan for a longer life than ever before as the stats from Transamerica Center for Retirement have shown: If you’re a male who is 65, you can plan on living until you are at least 84. Women can expect to live on average until 87.

The key is that you cut back on some of your expenditures when retired and many people won’t or don’t. In fact, according to Transamerica’s survey, over 40% of newly retired people spent more money in their first two years of retirement that they did in the last two years that they worked! Retirement probably means downsizing your home, perhaps relocation, and a change of spending habits. Stop spending or else.

  1. You don’t have alternate sources of income

Social Security (here I go again) is not supposed to be your only source of retirement income! You will need other forms, for most that will be your 401k or IRA plans but it may also be a part time job or a side hustle, rental property income, pensions or other things. But be wary about some of that. Pensions are rare these days and getting a part time job in retirement isn’t a sure thing.

In fact, 61% of retirees have said they want to work part time while retired but only 6% actually are able to find and maintain a real part time job. There are reasons for that fact and you may not like them. One is your health or the health of a loved one that just won’t allow you to continue your work. Then there are the infamous corporate takeovers, layoffs, and mergers that eliminate jobs. You may wind up working at McDonalds the midnight to 6 am shift and that’s probably not what you really want. While you may work it out, or may not need to actually work at a job, it seems to be what people think will happen. Prepare for what you will do way in advance.

  1. You didn’t prepare for unexpected emergencies

What happens if you get sick? Did you know as an adult day care patient you will need on average about $17,000 a year to pay for those services? That’s more than your Social Security benefits may be. It gets even scarier if you are forced to reside in a residential nursing home, to the tune on average of over $90,000 a year.

That’s a good reason while you are younger and still relatively healthy to look at long term healthcare insurance. They are becoming a really important part of your insurance needs in the 21st century and now’s the best time to research them.

  1. You might make some foolish mistakes after you retire

Be careful, things like taking your Required Minimum Distribution from your retirement plans at age 70 ½ must be done or you risk huge financial penalties. This happens to a lot of people.  In fact, at age 70½ this is the first place you should withdraw funds for your retirement, right after Social Security benefits. The next thing you withdraw is your Roth retirement account, and then the traditional accounts last as they are taxable in many cases.

  1. You didn’t plan your tax strategies

Did you forget to think about what you may have to pay in sales, income, real estate and other taxes when you became 62 and up? Let me tell you this, it can be from simple to deadly depending on where you choose to live. There are 10 so-called friendly tax states that cater to those of the senior population and even those over the age of 50. These states have no income tax, or sales taxes. They also have lower school taxes and little or no real estate taxes unlike where I live. In New Jersey, every child is bused to school and almost all have school meals provided at very high costs to the taxpayers.

The 10 friendly tax states are: Alaska, Delaware, Nevada, New Mexico, Arizona, Georgia, South Dakota, Mississippi, Kentucky, and Louisiana.

One factor to consider though is your family and friends and where they live. Although relocating is a good choice, don’t plan on isolating yourself from all of your loved ones. It will affect your quality of life as much as any other factor.

  1. You’re bankrolling your kids

Don’t be so helpful with your adult kids that you hurt yourself by giving your money to them while you really need it. It’s alright to plan to help by passing money on to them at the appropriate time, however you can be caught in that trap fairly easily. You help them in emergencies, and you help them with generous gifts. You have been taking good care of them their whole lives and now you must take care of yourself. It’s very difficult sometimes, but if you don’t, you know what just might happen? You may be knocking on their door seeking a place to live and other necessities.

The first rule of any good plan for retirement is to actually sit down and write out what you have and what you want. The 4% rule of using your retirement savings was a good way to plan years ago, but that has changed with the longer lifespans we have today. No matter what you save, using 4% every year will cover 25 years for yourself. What if you live 30 or more? What if you live even longer and/or have health issues? Adjusting that 4% number every year and using alternative revenue streams is a better strategy not to outlive your money.

What do you think about when you think of your retirement? Are your plans on the right course? Are you among the millions who are worried about the golden years?

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  1. to get “healthy wealth wise” DON’T BUY ON CREDIT CARDS except that which can be paid off in 30 days. Pay off your C.Card debt NOW. Borrow money to do so from your bank. They probably charge from 5-10% interest. CC’s are 18% and higher. When your CC debt is paid off take half of what you’d been paying the CC and invest it in an IRA or 401K. Take the other half and give your self a nice pay raise.

  2. Thanks for this! I often wonder if we are too heavily in stocks (we’re at 90% and in our early 40s). Thanks for the guidelines here. We do have plans for real estate investing that will help with diversification.

    Bankrolling kids is a huge fear of mine. I’ve seen a family member being “helped” a bit too much for over two decades and I wonder if it’s draining the parents in their own retirement. Since I’ve witnessed this, I’m very careful with my own kids. In fact, they are expected to pay for many of their own “wants” (soda, expensive shoes, etc.), but I often wonder if I’m too strict in this respect.

    • Sorry we missed this comment, Amanda. Up until recently we were about 80% into stocks. We gradually moved to 50/50 before retiring. If we knew we still had a solid 5-10 years of steady paychecks ahead of us we’d stay heavy on the stocks – even in our 50s. For peace of mind we’d be mostly in funds that match the S&P 500.

  3. It’s definitely good to plan ahead and gather information so retirement won’t have painful financial surprises.
    However, only keeping 20% in the stock market with a potential 30-year retirement means that much of your nest egg will be eaten by inflation.
    In addition, while I’m not sure about the other states you mentioned, Arizona does have both income tax and sales tax.

    • We’re keeping a good portion of our money in the market but moved to a 50/50 asset allocation. And if we ever move out of NC I would consider a state with no income tax. We’ve got a flat 5.75% here now. Not a killer with a small pension but will make a difference when we face those required minimum distributions.

    • Thanks for updating the information about Arizona. As far as the amount to invest in the market, I’m so conservative that my viewpoint is to stay on the low risk side. But I do understand that inflation has to be factored in. I guess we have all been lucky in one sense, that the last few years have not had runaway inflation. Thanks for your comments.

      • I’m actually a little confused about the states you listed. http://www.bankrate.com/finance/taxes/state-with-no-income-tax-better-or-worse-1.aspx lists the states without income tax as “Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. And residents of New Hampshire and Tennessee are also spared from handing over an extra chunk of their paycheck on April 15, though they do pay tax on dividends and income from investments.
        The Motley Fool lists states without salex tax as “Delaware, Montana, Oregon, and New Hampshire. A fifth, Alaska, has no state-level sales tax but allows municipalities to impose the retail-level tax. As a result, the average sales tax rate in Alaska is 1.69%.
        Of the states you listed, New Mexico, Arizona, Georgia, Mississippi, Kentucky, and Louisiana aren’t on either list.

        • I apologize for the confusion on the tax friendly states. There are a number of lists out there from different sources and each has different criteria and results. I stated in error that these 10 do not have income or sales tax, but rather they have combined tax friendly policies compared to other states for those who are retired or over 50.

  4. There are days when we wonder about selling our rental properties but we are pretty sure we are in it for the long haul (although we do re-evaluate each year too!) We have 90%+ occupancy rates each year – and we bought places that we would be happy living in too. We bought an 8 unit apartment complex and we could keep 2 units if necessary (one for us and the young adult children) and the other 6 units would pay for everything. If not – it is a job we can hand over to a management company and still turn a profit. Great point though Gary – I enjoy reading your perspective as someone who is in retirement and has a lot of experience!

    • You’ve got a great backup plan with the apartment complex, Vicki. I like that you’d still turn a profit if you get a management company involved because you may reach a point where you don’t want to deal with tenants (and repairs, etc.)

    • As a supplemental stream of income, it seems like you’ve got your bases covered with your rental properties. Even if you decided to divest yourself of that asset, it would go a long way to fortifying your retirement plan. Nice job!

  5. You make some good points. Being pretty conservative, I don’t like to take much of a chance, especially with investments and my retirement funds. Despite the fact that you downsize in lots of ways when you retire, health insurance and costs are a big fear and expense that will likely go up. That’s why I recommend making your plan for retirement when you’re young, and re-evaluate it as you draw closer. Thank you for your input.

    • Health insurance is bound to become even more of an unknown. One of the proposals looks to tie the Medicare age to the Social Security Age. For me that means 2 more years of self-funding insurance.

      We’ve also paid attention to the sequence of risk which is why we’ve set aside funds (cash) for our first few years of retirement.

  6. Not a bad list. Like a lot of others this question is out in the distance for myself based on my current retirement plans. That being said something to think about is studies have shown as you get older your expenditures decrease. When your 87 it’s unlikely you’ll be lugging yourself on a place to go on a trip somewhere. As such really the critical years of retirement are not way out in your late 80s, they are the first few. Sequence of return risks also demonstrate this, if the stock market goes up for the first 10 years of your retirement your likely made in the shade if you waited long enough to retire. If it tanks in the first ten years you might find yourself back at work.

  7. It feels so far away for me. I have no idea what my expenses will look like in 5 years, let alone 50 years.

    It’s why, while I’m certainly a fan of the “financial independence” movement, I can’t take myself seriously if I were to call myself early retired even if I would have the assets to support by the 4% rule.

    There’ just way too many variables and hopefully a lot of years left.

    • My advice is really this: time flies and you want to make sure that when it does, you are having fun. Thinking about your retirement even at a young age is a real advantage, and if you start to plan it now, it will benefit you in the distant future. Just leave some flexibility in your plans. Thanks for reading, TJ.

      • Mr. Groovy

        Hey, TJ. Heed Gary on this. Time really does fly. I swear it feels like last week I was standing in jock hall in high school with a friend deciding on what college I was going to attend. That was in April 1979!

        • Thanks guys, and I absolutely agree with the idea of starting as soon as possible even if you’re not sure what the finish line looks like.

          I consulted with a financial planner last year when I started pondering this idea of taking a year off from work, and she essentially projected how much I need to continue to save per year to fund a traditional age retirement based on expenses being similar to what they were at the time – the good news is that i’m already saving quite a bit more than that and hopefully that helps make up for the future expenditures being cloudy with the likelihood that my expenses at 51 possibly looking different than my expenses at 31. 🙂

  8. Yes!! This is what I’m talking about. I know many of us PF bloggers go by the 4% rule but there are so many variables that could wreck it! I don’t have kids so that is one thing I don’t have to calculate for…but illness? Nobody is immune to chance. And longevity?? My grandma is 93 and still lives alone! My grandma and grandpa are 86 and 90 and still drive and host cards once a month… I am so grateful to come from a long line of oldies but without kids to take care of me 😉 and possible illnesses – I’m going to need to plan a bit extra for peace of mind.

    Thanks, Gary, for your insight!

    • I’m glad you are thinking about it now, rather than later. When making your plan, you should constantly be re-evaluating so it adjusts for changing conditions, health, and monetary opportunities. It’s a complex issue but you’re getting a head start by thinking about it now. Thank you for your comments.

      • Mr. Groovy

        Hey, Miss M. Not having kids is double-edged sword. On the one hand, you’ll be able to save a lot more without them. On the other hand, they come in very handy when your old and infirm. Mrs. Groovy and I are also going the childless route. We’re hoping one of our five nieces and nephews will step up when the time comes. The plot thickens.

        • Haha – Ill make sure to save more just in case… Money can’t buy love but hopefully it can buy a hot cabana boy who will flip me when the sun starts to burn me poolside. 🙂

  9. I don’t think I’ve ever considered these questions. Having increased our knowledge about our money over the last few years, and eliminating our debt gives me more confidence that we will have a solid plan when we retire.

    I do think that it will be a plan that will have to evolve over time, as things change, health, living arraignments, markets etc . there will have to be adjustments. It would be unwise to set a plan or course and forget about it, thinking it would be good for 20, 30 or 40 years.

    • Any plan that you make definitely should be re-evaluated regularly. Eliminating debt is an important step and foundation for going into your retirement years. Without debt, the money you accumulate is solely going toward your future, and not your past. Good comments, Brian.

      • Mr. Groovy

        I love this. Thank you Gary and Brian. Get out of debt, save as much as you can, and re-evaluate your plans regularly. Great, succinct advice that pretty much sums up the essence of personal finance.