Retirement is a time to relax, enjoy the fruits of your hard work and pursue the activities you've always dreamed of. But as you approach this milestone, it's natural to wonder: "Will I run out of money?"
Uncertainty surrounding finances can be one of the biggest concerns for those nearing or already in retirement. Still, the good news is that you can significantly reduce the risk of running out of money with proper planning and a few key strategies.
This article is written by William Thatcher, founder and president of Thatcher Wealth Management. William's goal is to help his clients create successful retirement plans tailored to their specific needs.
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Let's get into it by addressing your concerns with practical steps to help you retire with confidence.
1. Understand your retirement needs
Before all else, you must understand how much money you'll need to live comfortably in retirement. Everyone's retirement lifestyle is different.
Some people plan to travel the world, while others prefer to stay home and engage in hobbies or spend time with family.
A good rule of thumb is that you'll need about 70% to 80% of your pre-retirement income to maintain your current standard of living.
However, this is a general guideline. Your specific needs may vary depending on personal circumstances, such as health, family situation and retirement plans.
2. Estimate your retirement expenses
Take time to estimate your future expenses. Here's a list of categories to consider:
- Housing. Will you continue living in your current home or downsize? Factor in potential costs for maintenance, taxes and insurance.
- Health care. Medical expenses often increase as we age. Make sure you have a plan for health insurance and long-term care if needed.
- Daily living expenses. Consider groceries, utilities, entertainment and transportation. Some of these expenses go down once you're retired, but others may rise.
- Debt payments. Ideally, you'll be debt-free by the time you retire, but if you still have a mortgage or loans, these need to be accounted for.
3. Create a retirement budget
A solid budget is the foundation for managing your money in retirement. Once you've estimated your expenses, compare them to your expected income sources. Income can include Social Security, pensions, annuities, distributions from retirement accounts and any savings you've accumulated.
If you expect a gap between income and expenses, now is the time to act. You might need to adjust your spending habits, delay retirement for a few years or work with a financial adviser to explore strategies, such as tapping into other income sources, optimizing Social Security benefits or restructuring your investment portfolio to generate more reliable cash flow.
4. Diversify your investments
Diversification is a key strategy to minimize the risk of losing money in retirement. Make sure your portfolio includes a mix of stocks and other non-correlated investment types to weather the ups and downs of the market.
While some might advise moving to more conservative investments as you approach retirement, it's essential to keep some growth-oriented investments to outpace inflation over the long haul.
Consulting a financial adviser to create custom plans, including a well-diversified portfolio, helps protect against market volatility and provide a steady stream of income.
5. Factor in inflation
Inflation is a silent threat to your retirement savings. Over time, the cost of goods and services tends to rise. For example, if inflation averages 3% per year, the price of a $100 item today will be $242 in 30 years.
To protect yourself from inflation's impact, it's essential to factor it into your long-term financial plan and consider investments that historically outpace inflation, such as stocks or inflation-protected securities.
6. Create a withdrawal strategy
How you withdraw money from your retirement accounts is just as important as how much you save. Consider setting up a safe withdrawal strategy based on your needs.
Some retirees choose a strategy where they withdraw from their tax-deferred accounts first (like 401(k)s or IRAs), while others may use taxable accounts for more flexibility. The optimal withdrawal strategy varies depending on your tax bracket, expected income and retirement goals.
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It's also wise to separate your savings into different "buckets." For example, one bucket can hold money you plan to spend in the first five years of retirement, while another can be for longer-term needs.
This strategy helps ensure you don't have to sell investments at a loss during a market downturn.
7. Plan for health and long-term care costs
Health-related expenses are one of the top concerns for retirees. As you age, the likelihood of needing long-term care increases. While Medicare covers many health expenses, it doesn't pay for long-term care (such as nursing homes or home health care).
Look into long-term care insurance, or create a separate savings account for health care costs.
Also, don't forget about Medicare premiums and out-of-pocket expenses. Make sure to plan for these when estimating your future health care costs.
8. Build a buffer emergency fund
Even with the best planning, unexpected expenses can arise.
To protect yourself, it's a good idea to have a "buffer fund," or emergency savings account. This will cover sudden costs, like a major home repair or a health emergency, without forcing you to dip into your long-term retirement savings.
9. Review and adjust your plan regularly
This may be the biggest tip of all: Retirement planning isn't a one-time event. As your circumstances change — whether it's health issues, unexpected expenses or changes in your investment performance — it's essential to review your plan regularly.
Schedule yearly reviews with a financial adviser to ensure your strategy is still on track.
Conclusion: If prepared, you can feel confident
The stress of running out of money in retirement is common, but with some of these steps, you can take control of your financial future. By understanding your expenses, creating a solid budget and diversifying your investments, you can build a plan that provides confidence for your golden years.
With the right planning and preparation, retirement can be fulfilling and stress-free. So, take the time to develop a strategy, and remember — it's never too early to start planning.
Even if you're close to retirement, it's not too late to make adjustments that will help you enjoy the retirement you've worked so hard for.
This article is meant to be general and is not investment or financial advice or a recommendation of any kind. Please consult your financial adviser before making financial decisions. For more detailed information, contact a financial adviser with Thatcher Wealth Management, offering investment advisory products and services through AE Wealth Management LLC. Diversification and asset allocation are investment strategies that can help manage risk within your portfolio, but they do not guarantee profits or protect against loss in declining markets.
Insurance products are offered through the insurance business Thatcher Wealth Management. Thatcher Wealth Management is also an Investment Advisory practice that offers products and services through AE Wealth Management LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Thatcher Wealth Management are not subject to Investment Advisor requirements. 2968511 - 4/25
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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