A Lot of Us Will Run Out of Money in Retirement


Flickr / 401(k) 2013.

A recent report by Jack VanDerhei of the Employee Benefits Research Institute should worry you. 

This detailed analysis of who is likely to run out of money and when finds that a number of people in every income category could be facing shortfalls in the future. 

Assuming you're retired for 35 years (generous, but not totally unrealistic), and factoring in nursing home and home health care costs: 

  • 83% of those in the lowest income quartile will run out of money,
  • 47% of those in the second-lowest quartile will run out,
  • 28% of those in the second-highest quartile will run out, and 
  • 13% of those in the highest income quartile will run out.   

The statistics for living 20 years are better, but hardly comforting (even there, 8% of the highest earners will run out of money). If you also take out nursing care expenses, the percentages go down again -- but, much as I like to believe that I'm going to be doing handstands as an 85-year old, I can't say that I would be comfortable counting on it. 

What can we learn? Even if you're pretty well off, there's still a chance that you won't have enough money to get through your retirement.

Why should I believe you?
This study is unique in that it focused not just on predicted income patterns but on expenditures. The arguably complex model thus looks at risks ranging from longevity, investment performance, and the possibility of costly health care requirements. 

It's also more poignant when taken next to the Social Security Administration's large survey of retirement expenditures, released in 2013. On average, fully 75% of retiree's expenses went to the basics: Housing, food, health care, and transportation. In other words, it doesn't appear that most people are going crazy buying pink Cadillacs and single malt.

While your specific needs in retirement might differ, looking at these kinds of averages is rather instructive. And in this case, somewhat scary. 

So what do we do? 
Ah the eternal question. While there are never any guarantees in life, there are a few things you can do to reduce the probability of major retirement shortfalls. 

First, think about your future housing situation. According to the Social Security Administration, the majority of retirees' expenditures went to housing, for an average of about 35%. Is there any  way to reduce that cost? 

Flickr / macieklew.

Secondly, for the love of all that is good and merciful, stay healthy. Healthcare expenses are potentially crippling, so do what you can to avoid the most obvious sources of physical decline. Exercise, eat right -- you know what has to be done. 

Consider buying long-term care insurance. These policies can cover extended nursing home stays or in-home care should something go wrong. According to the AARP, they tend to be cheaper the earlier you buy them, so think about getting one while you're younger. 

Save more. Perhaps the image of the penny-pinching millionaire isn't so bad -- after all, the more you set aside and the less you spend, the more of a cushion you'll have later on. See where you can contribute more to savings, or earn more income to devote to them, and try to maximize your retirement contributions to the extent possible. 

Finally, consider working in retirement. Maybe you have some expertise you can share as a teacher or lecturer, or perhaps you'd enjoy consulting. By the SSA's calculations, those who were able to spend the most in retirement tended to do so with earned income. Think of it as a way of keeping up your appreciation for that golf club membership, or funding -- guilt-free -- that long summer painting watercolors in Florence.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 18, 2014, at 12:50 PM, beyondo1 wrote:

    We need those bye bye booths like in the Soylent Green movie...

  • Report this Comment On August 21, 2014, at 11:23 PM, ezfast wrote:

    Life should be good and enjoyable while this is possible. There are trade-offs. I have a problem with the attitude that you need to deprive yourself now in order for more longevity. Nature has wired us to fear death, but our brains allow us to understand it's inevitability. Remember that working to make yourself super healthy makes it more likely you will be broke before you pass.

    As for long term assisted care....I would rather be Soylent Green.

  • Report this Comment On October 21, 2014, at 7:48 PM, Celery198736 wrote:

    The best way to not run out of retirement money is to save more. I know this doesn't help people who are already in retirement, and I do feel for them. Social security benefits have been cut, and many pensions have been cut as well. People whose retirements looked perfectly secure 20 years ago now have to worry about every dollar that they spend, and for many people it really isn't fair. Because I am still 30 years away from retirement, I am focused on my savings, and I am determined to not have this happen to me. After a thorough review earlier this year, these are the best tricks I found for putting away money.

    1. Max out my match for my 401K by putting away the maximum amount (5% for me) that my employer will pay into the plan as a match. It is free money and dumb not to do it.

    2. I need life insurance to protect my 2 daughters, but I ditched a $300 a month whole life policy for a policy from Life Ant and now I only spend $25 a month. I save the difference to my Roth IRA. If you are unfamiliar with this and want to learn more watch Suzey Orman or Dave Ramsey sometime.

    3.I cut wayy back on eating out. I am having a year of putting away money hard, and food was a huge portion of my budget. I save about an extra $100 a week now, and eat healthier and better. Ditto if you spend a lot of money in bars.

    If I plan on having a full savings account and retirement I have to make good decisions

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