A Lot of Us Will Run Out of Money in Retirement

A recent study by the Employee Benefits Research Institute finds that a lot of people across income categories are at risk of running out of money in retirement.

Aug 17, 2014 at 12:28PM

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.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information