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

Piggy
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? 

Healthy

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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers