Over half of working Americans are not in great shape when it comes to saving enough to last through retirement, according to a recent study by Fidelity.
Fifty-five percent of those surveyed are in fair or poor condition in terms of retirement savings, and although nearly half of those nearing retirement say they plan to pick up a part-time job to make up for the lack of savings, only 11% actually do.
Running out of money during retirement is a common worry among working Americans, especially because there's no way to predict exactly how much you'll need. There are a few hints, though, that your retirement fund may run dry too soon.
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1. You don't have a retirement budget
While there may be no way to know for certain how much money you'll need during retirement, that doesn't mean you can't plan for what you do know.
Creating a retirement budget is the first step to planning for retirement, and it will give you a rough estimate of how much you'll need each month. Some experts suggest that you'll need 70% to 80% of your current income during retirement, although your number will depend on your lifestyle. If you're planning on traveling or picking up an expensive hobby, you may need more than that. Or if you think you'll just take it easy and spend most of your time relaxing at home, you may not need as much as you think.
Once you have a budget mapped out, write it down. This is especially important, because people who write down their retirement plans are 60% more likely to contribute more to their retirement funds, according to a recent study by Charles Schwab.
If you don't plan for retirement and simply save what you can without thinking about what those savings will amount to, you run the risk of reaching retirement and suddenly realizing you haven't saved enough.
2. You're making unnecessary withdrawals from your retirement fund
Sometimes you may have no choice but to borrow or withdraw money from your retirement fund. And while withdrawing from your 401(k) or IRA doesn't automatically ruin your chances at retirement, there's a reason why so many financial experts advise against it.
Making one or two relatively small withdrawals in the event of an emergency won't affect your long-term retirement plan too drastically, but if it becomes a habit, it's not a good sign. Sure, $500 here and $1,000 there may not seem like a whole lot in the grand scheme of things, but those withdrawals can put a serious dent in your retirement fund over time thanks to compound interest.
Say, for example, you have $40,000 in your retirement account and you withdraw $1,000. Assuming you're earning an annual rate of return of 7% and you're not making any additional contributions, here's what your balance will look like in a few years if you withdraw versus if you hadn't withdrawn:
| Years | Withdraw | Didn't Withdraw |
| 0 (Today) | $39,000 | $40,000 |
| 10 | $76,719 | $78,686 |
| 20 | $150,918 | $154,787 |
| 40 | $584,004 | $598,978 |
So while your retirement fund won't look dramatically different if you withdraw $1,000, that $1,000 loss can turn into a nearly $15,000 loss over a lifetime -- and just imagine what an impact you would see if you were to withdraw money on a regular basis.
Aside from hurting your long-term savings, making unnecessary withdrawals before retirement can also be a sign that you may continue making unnecessary withdrawals after retirement. It can be hard to pace yourself when you have hundreds of thousands of dollars sitting in your account just begging to be spent -- even if you know that money has to last another 20 years or so -- so be honest with yourself about your spending habits to catch the problem early on.
3. You're not considering inflation
$100,000 (or even $1 million) will not get you as far in 20, 30, or 40 years as it will now, so be sure to factor inflation into your retirement plan to make sure you're really saving as much as you'll need.
Many retirement calculators will take inflation into consideration, but it's a good idea to keep it in the back of your mind as you plan for retirement too. The average inflation rate is an increase of about 3% per year. So if you're 50 years old and plan to retire at 65, prices will rise about 45% during that time. Then if your retirement lasts 20 years, prices will increase by an estimated additional 60% during retirement.
Once you reach retirement and start withdrawing your money, the general rule of thumb is to withdraw 4% of your total balance the first year, then adjust that percentage each following year based on inflation. As you're creating your retirement budget, keep the 4% rule and the inflation rate in mind to decide how much you'll really need each year during retirement.
Planning for retirement can seem like an impossible task, and nobody wants to face the possibility of running out of money. Fortunately, you don't have to. By doing a little extra planning and recognizing the warning signs, you can strengthen your nest egg and make the most out of your golden years.
Don't fall into this trap!
With all the rules -- and caveats -- and information out there, it's easy to get overwhelmed. And given how difficult it is to save for retirement, it's also easy to get discouraged. Don't let that stop you. The key thing is to get started, bump up your savings, and let time and good savings habits help you accrue the money you need for the retirement of your dreams.
