Of the various things older Americans might fear, from health issues to losing loved ones, running out of money is pretty high up on the list. Unfortunately, 75% of baby boomers think they'll deplete their nest eggs prematurely, based on new data from the Insured Retirement Institute. And that makes sense, given that the majority of older workers have less than $250,000 saved for the future.
If you're worried that your savings won't last you through your retirement, there are a number of steps you can take to avoid that fate. You just need to be willing to make compromises.
1. Boost your savings today
It stands to reason that the more money you amass in your nest egg, the lower your chances of depleting it while you're still alive and kicking. Therefore, if you do your best to increase your savings rate for the remainder of your career, you'll reduce your risk of running out of funds when you need them.
Currently, workers 50 and older can contribute up to $24,500 a year to a 401(k) and $6,500 a year to an IRA. If you have access to an employer plan and are able to max out for 10 years, you'll add $323,000 to your nest egg, assuming your investments generate a relatively conservative 6% average annual return during that time. And if you're among the majority of older workers with less than $250,000 in savings at present, that means you'll more than double your account's value.
Even if you can't manage to max out a 401(k), you can still do your best to save more than what you're setting aside at present. You may need to cut some expenses from your budget, but if you decide to dine out less frequently, downgrade your cable plan, or downsize from a two-vehicle household to just one car, those changes will enable you to eke out more savings. In fact, if you were to set aside just $541 a month for the next 10 years (which would mean maxing out an IRA), you'll add about $86,000 to your nest egg, assuming that same 6% average annual return.
2. Work longer
If you're worried about running out of retirement savings, working longer can help in several regards. First, the obvious: Extending your career means having additional time to add to your nest egg, thus giving you more funds to work with in retirement. But just as important, working a few more years means holding off on touching your nest egg, thus allowing its limited funds to go further.
Working longer can also boost your Social Security benefits. For each full year you hold off on benefits past your full retirement age -- which, depending on your year of birth, is 66, 67, or somewhere in between -- you'll increase your payments by 8%, up until age 70. This means that if you're looking at a full retirement age of 66 but work until your 70th birthday and claim Social Security then, you'll get 132% of your original benefit amount each month -- for life.
3. Work part time when you're a senior
If you're concerned your nest egg won't last throughout retirement, a good way to prevent that from happening is to limit the amount you withdraw each year. And you can get by on less money from savings if you're willing to work part time when you're a senior and generate income to cover some of your living expenses.
Not only will working part time in retirement earn you money, but it'll quite possibly help you avoid spending money. Think about it: Once you're no longer working, you're apt to have lots of free time on your hands, which means you'll need to do something to occupy yourself. The more time you spend working, the less time you'll have to fill with potentially costly activities.
As a side bonus, working in retirement in some capacity can also be good for your health. Having a purpose or structure to your days can help you stave off depression, which retirees are more likely to succumb to, so that's reason enough to consider a part-time gig.
4. Adjust your expectations
Maybe your goal is to travel extensively in retirement, or spend your evenings out on the town. If you have the savings to support that lifestyle, then by all means go for it -- you've earned it. But if your savings level won't come close, then you'll need to rethink your retirement plans.
The same holds true if your goals aren't as lofty. Maybe you're hoping to enjoy a quiet lifestyle in your current neighborhood, and spend your days gardening, reading, and enjoying events in town. But if you live in an expensive area of the country that your savings can't pay for, you may need to relocate once you retire.
In an ideal world, of course, you would get to spend your later years living the lifestyle you've always dreamed of. But if your savings don't allow for that, you're better off adjusting your expectations than spending down your nest egg too quickly.
Running out of money as a senior is a very valid fear. Follow the above steps, and with any luck, you'll manage to mitigate that concern and enjoy retirement to the fullest.