Even though many people look forward to retirement, it can be a bit scary. Not only are you giving up your career, but you're also giving up your paycheck. And once you're not actively earning a living, you might quickly start to worry about running out of money.
That fear is certainly a valid one. But it doesn't have to keep you up at night. Here are some ways to address that concern and lower your risk of running out of funds once your retirement begins.
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1. Create and stick to a retirement budget
Following a budget is a great way to help ensure that your retirement savings don't run out. Map out your recurring expenses and make sure to account for one-off costs, like your yearly vacation or home repairs.
At the same time, make sure your budget factors in inflation. The costs you start out with may not be the same costs you face down the line as living expenses rise. Have some wiggle room in your budget for rising costs in categories that are nonnegotiable, like healthcare.
2. Come up with a safe withdrawal strategy
Hopefully, you'll be bringing a decent-sized 401(k) or IRA balance into retirement. To help ensure that your balance doesn't get whittled down too quickly, come up with a withdrawal rate that's safe for you. That rate should depend on how long you think your savings will need to last and how your portfolio is invested.
For years, financial planners swore by the 4% rule, which had you withdrawing 4% of your savings balance your first year of retirement and adjusting future withdrawals for inflation. The 4% rule may or may not be right for you, depending on your timeline and portfolio composition. You may want to play things safe by sticking to a more conservative withdrawal rate at the start of retirement and seeing how that goes.
3. Boost your guaranteed income streams
Many retirees are eligible for at least one guaranteed income stream in retirement -- Social Security benefits. You can lock in higher monthly benefits for life by delaying Social Security past full retirement age, which is 67 if you were born in 1960 or later.
Social Security's delayed retirement credits run out at age 70. But if you delay your claim between the ages of 67 and 70, you could raise your monthly benefits by 24%.
On top of Social Security, if you have a pension, review your payout options carefully so you're able to maximize it. Delaying payments, for example, could mean scoring larger ones for life.
4. Make sure your portfolio is set up for growth
The more income and growth your portfolio is able to generate in retirement, the lower your chances of running out of money. To that end, make sure to keep some of your money in the broad stock market.
It can be tempting to dump stocks and the risks associated with them once you're no longer working. But unloading your stocks could stunt your portfolio's growth, which is not what you want.
It's also important to make sure your retirement portfolio is well diversified and loaded with investments that pay consistently. These could include dividend stocks and real estate investment trusts (REITs).
It's not unusual to be concerned about running out of money in retirement. In fact, you might feel that way whether you have a fairly modest nest egg or millions upon millions of dollars socked away. The key is to take steps to minimize that fear so that you're able to enjoy your retirement without the constant worry that you're headed for a financial disaster.
