When speaking with clients, financial planners can talk about some morbid things. When discussing your life insurance or estate planning, we can go into great detail about what happens when that client dies: Where does the money go? Who are the kids going to stay with? Will they still be able to attend the college they were planning to go to? When talking to a client about long term care planning, we can discuss a plan for someone being diagnosed with Alzheimer’s or MS. Although those conversations are not fun, they are necessary. Even though these and other topics we talk to clients about everyday can be a bit hairy, the scariest conversation usually starts with the question, “Will I run out of money?”
Running out of money is one of the greatest fears we hear from the majority of our clients transitioning into retirement. If it were a horror movie, the plot would go something like this: You don’t have a paycheck coming in anymore, your expenses stay the same or grow over time, Social Security doesn’t keep up, the accounts dwindle to nothing, and… Frightening. Unfortunately, running out of money is a real fear for a lot of people, and in some cases, the fear is warranted.
- 34% of adults say they have nothing saved for retirement1.
- 62% will retire with less than $25,0002.
These are some scary numbers when you pair them with the statistic that 2% of the population will have an adequate pension or retirement account3
There are always a few cash flow changes we can make to help people save more money for retirement. For instance, you can look at all utility payments to see if they can be lowered, decide to buy a coffee maker instead of a daily stop at the coffee shop, or consider public transportation so you can cut down to one car. These changes are not fun, and typically they are short lived before old habits come back. Many retirees, who have not planned properly, end up having to find a part time job to increase cash flow in retirement.
The best way to try to safeguard yourself from running out of money in retirement is to have a plan before you get there. Know what you can spend in any given year and stick to that budget the best you can. Plan ahead for big expenses or annual payments that you know are coming. Don’t wait until it is an emergency to change things. The sooner you make a change, the longer your money can last and the better you can sleep at night.