Could I run out of money in retirement?

But with people living longer, rising healthcare costs, and unpredictable economy swings, the worry is justified - that's why we’re here. We'll examine the most common reasons why retirees run out of funds and consider ways to reduce the chances of this happening to you.

How do retirees run out of money — and what you can do about it

Many people in retirement may spend their savings faster than they'd hoped. Here are a few main reasons this happens:

Underestimating life expectancy
Advancements in healthcare, research and technology are helping people live longer than ever. While it's wonderful to have more time, each extra year means added expenses. Earlier planning resources may have people plan for retirement assuming they'll live to around 80, but many retirees live into their 90s or beyond. Planning for a longer life can help you avoid financial strain, and truly enjoy your later years.

Healthcare costs
Medical expenses are often higher than many retirees expect. While Medicare covers some costs, it doesn't cover everything—such as long-term care, dental work, or certain medications. Since paying out of pocket for these services can significantly drain savings, padding your healthcare budget or setting aside an emergency healthcare fund can help stave off unexpected medical costs.

Spending too much early on
Retirees often look forward to traveling or pursuing hobbies they couldn't enjoy while working. However, spending less in the first few years of retirement can make it harder to afford essentials later.

Important tips to keep your retirement money from 
running out

The good news is that there are ways to protect your retirement savings and reduce the chances of spending down your savings sooner than you'd like.

Estimate your retirement budget
Start by getting a realistic picture of how much money you'll need each year in retirement. This includes essential costs, such as housing, utilities, healthcare, and discretionary expenses like travel and hobbies. Many experts suggest to plan for between 70-100% of your yearly pre-retirement income to maintain a comfortable lifestyle.

Plan for a longer life
Plan as if your retirement might last 30 years or more. By stretching your savings to last this long, you'll reduce the risk of running out of money in your later years, and thinking long-term means spending more carefully, particularly in the first decade of retirement.

Diversify your investments
A balanced mix of investments can help you manage the risk of economic downturns. A well-diversified portfolio spreads the risk, allowing you to balance growth with security. You can easily check how your investment mix is helping you work toward your retirement goals with our Retirement Journey Planner. Or work with your financial advisor can help you choose the right balance based on your retirement timeline and risk tolerance.

Stick to a sustainable withdrawal rate
A common approach is to withdraw at most 4% of your yearly savings. Known as the "4% rule," this method can help you avoid quickly depleting your nest egg. Some experts suggest adjusting that to 3% for longer life expectancy. Evaluating your retirement income options based on expenses and investment performance can help you stay on track.

Consider how guaranteed income options can cover set costs
Some retirement income sources, like Social Security, pensions, or annuities, provide guaranteed payments no matter what the stock market does. Having at least part of your income guaranteed gives you greater stability and reduces the need to draw heavily from your investments during market downturns.

Prepare for healthcare costs
Explore your healthcare options early to ensure you're prepared. Medicare only covers some expenses so that you may need additional health insurance, like Medigap or long-term care insurance. These policies help protect against significant, unexpected healthcare costs that could deplete your savings. If you still have time before retirement, consider using a Health Savings Account (HSA), which offers tax benefits and can be used for healthcare expenses in retirement.

Be flexible with your spending
Adjusting your spending as you go can help stretch your retirement savings. If the stock market drops or an unexpected expense arises, consider reducing discretionary spending until things stabilize. The ability to adapt makes a big difference in how long your money lasts.