For millions of Americans approaching retirement, one fear looms larger than any other: running out of money. In fact, nearly two-thirds of adults say they are more afraid of depleting their savings than dying, according to a recent survey from Allianz Life.
With life expectancy rising and inflation gradually eroding purchasing power, ensuring that retirement savings last becomes more challenging than ever. But experts say a mix of smart planning, disciplined spending, and strategic investing can help ease those fears.
Here’s how to avoid outliving your money in retirement and what steps you can start taking today.
1. Build a Multi-Year Safety Net
Suze Orman, a prominent financial advisor, recommends retirees maintain a “just-in-case” cash fund that can cover three to five years of living expenses. This buffer, she says, allows retirees to avoid selling off investments during a market downturn.
“When the market drops, it typically takes three to five years to recover,” Orman told MarketWatch. “If you’re taking withdrawals from stocks during that time, you’re locking in your losses.”
Safe vehicles for such a fund include high-yield savings accounts, money market funds, and certificates of deposit (CDs) insured by the FDIC. To explore CD options and deposit insurance, visit the FDIC Consumer Protection page.
2. Use a Sustainable Withdrawal Strategy
The widely cited “4% rule” suggests retirees can withdraw 4% of their savings in the first year of retirement, then adjust annually for inflation. While it’s a decent rule of thumb, many experts now recommend a more flexible strategy.
“You don’t want to treat your retirement income as a set-it-and-forget-it system,” said David Rae, a financial planner in Los Angeles, in a Forbes interview. “Adjusting for market conditions and life events is critical.”
Tax efficiency is also key. Consider drawing from taxable brokerage accounts first, then tax-deferred IRAs, and finally Roth accounts. The IRS provides retirement distribution guidelines on their Retirement Topics page.
3. Maximize Social Security Benefits
Social Security remains a critical income source for most retirees. While benefits can be claimed as early as age 62, delaying until age 70 can increase monthly payouts by as much as 76%.
“Waiting to claim Social Security is one of the best financial decisions many retirees can make,” said analysts at Morgan Stanley. “It provides guaranteed, inflation-adjusted income for life.
4. Plan for Healthcare and Long-Term Care Costs
One of the most underestimated expenses in retirement is healthcare. According to Fidelity, a 65-year-old couple retiring today may need over $315,000 to cover health-related costs over their lifetimes.
Long-term care insurance can help. Policies are available that cover nursing home stays, assisted living, and even in-home care — services that Medicare doesn’t typically cover.
Another resource: Medicare.gov, which provides tools to compare plans and find out what services are covered.
5. Revisit and Diversify Your Portfolio
As retirement nears, many financial advisors recommend gradually shifting from growth-oriented investments (like stocks) to more stable assets (like bonds or annuities). The goal is to preserve capital while still generating returns.
“It’s about creating an income-producing portfolio that can weather market volatility,” said a retirement strategist from Synovus in an April 2024 financial update.
A well-diversified retirement portfolio typically includes U.S. Treasury securities, dividend-paying stocks, municipal bonds, and real estate investment trusts (REITs).
6. Watch Your Spending
It may sound obvious, but overspending is one of the fastest ways to drain your nest egg. Budgeting tools and spending plans can help retirees track expenses and stay within their means.
Be cautious of “lifestyle inflation,” or the tendency to increase spending as income appears stable. Periodically reviewing your budget and adjusting for actual needs rather than wants can help keep things on track.
The Consumer Financial Protection Bureau offers budgeting worksheets and tools tailored for retirees.
7. Consider Working Longer or Part-Time
Working beyond age 65 even part-time can reduce the burden on your savings and delay the need to draw from retirement accounts. It also allows you to maintain employer health benefits for longer.
“Staying in the workforce even a few more years can substantially improve your financial picture,” said analysts at Business Insider, citing data on retirement income gaps.
Additionally, delaying retirement can increase your Social Security benefit and give your investments more time to grow.
8. Create a Formal Retirement Plan
Finally, a written retirement plan is one of the most powerful tools available. It should include projected income, anticipated expenses, withdrawal strategies, tax planning, and contingency plans for unexpected events.
Professional financial advisors can help, but free planning resources are also available through the U.S. Department of Labor’s Retirement Toolkit.
final thought
Running out of money in retirement is a real concern — but it’s also preventable. By preparing early, spending wisely, and making informed financial choices, retirees can build a secure future that lasts as long as they do.
Start with small steps today. Your future self will thank you.