Worried You'll Run Out of Money in Retirement? Steer Clear of This

Running out of money is one of the biggest fears retirees face. After decades of saving, many people worry that one market downturn, unexpected medical bill, or longer-than-expected retirement could leave them without enough income later in life.

The problem is that some retirees respond by swinging too far in the opposite direction. Instead of enjoying the retirement they worked hard to afford, they become so focused on preserving their retirement plan that they rarely spend it.

The hidden cost of underspending

While caution has its place, chronically underspending can leave retirees sacrificing experiences they can afford without meaningfully improving their long-term financial security.

That may mean putting off vacations, delaying home improvements, avoiding hobbies, or skipping family experiences because every dollar spent feels like another step toward running out of money. Some may even postpone replacing an unreliable vehicle or making accessibility upgrades that would improve daily life.

Research from the Employee Benefit Research Institute (EBRI) has found evidence that many retirees do not spend down their accumulated assets.

"The evidence shows that many retirees are reluctant to spend down their assets," notes Lori Lucas, president and CEO of EBRI. "This likely has to do with all of the financial uncertainties connected with retirement. People don't know how long they are going to live or how long they have to fund their retirement from their assets."

Money anxiety can take over retirement

The financial cost of underspending is only part of the problem. Constantly worrying about money can also make retirement feel less secure than it really is.

Some retirees repeatedly check their account balances, become distressed whenever markets decline, or postpone discretionary purchases even when their financial plans show that they can afford them. Retirement then becomes another period of saving for an uncertain future rather than the stage of life those savings were intended to support.

No withdrawal strategy can remove every risk. Longevity, inflation, health care expenses, and market performance all remain uncertain. However, a structured plan can provide more confidence than deciding whether to spend based on fear alone.

Start with a realistic withdrawal plan

Rather than treating every purchase as a threat to your nest egg, build a spending plan around a sustainable baseline withdrawal rate.

One widely discussed guideline is to withdraw roughly 4% to 5% of savings during the first year of retirement and adjust that amount for inflation afterward. The right percentage depends on factors such as retirement length, investment mix, guaranteed income, and expected expenses, so the guideline should be viewed as a starting point rather than a guarantee.

A financial advisor can help tailor the rate to your circumstances, including Social Security, pensions, taxes, health care costs, and plans for leaving money to heirs. Some retirees may need to start below 4%, while those with substantial guaranteed income or flexible spending may be able to withdraw more.

Build a cushion for market downturns

Fear of having to sell investments after markets fall is one of the main reasons retirees hold back on spending.

Keeping a dedicated reserve can reduce that concern. Retirees are often suggested to consider holding one year of expenses in cash and another two to four years in short-term bonds or other conservative investments, after accounting for Social Security and other dependable income.

A sensible baseline withdrawal rate

A simpler version might involve keeping two to three years of expected portfolio withdrawals across cash and relatively stable, liquid investments. During a downturn, that reserve can cover expenses while stocks are left alone.

This approach does not eliminate market risk, and holding too much cash can reduce long-term growth. However, it may prevent you from selling investments at a loss during a decline and weakening the portfolio's ability to recover.

Let spending move within reasonable limits

A retirement budget does not need to remain exactly the same every year. When markets perform well, there may be more room for travel, home improvements, gifts, or other optional goals. During weaker years, temporarily trimming discretionary expenses can reduce withdrawals and leave more money invested.

Flexible withdrawal strategies work partly because they reduce spending pressure during periods of market weakness. Even a modest reduction after a poor market year can improve the likelihood that a portfolio continues supporting withdrawals over a long retirement.

Bottom line

Fear of running out of money can encourage sensible planning, but letting that fear dictate every decision can lead to a retirement defined by deprivation and stress.

A sustainable withdrawal plan, professional guidance where appropriate, and two to three years of planned withdrawals in cash and conservative assets could help you avoid money mistakes in retirement while still enjoying the savings you built. The goal is not merely to preserve the nest egg. It is to feel free to use the money you spent decades working to save.

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