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What Happens if You Run Out of Money in Retirement and What To Do About It

Last Updated: November 18, 2023
retired couple looking at their finances

A 2023 poll from Allianz Life found that 61% of Americans are more afraid of running out of money than death, and 40% of respondents admitted their retirement strategy was derailed and they aren’t sure when or how to get back on track.

The fear of running out of money is so bad, that 46% of Americans around the retirement age of 60-75 said they plan to work in retirement, and 1 in 12 Americans believe they’ll never be able to retire. These fears come from a storm of factors, such as discussions about budget cuts to Social Security, rising costs from inflation, stagnant wages, longer lifespans, and pensions becoming rarer. If you’re retired and worried about running out of money, or saving for retirement and want to prepare, here’s some helpful information.

What happens if you run out of money in retirement?

Running out of money in retirement doesn’t always mean you’re completely broke, it just means that you’ve used all of the money in your bank accounts and don’t have anything left that you can sell like a home, car, or investments. Even if you don’t have money on-hand from these sources, you may have income streams from sources like a pension, Social Security, Medicaid, or a job.

If you run out of money in retirement, there are still options for you to get enough money to live off. However, you may need to make lifestyle changes that reduce your quality of living, such as going from a house to an apartment or selling your car and walking to places. You may also be able to get help from family members who can provide money or housing and food until you’re able to get back on your feet.

Signs you may run out of money in retirement

Although a financial emergency like a surprise medical bill can change your financial situation instantly, there are generally signs you can watch for to indicate you’re at risk for running out of money in retirement.

1. Accounts are declining too fast

As the cost of living goes up, people usually save less because they need that money to pay for things like housing, food, and transportation. In some cases, people may even need to withdraw money from retirement accounts to temporarily assist with living costs. Ideally you would cut back when living expenses are high, and then ramp up savings once things become more affordable. However, a problem arises when costs remain high for long periods of time and you can’t increase savings, or worse, your accounts start dropping rapidly. If this continues, you may get into a situation where you don’t have any money left and are forced to sell assets like your home.

What to do about it – Use a budget
Setting a budget can help you keep track of your money in retirement so you know how much you’re spending and saving. You may find that you’re spending more than you thought on things like eating out or entertainment, and you can make adjustments to your budget to ensure you’re not going over in any category. By tracking your expenses and setting a budget, you’ll have a better grasp on your financial situation and know when to cut back and how.

2. You’re accumulating debt

You should aim to pay off any major debt like a mortgage or student loans before retiring, and try to avoid taking on debt after retirement with exceptions for things like a new car purchase. In retirement, it’s ideal to live off your savings and income streams like benefits or investments. If you’re taking on debt in the form of credit card bills to pay for living expenses, it’s a warning sign of trouble to come.

What to do about it – Use a debit over credit
While it’s important to maintain credit in retirement, you may want to switch the way you pay for things from primarily using a credit card to a debit card. Doing so will allow you to live off the money you actually have, though you still need to budget to ensure you’re not dipping too much into savings. When it comes to larger purchases where you need to take on debt like a car, carefully review the payment schedule to ensure its something you can afford using your current income streams.

3. Taxes catch you off guard

It’s common for retirees to underestimate their taxes in retirement, and how that effects their financial plan. You may notice that your benefit checks are smaller than anticipated, or you lose a large chunk of money when withdrawing investments. Meanwhile, you might notice your property taxes steadily go up or even spike in response to the housing market or development of the area where you live. In any case, surprise taxes can be an indication that you need to adjust your financial plan to avoid running out of money.

What to do about it – Talk with a financial advisor
A financial advisor can’t predict the future, but they can help you understand where things are headed when you’re saving for retirement. The sooner you connect with one, the better prepared you’ll be. It’s also a good idea to meet with them prior to retiring so they can tell you where your finances stand and if you need to work longer. Once you’ve retired, you should check in with them annually to make sure your finances are still in a good place. They may be able to warn you of tax consequences from things like pulling an investment too early, or rising property taxes that indicate you might want to move somewhere cheaper.

4. Lifestyle changes

Retiring should mean you can enjoy time away from work and do things like go on vacation, spend time on hobbies, and visit loved ones more often. It’s expected that your lifestyle will change in retirement, but it becomes a problem when your lifestyle expands beyond your means. If you find yourself spending more in retirement than when you were working due to a different lifestyle, this may lead to money issues later in life.

What to do about it – Cut back where you can
A recurring theme we’ve discussed is budgeting, and in this instance it’s important to look at areas you can cut back on to account for other areas you’ll be spending more on. For example, you and your partner may have used two cars when you were both working so that you could commute. However, once both of you retire it might make sense to cut down to one car or consider public transportation to save on costs like monthly payments, maintenance, fuel, and insurance. You can take the money you save from vehicle expenses and put it towards other areas of your lifestyle that you want to spend more on in retirement, like going on vacation more frequently.

5. You don’t have income streams

Outside of your normal retirement savings, it’s important to have income streams to consistently bring in more money. Income streams may include things like a pension, dividends from investments, Social Security, or even money you get from working a part time job. If you don’t have money coming in regularly, your accounts will decline over time and there’s a chance you may outlive your savings in retirement.

What to do about it – Reinvest your money
If you don’t have any income streams, a great way to get a recurring source of money is by working with a financial advisor to reinvest your funds into investments that will give you interest or dividends on a regular basis. A few investments to consider are dividend paying stocks, bonds, annuities, or even things like rental properties or small businesses that you can manage and get a return on. Alternatively, you could also consider working part time or looking into jobs that let you work from home.

What to do if you run out of money in retirement

If you’ve exhausted all of the money in your accounts and sold off assets like your home, vehicles, and investments — we recommend contacting a financial advisor to see if there’s anywhere else you can get money from in your current situation. They may help you find sources of income you didn’t know about, like your life insurance policy which can be sold for a lump cash sum. If you don’t have any assets that can be sold, they may be able to direct you towards benefit programs you’d be eligible for like Medicaid.
If you saw the note about selling your life insurance policy and are curious how much your policy is worth, use our free calculator to instantly get an estimate on its value.

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Avery Logan

Avery Logan is a writer for Harbor Life Settlements with expertise on insurance, finance, and senior care. He specializes in breaking down complex subjects in a way that's easy for people to understand so they can feel informed about what they're reading.

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