Will Almost Half of Retirees Run Out of Money?
If I were to make a list of the most common money worries that I've helped seniors deal with in my 30-plus years as a financial advisor, running out of money in retirement would probably be number one. Even folks who have been following a comprehensive financial plan and building wealth for decades can struggle with the idea of cashing their final paychecks and living off their nest eggs.
So, I understand why a headline like "New study finds many seniors who retire at 65 will run out of money" can make some folks question their retirement plans. On today's show, we unpack the details of that study and discuss a practical approach to preparing for and enjoying your golden years.
1. The importance of planning ahead.
Back in August, the Morningstar Center for Retirement & Policy Studies released new research concluding that 45% of Americans who retire at 65 may run out of money. Morningstar's model also found that the risk of running out of money was slightly higher for retired single women (55%) and slightly lower for couples (41%).
Broadly, this study expresses something that we've talked about many times on our podcast: most folks just aren't saving enough for retirement. No argument there.
Wellness trends and health care advances are going to make 30 and 40-year retirements more and more common. And, at the same time, fewer workers are going to have access to generous corporate pensions and other retirement benefits. In fact, Morningstar reported that 56% of U.S. workers don't have access to a retirement plan through their employer. It's more important than ever that folks take personal responsibility to save, invest, and plan ahead.
2. The ability to course correct.
But what, exactly, does "run out of money" mean?
Completely deplete your nest egg, all the way down to zero?
Struggle to pay your monthly bills and maintain your preferred lifestyle?
Be forced to lean on your adult children for financial support?
None of these are positive scenarios, but they're all very different from a financial planning perspective. And, to point out just one fault in the model's logic, in each of these cases it's likely a senior would still be receiving Social Security benefits every month. That might not be enough to cover monthly expenses, but it's not having zero resources either.
Also, Morningstar's study, and the reporting on it I've read, seem to assume that seniors are going to spend down their retirement assets in a straight line until they're gone. Do some folks with poor financial habits do that? Sadly, yes.
But is that how 45% of all retirees spend down their nest eggs? No way! And especially not if they're working with a financial advisor.
For example, Keen Wealth's comprehensive planning process uses complex computer simulations and our own in-house expertise to plan personalized spending and withdrawal strategies over decades. If something changes in a senior's life that puts them at risk of falling short of their retirement goals, we help that senior make adjustments to keep their plan viable and their retirement secure. Sometimes that adjustment is reducing spending. Other times it's making timely tax moves. And, sometimes, it's having tough conversations about big goals that just might not be feasible based on the available assets and other long-term needs.
Think about it this way: if you're driving towards a cliff and you stomp down on the accelerator, yes, you're going to crash. But if you slow down, plot a new course into your maps app, and turn the wheel, you can find a path around that cliff and still reach your destination.
3. The Keen on Retirement difference.
Morningstar ultimately concluded that folks without any retirement savings are most at risk ... of running out of money in retirement.
You probably didn't need a fancy computer model or a scary headline to tell you that!
One of the reasons I started Keen on Retirement was to cut through the noise that can come from the "news" around retirement and financial planning that is more interested in getting clicks than in delivering sound insight or advice. When you’re working with a financial advisor and following a comprehensive plan, you almost always have options that can help you avoid worst-case scenarios and keep progressing toward your goals.
A big thank you to the Keen Wealth client who emailed us and suggested we discuss this study. If you see a news item you’d like us to cover on a future episode, or if you have any questions about your own retirement plan, please get in touch.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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