It can be easy to worry about having enough income to support your retirement lifestyle. These fears naturally increase during economic downturns and times of inflation. Retirees living on a fixed income may feel that their budget is tightening or it is becoming harder to pay regular bills.
If you’re concerned about surviving your retirement savings, take steps to assess your current financial situation. Reviewing your habits and priorities can help you stay on track.
If you’re worried about running out of money in retirement, consider these factors:
- How much you spend matters.
- Your retirement account payout rate is important.
- Your social security benefits remain in place.
- Job opportunities can make a difference.
- Having cash reserves can help.
Use the following criteria to evaluate your current cash flow and how to use it to pay for retirement.
How much you spend matters
You might assume that you’ll spend less money in retirement than you did during your working years, but your retirement lifestyle plays a role in how quickly your money is used. “Most people think they’ll spend about 15-20% less when they retire, but the reality is they end up spending about the same, if not more,” said Kevan Melchiorre, co-founder and managing partner of Tenet Wealth Partners in Champaign, Illinois.
Take some time to see what you’re paying for each month. Expenses can include a mortgage payment, rent, groceries, utilities, fuel, and insurance. There might be some items that fluctuate, such as entertainment, clothing, and travel. You may find that you are spending more than planned, or discover areas where costs can be reduced to stay on budget. If you have two vehicles, you can decide to sell one. There may be opportunities to downsize to a smaller location to save on house maintenance.
The withdrawal rate of your retirement account is important
The amount that you regularly withdraw from the pension account can have an impact over the course of your retirement. “A general rule of financial planning is that by the time you’re in your early to mid-60s, you don’t want to spend more than 4% of that wealth annually, adjusted for inflation,” says Joseph Favorito, founder of Landmark Wealth Management in Melville. New York. “For that to work, there needs to be a proper balance maintained between stocks, fixed income, and potentially other forms of passive income like real estate.” During periods of inflation, you can speak to your financial advisor to see if adjustments can be made.
Your Social Security benefits will continue
Once you start receiving Social Security payments, that income will continue for the rest of your life. Finding ways to keep your essential retirement expenses below what you get from Social Security could help ease tensions around your finances.
If you haven’t started collecting Social Security benefits yet, check your Social Security statement to see how much you can expect to receive at different ages. You might decide to wait several years before starting performance in order to get higher monthly payments. If you take social security exams before you reach full retirement age, the benefit amount will be reduced. After your full retirement age, the monthly amount you receive will increase until you reach age 70.
Job opportunities can make a difference
You may have pictured retirement as a chance to retire completely from work. However, if you fear running out of money, you can continue working past retirement age. “A phased retirement is much healthier physically, mentally and financially than a hard stop,” said Keith Heritage, financial advisor and managing partner at Heritage Financial Services in Newberry, Fla.
If you haven’t retired yet, you might consider an extra year or two of work to save for years to come. Some employers may be interested in receiving additional help on a part-time basis. You could also offer to get advice in your area of expertise or to mentor employees with less experience.
For those who are already retired, a remote part-time job could give you the opportunity to work from home and increase your income. If you enjoy interacting with people, maybe get a job at a local retailer, restaurant, or specialty store.
Having cash reserves can help
If you don’t have an emergency fund, setting one up can help. “A sizable cash reserve of about six months’ spending gives you a level of security and also provides the liquidity needed for larger, unknown expenses,” says Melchiorre. You can fix a damaged roof without taking out a loan. A car repair could also be paid for with emergency money. “It’s especially beneficial at times like these, when the stock market is down significantly,” says Melchiorre. Instead of selling stocks to get the cash you need, which could result in losses, you could withdraw from the reserve account.