In one of life’s great ironies, the ultimate goal while working is to not work someday. Every day when we “clock in,” we can picture what our life would be like if we didn’t have to work. Think about your ideal retirement. What does your daily routine look like? Do you have a routine, or are you excited to wing it day by day? When you think about how you’ll spend your days, you inevitably come to cost. How much will it cost you to live in retirement?
Day 0 of retirement, you made it! You are so excited! Then, you run the numbers and realize if you do all the things you want, you will run out of money in a hurry. That euphoria turns to panic pretty quickly. How did you get here? Many factors could have contributed to this situation. Perhaps you didn’t save enough money each paycheck, earned too small of a return on your money, or led an extravagant lifestyle.
Regardless of the reason, if you are, like many others approaching retirement, you don’t want to realize that you will run out of money too late in the game. Numerous studies say the number one thing that scares people about retirement is running out of money. One specific study from Allianz shows that 61% of people surveyed were more afraid of outliving their money than they were of dying.
Think about that for a second.
People are more afraid of running out of money than physically leaving the Earth!
Is this fear rational?
The simple answer is yes. Some factors contribute to the uncertainty around the longevity of your money. People are living longer now than we were 20 or 30 years ago. This means more years of no money coming in but money going out. Pensions are more frequently becoming a thing of the past, and there is so much uncertainty about what Social Security will be able to provide us. That leaves us as individuals in charge of not only funding our retirement but turning our nest egg into a stream of income.
The fear of running out of money isn’t just conceptual either; data confirms our fears.
The Employee Benefit Research Institute has a detailed report with different models that predict the likelihood of running out of money. For example, their Retirement Security Projection Model predicts that 40.6% of U.S. households are projected to run low on cash in retirement (if the head of household is between 35 and 64.) That equates to about 4 of every 10 households; that’s scary!
If you feel uncertain about your ability not to outlive your money, it’s not too late. You can do something about it right now (or when you are done reading this.) It doesn’t require you to make more money or change jobs, and it is pretty simple. TAKE ACTION! Far too frequently in our business, we encounter people who use avoidance as a tactic. You wouldn’t do that with your physical health or even your car. You have routine checkups at the doctor, regular maintenance on your vehicle; your financial well-being/retirement readiness should not be any different.
As for how your first step needs to be creating a detailed look at everything you are doing currently to prepare yourself for retirement, gather all pertinent financial information, and create a detailed plan. This includes, but is not limited to, current balances of accounts, current contribution rate, account risk tolerances, projected future income from SS or pension, ideal retirement age, healthcare planning, insurance documents, and more.
The more information you have, the better. It would help if you created a clear picture of today to create an action plan as we advance.
After your plan creation comes execution, execution of your plan is just as important, if not more important, because of the ever-changing landscape of your financial picture. As new situations arise, you can take a proactive approach to address them.
Think of a road trip you have taken. On this hypothetical road trip of 700 miles, you know that you want to get there in 10 hours. Math tells us 70 miles per hour will get you there in 10 hours. After one hour, because of traffic, you have only made it 61 miles and still have 639 miles left. We know that you now need to average 71 miles per hour for the final nine hours to meet your goal of 10 hours. You couldn’t control that the first hour took you only 61 miles, but you could assess and modify your plan.
The periodic review is so important because it allows you to adjust. If you didn’t assess your situation, you could’ve ended up at the nine-hour mark and still have 100 miles left. At that point, it is just too risky to go 100 miles per hour for the last hour, and you wouldn’t have a choice but to push your goal of 10 hours back. For a car ride, this may not be a big deal. However, for years of working, it’s a huge deal. Imagine getting one year away from your goal and realizing you need to add two more years.
The fear of running out of money in retirement is real, but you can take steps to alleviate these worries. Take action today and take control of your retirement!
Not sure where to start? Maybe, you need some guidance? We can help.