Running short in retirement
How much can you safely spend?
Many U.S. households retire without enough money to maintain their pre-retirement standard of living, and research indicates many people retire without a realistic understanding of how much they can safely spend.
Over time, though, most of the households reduced their spending and slowed how quickly they were burning through their savings. After 10 years, the proportion with sufficient funds to last their retirement shot up to 48%.
Running out vs. running
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short The fear of running out of money is pervasive in the U.S. Nearly half of Americans have this concern, according to the 2019 Aegon Retirement Readiness Survey. A 2012 paper for the National Bureau of Economic Research found 46.1% of older adults died with less than $10,000 in financial assets.
Few people relish the idea of having to cut back sharply on their spending in retirement or eking out an existence on $1,543 a month (the current average Social Security check).
2 Spending less slows the burn rate David Blanchett, head of retirement research at Morningstar, and Warren Cormier, executive director of the Defined Contribution Institutional Investment Association’s Retirement Research Center, studied 425 U.S. households that had at least $10,000 in savings at retirement and $5,000 in annual Social Security benefits. They found only 18% retired with enough money to maintain their standard of living.
4 A little planning can go a long way Picking the “right” level of spending in retirement isn’t easy because of the unknowns, including how long you’ll live and your future health. Having a clear idea of what your expenses are likely to be in retirement, as well as how much income you can expect, can help you create a sustainable spending plan.
3 Some who could spend more don’t The researchers also found that many of the households that had enough money were spending as if they did not. In fact, 29% of the best-funded households actually had more wealth 10 years into retirement.
Some want to leave inheritances for their kids or guard against financial shocks, such as long-term care. In other cases, they’re just more comfortable continuing old habits.
“If you are in the habit of being frugal, you tend to remain that way,” says certified financial planner Dana Anspach of Scottsdale, Arizona.