What Happens If I Really Do Run Out of Money in Retirement?

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Editor's Note: This story originally appeared on NewRetirement.

If you are worried about running out of money in retirement, you are not alone. Running out of money is the main concern of most people in or approaching retirement.

And, there is VERY good reason to be concerned — VERY concerned.

Let’s explore this fear. Are you right to be scared? What can you do about your concerns?

Running Out of Money Is the No. 1 Retirement Concern

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Study after study reveals that running out of money is the No. 1 thing that scares people about retirement.

Research from Allianz Life suggests that more than 60% of baby boomers are even more afraid of running out of money than dying.

And younger cohorts are even more fearful. Among people aged 44-49, those who are fearful comprise 77%. (And a whopping 82% if they are married with dependents.)

A study released by the American Institute of CPAs (AICPA) reported that 57% of financial planners said that running out of money was the top retirement concern for their clients.

However, having enough savings for retirement is not the only fear.

The Transamerica Center for Retirement Studies found that only 37% of their survey takers replied that running out of savings was the biggest worry. Declining health that requires long-term care worried 47% of respondents. A reduction in or elimination of Social Security scared 47%. Losing their independence was the primary fear for 38%.

You Are Actually Right to Feel Fear

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According to a detailed report by the Employee Benefit Research Institute (EBRI), many of us are in fact very likely to run out of money — no matter the income level. Their Retirement Security Projection Model predicts that overall 40.6% of all U.S. households where the head of household is between 35 and 64 are projected to run short of money in retirement.

And, while the data varies dramatically with people’s pre-retirement income levels, not even those in the highest income quartile are immune from running out:

  • 83% of baby boomers in the lowest income quartile will run out of money in retirement
  • 47% of boomers in the second lowest quartile will run out
  • 28% of boomers in the second highest quartile will run out
  • 13% of boomers in the highest income quartile will run out


The above data refers to people who will be retired for 35 years. But, the data is only slightly better if you are living in retirement for 20 years. At a shorter retirement, a full 81% of the lowest income quartile and 8% in the highest income quartile will run out of money.

Almost 1 out of 10 of the very richest among us will run out of money in retirement? Yes! Yikes! Yikes! YIKES!

Why Is Running Out of Money a Growing Worry?

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There are a variety of very real and tangible factors that are contributing to increased concern and increased risk of running out of money.

Longer lives, less proactive saving, higher costs, stagnant wages and fewer people with pension plans are some of the key reasons that more of us are at risk of outliving our assets.

So, What Happens If You Do Run Out of Money in Retirement?

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First, the good news.

Running out of money in retirement — in these scenarios — does not mean that you are completely penniless.

Running out of money usually means that you have used up all of your retirement savings and your home equity and are left with whatever income streams you might have — Social Security or a pension if you are lucky.

Most people who run out of money in retirement continue to scrimp by — living on Social Security income, pursuing a part-time job and they have perhaps dramatically cut costs.

And the Bad News?

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You are likely no longer in your own home and may be enrolled in low-income programs and/or are relying on family for shelter or support.

You are probably now part of Medicaid instead of Medicare. You are probably living in poverty or at a very low income level.

How to Avoid Disaster

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If you don’t want to run out of money, you need to take action.

Unfortunately, not enough people are doing what it takes. The Transamerica study found that:

  • Only 18% of the survey respondents were taking proactive steps to address the issues around planning a secure retirement.
  • And, 35% were weighing the issues but had not yet decided on a specific course of action.

Here are three steps you can take.

1. Detail Your Current and Future Finances

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The best way to avoid running out of money in retirement is to have a very good, detailed and completely personalized retirement plan — totally based on you and your needs.

To start, you will want to:

  • Document your current situation in as much detail as possible.
  • Imagine the specifics of your future and plan for big and small tweaks and changes that will enable you to achieve the retirement you want to have — without running out of money.

2. Address Medical and Potential Long-Term Care Costs

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High medical costs and long-term care costs are big reasons why people run out of money in retirement. These costs usually occur near the end of your life.

About 70% of of people who turn age 65 will need some type of long-term care in their lifetime, according to the U.S. Department of Health and Human Services, but few are prepared to pay for that care.

The costs of long-term care are exorbitant — ranging, on average, from $51,000-$102,000 a year according to this survey — and are not covered by Medicare.

If you are worried about running out, it is best to plan for covering these costs. The NewRetirement Planner will help you estimate medical costs. You can also run scenarios for different ways to cover long-term care.

3. Tweak Your Situation and Discover What Works

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Try out any of the following tweaks to your plan to strengthen your prospects and feel more confident about your future:

  • Work longer before retirement.
  • Work part time after retirement.
  • Reduce expenses now? Reduce them more in five years? Prioritize and only spend on what is most important to you.
  • Downsize.
  • Get a roommate.
  • Reduce costs by moving abroad.
  • Start saving more now than you already do. (Here are some easy ways to save more.)
  • Add insurance products.
  • Reduce medical expenses. (Here are some surprising ways to save on health care costs.)
  • Add passive income to your financial plan.
  • Create a plan for long-term care expenses.
  • Consider the purchase of a lifetime annuity to insure lifetime income.
  • Delay the start of Social Security, which maximizes your guaranteed retirement income.
  • Tap into your home equity by downsizing or with a reverse mortgage.
  • Get rid of high interest debt.
  • Optimize your investment strategies. Get higher rates of returns.
  • And so much more …

You don’t have to worry. Get started, create and improve your retirement plans now.

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