Primary Fear in Retirement

You spent decades saving and sacrificing to make sure you could retire. Now you are starting to enjoy your retirement years but you have one major fear — running out of money before you run out of life. What can you do to make sure you don’t run out of money? Following these steps will get you on the path to know:

Get intimate with the numbers

It’s practically impossible to look at your retirement savings and have the confidence to know that it’ll last you for the rest of your life. There are just too many unknown variables in play.

It is possible to calculate a reasonably based outcome based your assets, spending, rates of return, inflation and income. With detailed knowledge and planning, you will be able to gain a sense of your financial well-being and confidence to overcome your retirement fears. Certified Financial Planners, your investment broker, and/or reputable computer software programs are good sources to assist you.

The numbers need to be conservative so that you have a very realistic picture of your financial future. As an example, it’s better to use an assumed 7% instead of a 12% average annual rate of return on stock portfolios or stock mutual funds. You won’t be in trouble if your actual rate of return is 8.5%. However, you’ll be between a rock and a hard place if your plan assumed a 12% average rate of return.

Regardless of what anyone tells you, history is not a good predictor of future results unless the future market and economic conditions are identical to those in the past.

Know and understand the real risks to your future security

Research from Transamerica found that fear of running out of money, concerns about the viability of Social Security and not being able to afford health care are the three biggest retirement fears.

Other factors that might put your financial security and future in jeopardy include inflation, economic markets, emergencies, falling real estate values, an environmental disaster, a catastrophic health event or perhaps even another unpredictable pandemic like COVID-19.

Get the expertise of a reputable financial adviser

Have you ever sold a house before? Did you try to sell it on your own, or did you seek out an experienced professional that sells dozens of homes each year? Most people use an experienced reputable Realtor.

Why? It’s simple. You were attempting to make a transaction with the largest asset you had at the time, and it wasn’t worth the risk of getting it wrong.

Another piece of advice, don’t risk what you can’t afford to lose. That’s why your retirement savings and investments need to become more conservative as you age.

Commit to the right kind of spending

Money is everything — at least, that’s what you might have thought when you were younger. That’s why you sacrificed and saved! You believed that money would give you financial security, create options and maybe even give you some happiness.

While that’s not too far off, it’s not entirely true. Money, all on its own, doesn’t really do that much for us. It’s how we use that money that can lead us toward happiness.

If you can shift your spending from owning things to experiences, spending your retirement savings becomes fun and meaningful instead of being a retirement fear.

It’s not about fancy cars or a big house — it’s about experiences and making memories.

Live off the interest and dividends

You want to live off the income from your retirement savings and investments. This leaves your capital intact to keep producing income so you won’t ever run out of money. When your end of life nears, you will have the money needed for a terminal illness, nursing home care and the transfer of your wealth according to your will.

Don’t let your money wither away

Many people continue to add to their wealth during retirement. For some, the income they receive from their retirement plans are more than they need to live on. Consequently, they continue to add money to their overall savings.

I am in this position now. Because I am more conservative with my money than most people, my retirement plans assumed a 6% annual rate of return. In actuality, my total retirement funds are earning a guaranteed* annual rate of return of 8.38%. This allows me to continually increase my capital savings which also increases the income produced.

(*) All my retirement savings are in 380-day CD’s in several institutions in Ecuador, South America — my country of residence for the last 8 years. All the institutions have financial safety rating of A+.

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Published by W. M. Brown

I am a retired U.S. expat living in Ecuador. I was a business owner for 32 years before retiring in 2012.

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