The good news is that as science improves longevity, people are living longer than ever before. The bad news is that people aren’t updating outdated financial plans to accommodate longer lifespans. So, how do you know if you aren’t outliving your finances in retirement?
How to Avoid Outliving Your Finances in Retirement
The first thing you need to know is how things have changed over the last several decades. According to The National Institute on Aging, back in 1980, a man could expect to live to 68 while women averaged an age of 81. Today, men live to an average of 84 while women live to about 87, butut those are just averages. People are aging into their nineties and hundreds in record numbers. On a global level, between 2010 and 2050, it is estimated that the number of centenarians (people who live over 100) will increase by a factor of 10.
In light of this, most retirement research indicated an impending retirement crisis for about half of Americans based on the fact that they have saved too little. But the outcome doesn’t have to be so dire. With proper planning, retirement can be a pleasant experience and even if it is too late to save more, living frugally can go a long way. Because outliving your finances is such a common worry, people adjust to living humbly very quickly even to the point of overdoing it in many cases.
The Numbers
While it is true that some people run out of money, a person with less than $500k in retirement savings spends roughly 25% of it during the first 20 years of retirement. In fact, about 33% of retirees with less than $500k end up with more savings than they started with after retiring.
You don’t need half a million dollars to save money in retirement. Even individuals who had as little as $32k at the point of retirement still had $24k left roughly two decades later. The reason for this is simple; rational behavior defies financial projections. As people dip into their savings, they change their behaviors and start living lean in order to avoid outliving their savings.
The Truth
Though it is true that people with homes and pensions stretch their savings the furthest, studies suggest that individuals are more likely to adapt to their means rather than live in crisis. Worrying about later-in-life medical costs and changes in real estate taxes are valid, yet many people overcompensate their frugality in order to save for living into their nineties.
Plan For Aging Well
Yes, this is all good news. However, that doesn’t mean that you don’t have to plan for retirement. The fact is, the sooner you start saving for later-in-life living the better off you will be. You can fight against the risks of outliving your finances if you start making a solid retirement plan today and nail down your budget long before you need to implement it. When you sit down and plug the numbers, be sure to factor in changing interest rates and inflation to ensure your plan can last for the long haul.
Looking to learn more tips about saving money in retirement? Try out our FREE eBook, 6 Money Planning Tips for Senior Living!
Confident Living is a continuing care at home membership program, focused on helping you remain active and independent as you age in your own home. We serve the greater Cincinnati area. For more information, contact us online or call (513) 719-3522.
