Created: September 6, 2022
Modified: September 6, 2022

Episode 78: Am I Going to Run Out of Money in Retirement?

Heath Grossman, CFP® here with the Money Wisdom Question Series. Today’s question is: “How do I know if I’m going to run out of money in retirement?”

Devising a Retirement Income Plan

When it comes down to it, this is probably the most important question that we get asked from folks. To determine whether or not you’ll run out of money in retirement, you must conduct a retirement income plan. It doesn’t have to be complex. Step one of that retirement income plan starts with having a conversation about when you want to retire and what you foresee your lifestyle being in retirement.

Some important questions to consider when devising your retirement income plan are:

  • What do you want to do with yourselves?
  • What are the activities that you want to do?
  • What is your desired retirement lifestyle going to cost?
  • Do you still have a mortgage?
  • Do you have other debt that you’re still paying off?
  • Do you want to be able to go to a warmer climate during the winter months and escape the snow?
  • Do you want to be able to go across the country and visit your family a couple of times a year?
  • What do you want your lifestyle to be and what’s that going to cost in terms of your expenses?

Income After Retirement

The next part of the conversation is figuring out what your income will be. How much money will you have coming to you in retirement? Are you going to have a pension? How much is that pension going to be and how much is Social Security going to be for you? This leads us to the topic of when you should take social security and creating a retirement income plan is a great way to answer that question. Then, we take that information, and we marry it together with the nest egg that you have saved up.

Retirement Nest Egg

Marrying up those elements with the nest egg that you have saved up or what you feel that you’re going to have saved up at that point of retirement. If you have a certain amount of money coming in from a pension and/or social security and you want to spend a certain amount of that income each month or each year, it’s important to know if it will be enough to give you what you need or want in retirement. If it won’t be, then you turn to the nest egg that you’ve built up from various sources, such as:

  • 401(k)
  • IRAs
  • Roth IRA
  • Annuities
  • Stocks
  • Bonds
  • Mutual funds, etc.

Planning for Inflation in Retirement

Examining how much you have saved up will give you an idea of how much you will ultimately need to peel off that nest egg to meet your level of expenses. It’s also important to factor inflation into your plan. We need to be able to give ourselves raises over time, too, which will be embedded into the process and the analysis. “Am I going to run out of income in retirement?” is the most popular question that we get asked from people, and the best way to answer that question is by conducting a full-fledged retirement income plan.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, get your FREE copy of “Will You Have Enough Income in Retirement?”.

P.P.S. Feel free to submit questions here for a chance to have them answered!

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