Will I run out of money in retirement?

Retirement can bring a new phase of life that can be freeing and rewarding. It can also bring its share of uncertainties and unknowns. One of the biggest fears for retirees is whether they will outlive their money. While many will focus their concern on the ups and downs of the market, our experience has shown there are more likely causes for a nest-egg to dwindle too early.

Here are some of the biggest causes we’ve seen:

Overspending

Retirees may think they’ll spend less in retirement than while they’re working, but we have found that many spend as much or more in retirement, especially in the first few years. It’s easy to spend more now that you finally have the time to do all those things you didn’t while working – travel, home improvements, and hobbies such as boating or golf. And once a higher level of spending is established, it can be difficult to cut back.

A little extra spending becomes overspending when it causes you to withdraw too heavily from your retirement savings and investments. What is a reasonable amount to withdraw from your investments every year? This will depend on your individual situation but the rule of thumb in the industry is typically 4% for a person retiring in their mid- 60’s. People who retire at a younger age would need to have a lower withdrawal rate to ensure their assets last more years.

Second Homes

A second home enjoyed by you and your family can sound like a wonderful way to spend your retirement years, but the expenses of two homes can become a serious burden. With two mortgages and property tax, utility and maintenance costs (not to mention the cost of going between the two homes) the expenses can quickly add up.

Before deciding to purchase a second home, it’s important to do an analysis of the up front and ongoing costs so you will have a clear picture of how it impacts your financial well-being.

Helping Adult Children

Paying for adult children’s rent, transportation, cell phones, student debt and more is becoming common in our society. It’s natural for a parent to want to help their child, but the habit of helping our children with no limitations can deplete our own retirement savings. More importantly, it may not be helping them in the long run, if they miss the opportunity to learn how to be financially independent on their own.

If you find yourself in this situation, first, understand what this help does to your own financial security. If you are depleting your own assets in order to help your children, you may be taking away from important reserves you will need later in life. Often this happens slowly, as the assistance or gifts continue over years. If you feel you can afford to help your child, come up with a set plan with a definite end date.

Grey Divorce

Among U.S. adults ages 50 and older, the divorce rate has roughly doubled since the 1990s, according to a Pew Research Center report. There are serious downsides to divorce at this stage of life.

Financially, it can be devastating when your combined assets are split in two, and there is little or no time to build them back up. What you are left with may not be enough to support your expenses and commitments, and drastic lifestyle changes might need to be made. If you find yourself in this situation, it’s important to understand how this change will change your retirement and come up with a plan to make things work. If it looks like divorce is on the horizon, it’s important to take a step back and look at your options so a thoughtful decision can be made.

As Pliny the Elder, an ancient Roman philosopher, one said, “The only certainty is that nothing is certain”. While this is true, at Blankinship & Foster, we are here to help you make the best decisions possible for your retirement years. When changes happen, we can help you figure out how to best navigate the choices you have.

About Teresa Kakadelas

Teresa Kakadelas, CFP®, CDFA™ is a lead advisor and a member of the firm’s Executive Committee. Teresa heads up the firm’s Financial Planning Team, continually identifying and helping solve financial planning issues for clients. Teresa started the firm’s “Wise Women” luncheons, designed to help clients with financial education. Teresa and her family live in Carlsbad. She enjoys traveling, cooking and spending time with her family.

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