Steer Clear of Depleting Your Retirement Funds with These 5 Crucial Money Management Strategies

Concerns About Outliving Retirement Savings

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A significant number of Americans fear that their retirement savings may not last as long as they do.

Main Points

• Financial experts warn that inadequate planning and spending habits put retirees at risk of exhausting their savings too soon.
• Professionals advise maintaining five years’ worth of living expenses in low-risk assets and monitoring spending carefully to help preserve retirement funds.

Worries about outliving retirement funds are common among Americans.

“The threat of running out of money is very real, but it’s usually not due to poor investments,” explains Melissa Caro, a certified financial planner and founder of My Retirement Network. “It’s more often the result of poor timing, rigid spending, or insufficient planning for income.”

Whether you’re already retired or preparing for the future, consider these five strategies to help ensure your savings last throughout your retirement years.

Prioritize Careful Planning

Thorough preparation is essential to avoid depleting your funds in retirement. Don’t simply choose a retirement age and hope for the best.

“It’s crucial to confirm you have adequate savings before leaving the workforce,” advises Michael Espinosa, CFP at TrueNorth Retire. If you’re uncertain about your required savings or how much you’ll need annually, consult a financial advisor.

Espinosa adds, “I rely on retirement planning tools tailored to each person’s desired spending to make sure they’re saving and investing enough for their goals.”

Consider Your Investment Timeline

Market fluctuations are inevitable during retirement, and withdrawing funds during downturns can dramatically reduce your nest egg.

Caro suggests dividing your assets among different accounts based on when you’ll need the money.

“Set aside five years’ worth of living expenses in secure options like cash, certificates of deposit, or short-term bonds,” she recommends. “This way, you won’t be forced to sell stocks during market slumps.” The remainder of your portfolio can remain invested for long-term growth.

Monitor Your Spending

After years of saving, it’s easy to assume you have enough to spend freely in retirement. However, without tracking your expenses, you might use up your savings faster than expected.

“The biggest mistake is estimating retirement spending without actually keeping track,” says Espinosa. “Most people underestimate what they’ll spend, which can lead to running out of money sooner than planned.”

Caro agrees: “People often think their expenses will decrease after retiring, but that’s rarely the case.” Many retirees want to travel or pursue new hobbies, and costs for healthcare or home maintenance often rise with age. Caro also notes, “Old spending habits don’t just disappear when your paycheck does.”

Adapt Your Spending Habits

It’s a mistake to assume your spending will remain constant year after year.

“Retirement spending should be flexible—spend more when markets are strong, and cut back during downturns,” Caro advises. “Those who adjust their spending as circumstances change are more likely to maintain financial stability.”

In addition to tracking your expenses, keep an eye on market conditions. Plan major purchases, like vacations, for times when your investments are performing well, and avoid taking on debt so you can more easily adjust your daily spending if prices rise.

Make Informed Decisions About Social Security

Many people are anxious about the future of Social Security, but both Caro and Espinosa suggest that excessive worry is unnecessary. “It’s reasonable to be concerned, but there’s no need to panic,” Caro says.

Espinosa points out that even if the Social Security trust fund is depleted, retirees will still receive the majority of their benefits. Current projections indicate that, after 2033, ongoing payroll taxes will cover about 77% of scheduled benefits.

“Adjustments may be made, such as smaller cost-of-living increases, higher taxes, or delayed eligibility, but benefits won’t disappear,” Caro assures.

For younger savers, experts recommend planning for retirement without relying solely on Social Security, which can provide greater flexibility.

“Rather than speculating about policy changes, focus on what you can control: when you claim benefits, how long you work, and how much personal savings you accumulate to supplement your income,” Caro advises.

Read the original article on Investopedia.