Copyright Deering Wealth Team

How to Avoid Going Broke in Retirement

Few things in life can trump the satisfaction of entering into a well-planned retirement. Weddings and births are joys all their own, but retirement brings a whole new adventure. If you want to avoid going broke in retirement, it’s a good idea to be prepared.

Yet despite years of planning, many people still run out of money in retirement. In fact, according to the Employee Benefit Research Institute, only 56.7% of Early Boomers and 58.5% of Late Boomers1 are projected to have enough money to enjoy life after a career, assuming all retirement expenses are paid.2

This isn’t a doom-and-gloom article, though, but more of a friendly suggestion to take a good look at your retirement plan. Let’s look at a few tips on how to avoid going broke in retirement.

If you’re thinking about retirement, shouldn’t you work with a financial advisor who specializes in retirement?

Mark Deering, CFP® specializes in helping his clients prepare for, transition into, and maintain their retirement. Click the button below to schedule a financial meeting with Mark.

Invest wisely.

It may be tempting to pull out of the stock market once you get to retirement. After all, it’s too risky, right? Even though there is still risk involved in stock trading, you’ll need the long-term growth income that a sound investment strategy can provide, so don’t abandon stocks in retirement.

On the other hand, it’s important that you don’t rely too heavily on the stock market. Investing too much in stocks can have obvious negative consequences. Market volatility is to be expected, but remember that a bear market is an opportunity for the long-term investor.

Plan to enjoy a long retirement.

Life expectancy has increased in the past several decades, which is great news for you but not so great for your retirement fund, unless you’ve planned accordingly. Since you’re likely to grow older than previous generations, you need to save more if you want your money to outlive you.

The Transamerica Center for Retirement Studies reports that 60% of retirees retire sooner than expected3, and the median estimated time spent in retirement is 28 years.4 Will you have enough saved to live that long without a full-time job? If you think you’ll come up short, try adjusting your budget, getting a part-time job, or both.

Don’t spend too much.

There are essentially two ways to have enough money in retirement: save during your working years and budget during retirement. Sometimes, both saving and budgeting can sound financially painful, but they don’t have to be; saving doesn’t have to mean locking away huge portions of your income, and budgeting doesn’t necessarily equate to penny-pinching. With the right retirement strategy, it can be quite easy.

Retirement expenses can sometimes be greater than expected, though, so plan accordingly. The Employee Benefit Research Institute found that in the first two years of retirement, 28% of households spent more than 120% of their pre-retirement spending amounts. After six years in retirement, this number was down to only 23.4% of households.5

With a financial plan in place, you’re one step closer to the life you’ve always imagined.

Rely on multiple incomes to avoid going broke in retirement.

It’s better to have multiple incomes in retirement, just as in your working years. According to the Transamerica Center for Retirement Studies, 47% of workers age 60 or older expect Social Security to be their primary source of income in retirement6, yet the Social Security Board of Trustees projects that Social Security will only be able to pay 76% of scheduled benefits beginning after 2037.7

Projected Payouts by Social Security After 203770%

Any single source of retirement income should be supplemented with other streams, like pensions, Social Security, inheritances, 401(k) plans, individual retirement accounts (IRA), and others.

Plan for an early retirement.

Have you heard the expression, “Hope for the best, plan for the worst”? Though an early retirement isn’t necessarily “the worst” that could happen, it could hurt to be unprepared. The Transamerica Center for Retirement Studies reports that 61% of retirees retired before the age of 65. Of that number, 66% retired early for employment-related reasons, like losing a job or accepting an early retirement incentive. Additionally, 37% took an early retirement due to health concerns, including those of family members who needed care.8

Though many people expect to retire later, it’s a good idea to plan for an earlier—and longer—retirement. Call me at 615-861-6101 if you think you may need to plan for an earlier retirement.

Consider taxes.

When preparing for retirement, keep in mind that certain income streams are taxable. Kiplinger calls Tennessee a tax-friendly state, though, and with no state income tax, Tennessee residents can enjoy tax relief for wages and salaries, IRA distributions, Social Security benefits, and pension income. However, it’s important to understand what taxes you will have to pay in retirement. For more information, contact your tax professional.9

Keep in mind that these tips to avoid going broke in retirement are not tailored to your individual situation, though they can provide some good starting points when speaking with your wealth advisor. As always, I’m happy to answer your questions. Call 615-861-6101 to schedule your next meeting with Deering Wealth Team.

  1. The EBRI Databook on Employee Benefits defines Early Boomers as those born between 1948 and 1954, and Late Boomers as those born between 1955 and 1964.
  2. Source: Employee Benefit Research Institute. “EBRI Databook on Employee Benefits: Chapter 14: Retirement Income Adequacy.” Updated July 2014.
  3. The numbers cited are based on a survey conducted between July 6 and 24, 2015 by the Harris Poll on behalf of Transamerica Center for Retirement Studies among a nationally representative sample of 2,012 retirees.
  4. Source: Transamerica Center for Retirement Studies. “The Current State of Retirement: Pre-Retiree Expectations and Retiree Realities,” December 2015.
  5. Source: Employee Benefit Research Institute. “Change in Household Spending After Retirement: Results from a Longitudinal Sample.” Issue Brief, No. 420, November 2015.
  6. Source: Transamerica Center for Retirement Studies. “Retirement Throughout the Ages: Expectations and Preparations of American Workers,” May 2015.
  7. Source: Social Security Administration. Social Security Bulletin, Vol. 70, No. 3, 2010.
  8. Source: Transamerica Center for Retirement Studies. “The Current State of Retirement: Pre-Retiree Expectations and Retiree Realities,” December 2015.
  9. Source: Kiplinger. “State-by-State Guide to Taxes on Retirees,” October 2015.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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Mark Deering

Mark Deering, CFP® is a CERTIFIED FINANCIAL PLANNER™ and the Executive Vice President of Southwestern Investment Group. Mark started his career in the '90s selling books through Southwestern Advantage while earning degrees in business, economics, and Biblical studies at Wheaton College. Upon graduation, he was invited to join Southwestern Investment Group and started to take on more responsibility. Mark mentors younger advisors regularly and is occasionally asked to speak at industry conferences. When he's not working, Mark loves spending time with his wife, Rachel, and their three kids.

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