If your investment account runs dry while you’re still relying on it, you could be in a very bad position. Often, by the time this happens, it’s far too late to return to the workforce and earn income. And living on Social Security alone is typically difficult or impossible, as the benefits program is designed to replace just 40% of pre-retirement earnings and the buying power of benefits tends to decline over time.
Unfortunately, the majority of Americans could face this fate. And whether you’re currently retired or are still working, it’s important to be prepared for this reality and make plans now to ensure this doesn’t happen to you.
Most Americans are at serious risk of draining their nest egg too early
According to a recent Allspring Global Investments Survey, just 23% of current workers expect their retirement investment account to last for more than two decades. This is a huge problem, because there’s a very real chance that your retirement will last well beyond 20 years — especially as lifespans have been getting longer over time.
If your account runs dry before 20 years ends, you could find yourself in your late 70s or early 80s with Social Security alone to cover basic costs. This could happen at a time when you’re likely to be experiencing a greater need for healthcare services.
With the average Social Security benefit coming in at just $1,657 in 2022 and the AARP estimating that seniors on traditional Medicare spend an average of $6,168 per year on insurance and health expenses alone, it’s not hard to see that the math won’t work.
And if you live into your 90s, you could face decades of financial struggle during which time you’ll be stuck trying to make benefits stretch further than they should have to.
How to make sure your nest egg doesn’t run out too soon
If you don’t want to find yourself without the investment income required for a comfortable retirement, there are a few key steps to take to ensure your savings lasts not just 20 years (or less) but for as long as you need it to. These steps include:
Increasing your savings rate: The more money you save during the course of your working life, the easier it will be to make certain your nest egg doesn’t run dry. In fact, if you invest enough and start early enough, you may end up with a big enough fortune that you can withdraw only the interest you earn and leave your principal alone. This eliminates the risk that your money will run out and allows you to leave a large inheritance for your loved ones.
Setting a safe withdrawal rate: No matter the size of your investment account balance, you can ensure your money lasts by limiting the amount you take out each year. There are a number of strategies you can employ to decide how much to safely take out of your accounts, but one common approach involves basing your withdrawal rate on the Required Minimum Distribution tables the IRS has created. If you set a safe withdrawal rate, this may mean you take less income out of your accounts than you’d prefer — but it’s better to sacrifice a little bit each year than to find yourself forced into major lifestyle changes when your account balance hits $0.
The bottom line is, taking both steps is ideal to make sure you aren’t among the majority of Americans left facing the financial stress that comes from having a nest egg that’s not likely to last long enough.
The $18,984 Social Security bonus most retirees completely overlook
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