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FINANCE
How to Never Run Out of Money in Retirement
James Dahle, MD, The White Coat Investor Founder
One of the greatest fears of many investors and retirees is that they will run out of money in retirement. However, there are many strategies available to ensure this doesn’t happen to you. By employing one or more of these, you can dramatically decrease those odds.
8 Ways to Ensure You Don’t Run Out of Money in Retirement
The greatest financial task of your life is to save up enough money for retirement. However, some people don’t quite make it. Or barely make it. Or have bad things happen to them. In spite of that, there are at least eight strategies that will still allow you to avoid running out of money. Choose one or more to apply in your life.
#1 Save More
This strategy is employed by many. The 4% “rule” suggests you save up about 25X your annual spending before retiring. However, there is no law that says you can’t save up 30X, 33X, 40X, or even 50X. Obviously the more you have in relation to how much you spend, the less likely you are to run out of money.
#2 Spend Less (at Least Sometimes)
Here’s another great strategy that works very well. Instead of saving more, you can simply spend less. Maybe you were planning to spend $100,000 per year in retirement, but if you can manage to spend just $80,000, you are far less likely to run out of money.
You can do this by downsizing or by moving to a lower cost of living area, or you can adjust how often you go out to eat, where you go on vacation, or what you drive in retirement. Lots of options. But you don’t actually have to spend less ALL the time. You really only have to spend less when your portfolio is doing poorly. This “variable withdrawal strategy” dramati- cally increases how much you can spend overall, even if it means sometimes you have to spend a little less. Having spending flexibility in retirement is very valuable.
#3 Only Spend Income
If you never actually touch your principal, you will never run out of money. That doesn’t mean your nest egg, your income, and your spending will be stable or that it will even keep up with inflation, but it does mean you won’t run out completely. Yet, this strategy can lead to potential errors. Perhaps the greatest is that you’ll end up spending much less than you could have spent—to some people, that just means they worked too long and saved too much. It can also lead someone to inappropriately invest in a high-yielding portfolio. Just because income is higher doesn’t mean your total return is higher or even positive. Often it
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