Saving for retirement is something that most people start decades before they reach the golden years. But no matter how well you plan, it happens very often to run out of money in retirement. If the prospect of outliving your money is the source of recurrent nightmares, it's important to take steps to make sure your fears don't become a reality.
- Minimize Your Fixed Expenses
The most important decision you can make to avoid running out of money in retirement is lowering your fixed expenses. Look at what you're spending on your necessities and identify any cuts you could make. Downsizing could have a tremendous impact on how long you can stretch your retirement money. Moving to a warmer place may also be a good idea, as this comes with lower utility bills.
If you live in a community with excellent public transportation, consider whether you still need a car. In any case, no household with two retirees should have two vehicles now that you don't commute anymore. You should also look for ways to cut utility costs, perhaps by investing in more modern appliances that are more energy-efficient. Finally, don't shy away from using senior discounts whenever possible. Discounts may be available for anything from hotels and movie theatres to restaurants and even grocery stores.
- Don't Rely Completely on Social Security
Social Security is the primary income most young people think about when they think about retirement. Even though it's a good thing to have, you shouldn't leave your entire retirement plan in the hands of the government. Many Americans rely on Social Security simply because they haven't saved enough for retirement.
About 40% of them don't have access to a workplace savings account, such as a 401(k)plan, which means that most of them are unable to put money away for their future. Even if you're not in the position to save or invest for your retirement, you should look at the expenses you can control and start planning your retirement one step at a time.
- Consider the Impact of Inflation
Inflation is a fact of life, so it's essential to plan for it carefully. Over the last 30 years, prices have more than doubled. While it is true that inflation eats away at your retirement income, there are a couple of things you could do to curb its side effects. You obviously can't affect inflation directly, but you can add investments to your portfolio that are likely to increase in value as inflation rises. Some sectors, such as the energy sector and real estate investment trusts, are likely to grow in value enough to counteract the impact of inflation on your retirement assets.
- Work a Little Longer
Even though many people dream about reaching financial freedom by the age of 40 or 50 and being able to retire by 50, try to work just a little longer, especially if you're passionate about your work and healthy enough to do it. By waiting just one extra year to retire, your Social Security will be higher each month for the rest of your life, not to mention that your retirement assets will also continue to grow the longer you wait.
- Pay Off Your Mortgage Early
Owning a house adds an extra layer of protection when you're retired, and it's also a hedge against inflation of housing costs. If your home is paid off by the time you enter retirement, you can think of it as a last-minute safety net. Even though most retired people wish to stay put in their homes, knowing that you could always downsize gives you peace of mind when you worry about running out of money in retirement.
- Be Prepared for a Crisis
Crises like the one generated by COVID-19 can strike at any moment, and they can, obviously, affect your retirement plans. During times like that, market volatility is high, and this is bound to hurt retirement funds. To be prepared, try to diversify your investment portfolio to get peace of mind and have a meaningful retirement.
In times of crisis, it is tempting to respond emotionally, but this is precisely what you shouldn't do. Even if you are going through the pain of short-term losses, don't make any rash decisions with your investments. Instead, try to wait it out, and when in doubt, always look for professional advice.
Whether you are already retired or are merely planning for the future, it's always a good idea to develop a financial plan. That way, you can make your money last for the rest of your life so that you can enjoy your golden years to the fullest.