Will I Run Out of Money in Retirement?

Understanding the Fear—and How to Plan for It

Few questions weigh on retirees more heavily than: “Will I run out of money?”
This fear consistently ranks among the top concerns for those approaching or living in retirement. It’s not hard to understand why. Retirement is a major life transition—one in which you shift from earning a paycheck to drawing down savings, investments, and Social Security. With rising health-care costs, longer life expectancies, inflation, and unpredictable financial markets, the worry is natural.

The good news: With thoughtful planning, regular monitoring, and stress-testing various scenarios, you can greatly reduce the risk of depleting your nest egg.

This article explores why the fear persists, how to evaluate your financial readiness, and what strategies can help ensure your resources last as long as you do.

Why the Fear of Running Out of Money Is So Common

1. People Are Living Longer Than Ever

Life expectancy has risen significantly over the last century. Many retirees now spend 20 to 30 years in retirement. Some will live even longer. Longevity is a gift—but it’s also a planning challenge.
The longer you live, the more years your savings must support.

2. Rising Health-Care and Long-Term Care Costs

Health care often becomes more expensive in later life, especially after age 70. Medicare helps, but it doesn’t cover everything. Long-term care—whether at home, in assisted-living, or in a nursing facility—is one of the biggest financial threats. Many people underestimate these potential expenses.

3. Market Volatility

Retirees rely heavily on investment portfolios to supplement Social Security or pensions. Market downturns—especially early in retirement—can have outsized effects on long-term sustainability. This is known as sequence-of-returns risk, and it can shorten the lifespan of a portfolio dramatically if not managed.

4. Inflation

Inflation quietly erodes purchasing power over time. Even modest inflation can double the cost of goods and services over a 25-year retirement. Without planning, inflation makes even generous retirement savings feel insufficient.

5. Uncertainty Itself

No one can perfectly predict life span, market performance, medical needs, or future economic conditions. The uncertainty itself can create anxiety—especially for people accustomed to steady paychecks.

Step One: Assess Your Financial Baseline

Before you can meaningfully evaluate whether your money might run out, you need a clear picture of:

1. Your Retirement Income Sources

List everything that will provide income, such as:

• Social Security benefits

• Pensions or annuities

• Dividends and interest

• Rental or business income

• Part-time work (if planned)

• Required minimum distributions (RMDs)

2. Your Expected Expenses

Break expenses into categories:

• Essential: housing, food, transportation, utilities, insurance

• Health-related: Medicare premiums, supplemental insurance, co-pays

• Discretionary: travel, hobbies, gifting, dining out

• Long-term care potential: a widely overlooked category

Understanding your essential spending is critical—it helps you determine how much of your lifestyle can be covered by guaranteed income versus investments.

3. Your Savings and Investments

Evaluate:

• Total retirement savings (401(k), IRA, taxable accounts)

• Allocation between stocks, bonds, and cash

• Debt levels

• Emergency fund availability

Knowing what you have and how it’s structured sets the stage for realistic planning.

Step Two: Stress-Test Your Plan With Key Scenarios

Financial planners often use stress-testing to evaluate whether a retirement plan holds up under adverse conditions. Here are the most important scenarios to consider:

1. Longevity Risk: What if I live to 95 or 100?

Create projections based on different expected lifespans. Planning for at least age 90—if not 95—is widely recommended.

This scenario helps you understand whether your savings can support a long retirement and whether adjustments may be necessary.

2. Health Costs and Long-Term Care Events

What if you face:

• Unexpected surgeries

• Chronic illness

• Long-term care needs for several years

These events often trigger the largest unexpected expenses in retirement. Stress-testing for them can reveal vulnerabilities—and help you plan insurance or savings strategies to mitigate them.

3. Market Downturn: What if the first five years are bad?

Because sequence-of-returns risk can shorten portfolio life dramatically, test how a recession early in retirement affects your withdrawal plan. This scenario helps identify:

• Whether your withdrawal rate is sustainable

• If your asset allocation is appropriate

• Whether you need to build a “buffer” with safer assets

4. High Inflation

Consider inflation scenarios ranging from historical norms (2–3%) to elevated levels (5%+).
High inflation affects living expenses, health care, and the long-term viability of fixed income sources.

5. Low Interest Rates

If bond yields remain low for long periods, the income your portfolio generates may be less than expected. Stress-test how this impacts your ability to cover essential spending.

6. Widowhood and Social Security Reductions

In many couples, one spouse will outlive the other. This often reduces Social Security income while medical costs rise. Testing this scenario is essential for couples wanting to ensure that one partner doesn’t face financial hardship after losing the other.

Step Three: Optimize Your Withdrawal Strategy

A retirement withdrawal strategy determines how quickly you spend your portfolio. A smart withdrawal plan aims to balance income needs, market volatility, and the desire to preserve capital.

1. The 4% Rule—A Starting Point, Not a Guarantee

The “4% rule” suggests withdrawing 4% of your portfolio in year one and adjusting for inflation thereafter. But this rule has limitations:

• It’s based on historical U.S. market performance

• It may be too high in low-return environments

• It may be too low for some retirees with shorter horizons

Use it as a reference—not a rigid rule.

2. Dynamic Withdrawal Strategies

These adapt spending to market performance. Examples:

• Guardrail strategies: Spend more when markets rise, less when they fall

• Ceiling and floor rules: Set minimum and maximum annual withdrawals

• Percentage-based withdrawals: Withdraw a fixed percentage each year

Dynamic rules often increase the longevity of retirement assets.

3. Bucket Strategy

Divide your portfolio into “buckets”:

• Bucket 1: Cash and short-term bonds for 1–3 years of expenses

• Bucket 2: Intermediate-term investments for years 4–10

• Bucket 3: Long-term growth assets like stocks for years 10+

This strategy provides psychological reassurance and helps manage market fluctuations.

4. Required Minimum Distribution (RMD) Planning

After age 73 (for most retirees), the IRS requires annual withdrawals from pre-tax retirement accounts. Planning ahead can help minimize taxes and avoid large jumps in income later.

Step Four: Improve the Durability of Your Retirement Income

Several strategies can help ensure your money lasts longer—even if markets underperform or expenses rise unexpectedly.

1. Delay Social Security if Possible

Waiting until age 70 can significantly increase your monthly benefit—often by 24–32% or more.
Higher lifetime benefits serve as a powerful hedge against longevity.

2. Consider Partial Annuitization

Annuities can provide guaranteed lifetime income, reducing the risk of running out. The key is:

• Use only part of your portfolio

• Choose low-cost or immediate annuities

• Avoid locking in all assets

For some retirees, a small annuity can stabilize income and reduce anxiety.

3. Manage Debt Before Retirement

Paying off high-interest debt or downsizing a home can minimize monthly obligations and reduce the strain on savings.

4. Maintain a Growth Component

Even in retirement, most people need some exposure to stocks to outpace inflation. A too-conservative portfolio can increase the risk of shortfall.

5. Keep Spending Flexible

A willingness to adjust discretionary spending—especially during market downturns—can significantly extend portfolio longevity.

Step Five: Monitor and Adjust Regularly

A retirement plan is not a one-time project. It needs periodic reviews, typically at least once a year, and after any major life change. Key elements to monitor include:

• Spending patterns

• Investment performance

• Inflation trends

• Interest rates

• Health status

• Living situation

Small adjustments made early can prevent large issues later.

Practical Tips to Reduce the Risk of Running Out of Money

• Keep 1–3 years of expenses in cash or near-cash assets to avoid drawing from investments in a downturn.

• Use tax-efficient withdrawal strategies, such as drawing from taxable accounts first or using Roth conversions early.

• Plan for health care by understanding Medicare options, Medigap, and potential long-term care insurance.

• Downsize or relocate if housing costs consume too much of your income.

• Consider part-time work in early retirement if it fits your lifestyle—this dramatically reduces portfolio withdrawals.

• Revisit your plan annually to accommodate changes.

The Psychological Side: Gaining Confidence in Your Plan

Retirement planning isn’t purely mathematical—there’s an emotional component, too. Many retirees carry deeply rooted anxieties about financial security. Some underspend for fear of running out; others overspend early without realizing the long-term consequences.

Creating a detailed plan helps turn fear into clarity. Stress-testing various scenarios gives you a realistic sense of what your finances can handle—and what adjustments might be necessary. Even if the numbers require changes, knowing your situation is far more empowering than guessing.

Conclusion: Running Out of Money Is a Risk—But Not an Inevitable One

The fear of depleting your retirement savings is understandable. But with thoughtful preparation, diversified income sources, stress-tested planning, and periodic adjustments, most retirees can navigate this risk successfully.

The key is to be proactive:

• Understand your income and expenses

• Anticipate challenges like longevity, health costs, inflation, and market volatility

• Stress-test your plan under different scenarios

• Adopt strategies that stretch your income while balancing growth and safety

Retirement should be a period of enjoyment and fulfillment. With the right planning framework, you can move forward with confidence—knowing that you’re prepared not just for the best years, but also for the unpredictable ones.

If you ever want help creating stress tests, a withdrawal strategy, or a customized retirement plan, I can help walk through those details.