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How to run out of money in retirement
May 12, 2014
by Brian Wolf

Recently, US News & World Report ran an article talking about five ways to run out of money in retirement.

As a financial planner for over 25 years, I can assure you there are countless ways to run out of money in retirement.

This week, I will review the five ways that the article listed.

1. No measuring device. Imagine driving across the country with no fuel tank gauge. How often do you stop for gas? I suppose you’ll have to guess. If you approach retirement income this way, you can get yourself in trouble. You must have a monitoring system in place.

I certainly would agree with this one. Planning for retirement should be a high priority. It’s like the old saying; most people spend more time planning for a vacation than they do retirement. And while a vacation may only last a week or two, your retirement should last for decades.

2. No spending plan. The number one reason people run out of money in retirement is they spend too much relative to the amount of financial assets they have. Most often, excess spending occurs as parents help adult children, or because an upcoming retiree forgot to calculate expected taxes and health care expenses in their retirement budget.

This is one I would take exception with. Of course, spending more money than you take in will drain your money, but I certainly don’t see helping your adult children or forgetting to calculate expected taxes and health care expenses as a “most often” reason.

3. Invest wrong. Your investment goal in retirement is not to maximize returns, nor, contrary to what many believe, is it to preserve principal. What most retirees want is sustainable, lifelong income. This is not the time to go for the hot stock tip, nor is it the time to keep all your money in certificates of deposit.

Bingo! I couldn’t agree more. The good news is that today there are some really amazing products and strategies to assure a steady stream of income that will last a lifetime, which is a much better plan than simply watching your portfolio go up and down with the whims of the stock market.

4. No plan B. Life throws curveballs and it will continue to do so in retirement. If your plan requires you to use every asset you have, you’re at risk of running out of money. You need to allocate some of your assets to reserves – this means the asset is not included in your plan as available to meet living expenses in retirement. Reserves can be an emergency fund account, home equity, cash in the safe, a piece of land you own, or even a valued collectible. Hopefully you’ll never need to tap into your reserves, but it may be you’ll need it for health care expenses later in life, or to help an adult child who gets in trouble. There’s no telling what might come up that throws your original plan off track. That's why you need assets set aside as plan B.

Of course, this is a good idea, but not everyone has the resources to put this into place. Since it’s unlikely that you will be able to cover every scenario, look at the things that would most likely be your “curveballs” and plan for those.

5. Fall for the scam. There will never be a shortage of people trying to part you from your money. Countless times, I’ve watched retirees fall for scams that promised them outstanding returns. As you age, your ability to process complex financial decisions declines. Unfortunately, you maintain a strong belief that you have the capacity to appropriately process such things. This is not a good combination.

OK, first of all, I don’t believe that the author of this article has actually seen “countless times” someone falling for a scam. In my career, I would estimate that I see the evidence of scams a few times per year with the people that we meet with. Unless you want to call it a scam when an advisor tells a client that their investments are safe or have very little risk. That’s the “scam” that I see almost daily!

As always, the best advice for retirement planning is to work with an advisor that is ethical, knowledgeable, independent, and represents both insurance and securities products equally.



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