Northeast Wisconsin
  • Northeast Wisconsin
  • October 2018
Written by 

Why do people fear running out of money?

Many people are worried that they will run out of money in retirement. Do you share that concern?

Causes

For many people, Social Security is the primary source of income in retirement. Social Security was never intended to be the sole source of retirement income but was to supplement employer provided pensions and personal savings. People generally know their income will go down when they stop working and draw Social Security, but often don’t realize how much it will go down.

By visiting www.ssa.gov you can get estimates of your Social Security benefits based on your own earnings record. You can do “what ifs” comparing your benefits at age 62, 65 and older. Benefits are sharply reduced if we begin at age 62. While we don’t always have the option of waiting until full retirement age, benefits will increase about 8 percent more each year you wait beyond age 62 until you reach age 70.

People sometimes retire at age 62, thinking they can live reasonably well now. Retiring early might work now with today’s prices, but what about in the future? The long-term average rate of inflation is more than 3 percent and that reduces our buying power. If inflation is 3 percent, after ten years $10,000 will be worth $7,441 and after twenty years, $10,000 will be worth $5,537. While Social Security is indexed for inflation, the modest increases may not keep up with rising costs.

With today’s longer life expectancies, experts often say we should plan to live into our mid-nineties. Women especially should consider this, since more than one-third of women who are age 65 will live until age 90.

Fewer employers today offer pensions. Instead, many offer 401(k) plans, where employees save what they can from their paychecks and sometimes receive employer matching contributions. According to the Federal Reserve’s 2016 Survey of Consumer Finances, the median combined 401(k) and IRA balance was $135,000. That may seem like a lot of money, but many retirees find it difficult to make their modest savings last twenty or thirty years.

Medical expenses can deplete savings, especially if there is a chronic medical condition. Medical costs have increased more rapidly than the general rate of inflation. As we age, we tend to use more health care services. Depending upon the health insurance that is chosen, retirees may have to pay significant costs out of their own cash flow or savings.

Suggestions

Be prepared for medical expenses that Medicare does not cover. Medicare Supplement Plans can help cover expenses that are not covered by Medicare. To learn more about Medicare, visit www.Medicare.gov or talk with your local Aging and Disability Resource Center (ADRC). For Calumet, Outagamie and Waupaca Counties, check out www.yourADRCresource.org. Some ADRCs offer helpful workshops like “The ABC’s and D’s of Medicare.”

Work with a financial advisor to identify your likely sources of income and steps you can take to try to build a reliable stream of income. You can also use financial calculators and websites like www.choosetosave.org/ballpark/ and www.myretirementpaycheck.org to better understand your needs and situation. Look for ways to spend less and save more, including low cost and free community resources. United Way’s 2-1-1 Information and Referral Service can help identify local resources.

If available, participate in your employer’s 401(k) plan and save at least enough to get the free employer matching contributions. Don’t cash out your IRA or borrow from your 401(k) before you retire.

For inspiration on ways to live well on less, check out www.cashonlyliving.blogspot.com.

Alan Prahl

Alan Prahl is the Education Leader with FISC, the Financial Information & Service Center. He has an undergraduate degree from the University of Wisconsin in Madison and law degree from Hamline University. A nonprofit program of Goodwill NCW, FISC provides financial counseling and coaching, including a no-cost, no obligation 30-minute consultation with the “counselor on call.” To learn more, call 920-886-1000 or visit www.fisc-cccs.org.

Website: www.fisc-cccs.org
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