Financial Strategies: Overcoming the Challenge of Running out of Money in Retirement

Retirement is a time for relaxation, adventure, and enjoying life after decades of hard work. Yet, for many, the fear of running out of money can overshadow this stage of life. Retirement planning isn’t just about having enough savings—it’s about making savings last. Here are some financial strategies to overcome this challenge, blending actionable advice with real-world insights.

Understanding the Risks

Retirement finances are influenced by a mix of external and internal factors. While some are beyond our control, others are entirely manageable. To build a robust plan, individuals must address both.

External Factors

1. Longevity Risk – Living longer than anticipated is a double-edged sword. On the one hand, it’s a blessing; on the other, it increases the risk of depleting resources. For couples, the probability of at least one spouse living into their 90s is higher than many realize.
2. Investment Risks – Poor investment decisions, such as lack of diversification or selling in panic during market downturns, can erode wealth. Additionally, the “sequence of returns” risk—experiencing losses early in retirement—can significantly impact long-term sustainability.
3. Inflation – Inflation quietly erodes purchasing power. A 2-3% annual inflation rate compounds significantly over decades, making it crucial to plan for rising expenses.
4. Taxes – While tax rates can fluctuate, many retirees will fall into lower brackets than during their working years. However, unexpected changes in tax policy can affect long-term plans.

Internal Factors

1. Spending Patterns – Overspending, often driven by emotional or family pressures, is a leading cause of financial depletion. Supporting adult children or maintaining an unsustainable lifestyle can quickly drain resources.
2. Behavioral Biases – Emotional reactions, such as panic selling during market downturns, or under-spending due to fear of running out of money, can harm financial well-being.
3. Lack of Planning – Failure to structure withdrawals and income streams effectively can lead to inefficient use of funds, reducing overall retirement security.

Key Strategies to Ensure Financial Stability in Retirement

1. Optimize Your Withdrawal Strategy

A well-thought-out withdrawal plan is essential for sustainable retirement income. Two primary approaches to consider are the “Now and Later” strategy and the “Multi-Stream” approach.

• Now and Later Strategy – Allocate investments into two segments:
  • Now Money: Funds designated for immediate needs (e.g., 5-10 years of living expenses), held in low-risk assets like bonds or CDs.
  • Later Money: Long-term growth investments designed to outpace inflation, such as equities.
• This approach minimizes the risk of withdrawing from growth assets during a downturn.
• Multi-Stream Approach – Develop multiple income streams, such as Social Security, pensions, and interest and dividends. By diversifying income sources, it reduces reliance on any single one, creating more stability.

2. Guard Against Sequence of Returns Risk

The timing of market downturns can dramatically affect your portfolio. To mitigate this:

• Avoid selling growth assets during market lows.  Account withdrawals during a bear market are more costly than the same withdrawals when the market is doing well.
• Maintain a cash reserve or bond ladder to draw from during down years.
• A diversified portfolio can protect assets against sequence risk.

3. Incorporate Inflation Protection

Ensure your plan includes assets that can outpace inflation, such as equities or inflation-protected securities. Additionally, you can use a “bucket strategy” to match investment returns with different phases of retirement.

4. Set Boundaries on Family Support

Generosity toward children and grandchildren is admirable, but it should not jeopardize your financial stability. Consider:

• Offering non-monetary support.
• Setting clear limits on financial assistance.
• Prioritizing your retirement needs over discretionary family expenses.

5. Leverage Insurance Products Wisely

Annuities and life insurance can provide guaranteed income streams or legacy benefits but come with trade-offs. Avoid overcommitting funds to products with high fees or limited flexibility.

6. Diversify and Simplify

Diversification reduces risk. A mix of stocks, bonds, real estate, and other assets ensures that no single downturn can devastate your portfolio. Simplicity can also be a good strategy as overly complex investments may lead to unintentional mistakes or higher fees.

Balancing Enjoyment and Security

While financial prudence is essential, retirees should also prioritize living life to the fullest. Many people underspend in retirement due to fear of running out of money, only to pass away with unspent wealth. Striking a balance between enjoying early, active retirement years and preserving resources for later is key.

Final Thoughts

Running out of money in retirement is a genuine concern, but it’s manageable with proactive planning and disciplined execution. By addressing both external risks and internal behaviors, you can build a retirement plan that provides financial security and peace of mind. A trusted financial professional like your team at Tenet Wealth Partners can help customize these strategies to your unique situation. Peace of mind that you have a sound plan in place will help you enjoy retirement years to their fullest.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

The information provided in this communication was sourced by Tenet Wealth Partners through public information and public channels and is in no way proprietary to Tenet Wealth Partners, nor is the information provided Tenet Wealth Partner’s position, recommendation or investment advice.

This material is provided for informational/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Investments are subject to risk, including but not limited to market and interest rate fluctuations.

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