What's Your Biggest Financial Risk When Retired? Hint: It's Not Running Out of Income.
Worried about "running out of money" during retirement? Well, that's a legitimate concern. Unfortunately, "running out of money" isn't a very exact term.
The reality is that most Americans will never run out of income; they will always have Social Security (and may have a pension or a guaranteed payment from an annuity). What retirees need to worry about is
running out of investment income.
Very few retirees will be able to live on Social Security and their pensions till they die. When expenditures exceed Social Security income, retirees must start withdrawing from their investments to supplement Social Security payments. Investment withdrawals need to last as long as the retiree is alive.
That’s why the most important retirement risk is running out of investments at some future point. If investments are exhausted, then income from investments stops and expenditures must be reduced to whatever is received from Social Security.
Retirees are more likely to exhaust their investments if
They live a long time
Expenses increase faster than expected
Investment returns are lower
They need long-term care and don’t own long-term care insurance
They provide financial support to needy family members or friends.