Retirement is often seen as the reward for decades of hard work—a time to relax, travel, and enjoy life. Yet, for many retirees, the fear of outliving their money looms large. Even those with significant savings worry whether their funds will last as long as they do. This concern isn’t unfounded, and understanding the risks, statistics, and strategies can help ensure a secure and fulfilling retirement.
The Retirement Savings Dilemma: Facts and Figures
Studies reveal a sobering reality: nearly half (45%) of American households are expected to run out of money in retirement if they stop working at age 65. This statistic raises serious concerns, especially as life expectancy continues to increase. Retiring at age 62—the earliest one can claim Social Security—puts retirees at even higher risk, with about 54% of those retiring early likely to face a financial shortfall.
Single women are particularly vulnerable, with 55% likely to face financial shortfalls compared to 41% of couples and 40% of single men. This gap is largely due to factors like lower lifetime earnings, more time spent out of the workforce for caregiving, and a longer average lifespan. As retirement expert Kerry Hannon explains, “Women generally live almost six years longer than men … So women have to fund longer retirements on lower lifetime earnings due to factors such as gender pay disparities and breaks from their careers for caregiving.”
Wealth doesn’t always shield retirees from financial anxiety. Surprisingly, wealthy retirees often underspend despite having the resources to support a comfortable lifestyle. Research shows that wealthier retirees in the top 20% income bracket could safely spend up to $1.165 million more over a 30-year retirement while still leaving a significant inheritance. Michael Finke, a professor at the American College of Financial Services, noted, “Fear is making them miss out.” While caution is necessary, overly conservative spending can prevent retirees from fully enjoying their retirement years.
Are Women More at Risk?
Women face unique challenges in retirement. On average, they live almost six years longer than men and often enter retirement with smaller savings due to wage gaps, time taken off for caregiving, and longer life expectancies. Healthcare costs compound this issue, with women requiring an estimated $113,000 for medical expenses in retirement compared to $96,000 for men.
Additionally, 65% of women worry about outliving their retirement savings compared to 57% of men. As Anne Ackerley, BlackRock’s senior adviser on retirement, pointed out, “I’ve often said that the retirement crisis is a women’s crisis.” This financial vulnerability means women must often adopt more aggressive savings strategies and delay retirement if possible.
Healthcare costs also weigh heavily on women’s retirement security. Across all age groups, women spend 20% more per year on out-of-pocket medical expenses than men, even excluding pregnancy-related costs. In retirement, these costs only grow, further straining their savings.
Why Do Retirees Underspend?
Even with ample savings, many retirees remain overly cautious about spending. Experts refer to this as the ‘retirement consumption puzzle.’ Psychological factors play a significant role:
- Fear of the Unknown: Retirees worry about market crashes, unexpected healthcare costs, and increasing life expectancy.
- Lifelong Frugality: Habits formed during years of saving are hard to break.
- Legacy Goals: Many retirees prioritize leaving money for their children over enjoying their savings themselves.
Jay Myer, a retiree who initially struggled with retirement spending, shared his experience: “When I realized we were regularly spending about $1,800 more a month than anticipated, I began scrutinizing every purchase, down to the napkins.” However, this penny-pinching mindset brought him more anxiety, not less. After revising his financial plan and realizing their savings were sufficient, Myer found peace in spending on meaningful experiences, such as vacations and helping his sons financially.
Financial advisor Adam Chapman emphasizes that spending money in retirement isn’t about recklessness—it’s about aligning spending with personal values and goals. “If you die with a lot of money, it means you sacrificed too much and lived too small,” he said.
Key Strategies to Prevent Outliving Your Savings
1. Plan for Longevity
Assume you’ll live longer than average. Many financial advisors recommend planning for a lifespan of 95 to 100 years to avoid running out of money. As Michael Finke pointed out, “There is so much uncertainty about how long we will live and how well markets will perform that many opt to spend conservatively.”
2. Use Lifetime Income Streams
Ensure essential expenses like housing, healthcare, and utilities are covered by predictable income sources such as Social Security, pensions, or annuities. Studies show that retirees are more likely to spend freely when they have reliable income streams in place.
3. Separate Your Savings into Buckets
Financial experts suggest dividing your savings into different ‘buckets’ for specific purposes: daily expenses, travel, healthcare, and emergencies. For example, setting aside $300,000 specifically for travel can make spending less stressful. David Blanchett, head of retirement research at PGIM DC Solutions, explains, “If you’ve got $300,000 set aside for travel, it makes it easier to spend the money.”
4. Delay Social Security Benefits
Claiming Social Security later, ideally at age 70, can significantly increase your monthly payments. Early withdrawals may reduce your monthly benefits permanently.
5. Work with a Financial Advisor
Surprisingly, less than 30% of Gen Xers and Baby Boomers work with financial advisors. Professional advice can help retirees make smarter spending and investment decisions. Financial advisor Adam Chapman recommends focusing on spending aligned with personal values rather than avoiding spending altogether.
6. Embrace Purposeful Spending
Rather than cutting back on every expense, focus on spending money on experiences and goals that bring genuine joy, such as travel, family gatherings, or hobbies. As Chapman advises, “Identify a handful of things you value and would get pleasure from spending more money on.”
While individual actions can improve retirement outcomes, systemic reforms are also needed. Increasing access to employer-sponsored retirement plans, strengthening Social Security, and promoting financial literacy from a young age are all essential steps toward closing the retirement savings gap.
Outliving retirement savings is a legitimate concern for retirees of all income levels. Women and single individuals face higher risks, but everyone must plan strategically. Whether through smarter saving, better spending habits, or professional financial advice, taking proactive steps can ensure your golden years are both secure and fulfilling.
