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3 Reasons Why Americans Are Running Out of Money in Retirement, and What to Do About It!!

Eric K. Hudson

Managing Principal at Hudson Wealth Management

发布日期: 2019年6月17日

Not saving enough for retirement or waiting too late to prepare for retirement is a devastating predicament. It is a likely possibility to run out of cash in your 70s and 80s and studies have shown that more Americans fear running out of money in retirement than they fear death. "Research shows that there's a pretty good chance that many Americans will run short of cash. In fact, the data about retirement savings shortfalls is startling." Bieber, C. (2019, May 19).

There are 3 primary reasons why Americans are running out of money in retirement.

1) Miscalculating Life Expectancy

On average, if you are 50 years old, your life expectancy is 83 if you are a woman and 80 for men. However, the averages can be misleading. According to the Social Security Administration, 30% of all 50-year-old women and 19% of all 50-year-men are expected to see their 90th birthday. In fact, according to MarketWatch.com, "the most likely age for a 50-year-old woman is 88 and the most likely age for men is 85."Sauter, G. (2017, March 15).

The Solution

Simply put, it is best to save, invest, and plan to live longer than your expectancy. This may require saving more in your 50s and 60s as well as in your 20s and 30s. This may also require investing more aggressively earlier on and then maintaining your investments for a longer period of time as you get older.

Everyone's situation is different, therefore it is best to seek expert counsel from your financial advisor to ensure that you are currently on the right track, and or adjust as necessary.

2) You Are Underestimating Your Expenses

Many older workers expect their living expenses to decrease in retirement. While your commuting expense may go away, many of the other expenses such as housing costs, food, clothing, and phone service will stay the same. In fact, many retirees experience that their living expenses actually go up due to health care costs. Furthermore, nearly half of Americans actually spend more in the early years of their retirement than they did during their working years.

The Solution

The best way to ensure that you are NOT underestimating your retirement expenses is to overestimate! Meet with your financial advisor to review your forecasted monthly retirement income versus your projected monthly expenses and adjust accordingly.

3) Solely Relying on Social Security & 401(k) Plan

Here's the deal, we are in the age where pension plans are damn near extinct and government dependence cannot be counted on, and rightfully so. With that said, it is an absolute must that you take your retirement planning investment strategy into your own hands!

"An estimated one-third of retired workers depend on Social Security to provide 90% or more of their income." Frankly, this is just unrealistic. "Those benefits, in a best-case scenario, will replace roughly 40% of the average worker's pre-retirement income, but most seniors need double that amount to keep up with their bills." Backman, M. (2018, March 8). You are in for a rude awakening if you believe that social security will cover the majority of your expenses during retirement. Consider yourself warned.

401)k) plans are generally good tools to help prepare for your retirement, especially if you have a company match. However, solely relying on your 401(k) plan to supplement your retirement expenses is just not smart, and here's why.

Many 401(k) plans are operated by a machine, and or some type of pre-programmed investment portfolio rebalancing tool. In other words, odds are is that the human element of involvement within your precious 401(k) plan is completely absent. Therefore, who knows how well or how poorly your 401(k) plan investment portfolio will perform in the markets over the years when there is no real-live human being keeping an eye on it.

Don't believe me? Ok, do this. Go to your HR manager and ask for direct contact info for the person(s) responsible for managing your 401(k) plan investment portfolio so that you can have a conversation with that person(s) about the performance of your investments and see how far that gets you.

The Solution

My point is that retirement income reliance on social security and your 401(k) plan is simply not enough. What you need is to be more diversified outside of your employer-sponsored retirement plan. The Ultra-High Net Worth (UHNW) almost never have all of their eggs in one basket. In your case, it may be a good option to open up a separately managed Individual Retirement Account (IRA), and or look into some other investment vehicles. But that depends on your unique situation.

I strongly advise that you meet with your financial advisor sooner rather than later to map out the best course of action for you.

Take charge of your money!

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Disclaimer: Hudson Wealth Management, LLC (HWM) is a FINRA registered investment adviser firm. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and HWM's fee schedule. The information provided herein is for illustrative purposes only and does not constitute personalized investment advice, recommendations or solicitations to hold, buy or sell any investment or security of any kind. All images and return figures shown are for illustrative purposes only and are not actual customer or model returns. Past performance does not guarantee future results.

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