How to Avoid Running Out of Money - Tax Professionals Member Article By Abundant Wealth Planning LLC
Posted by Abundant Wealth Planning LLC

How to Avoid Running Out of Money

How to Avoid Running Out of Money

When planning for retirement, we all worry about whether we'll have enough money to last our lifetime. Financial experts can help you plan for retirement and ensure your money will last into your golden years.

Today, we are all living longer, and life expectancy will only increase. With people living up to three to four decades after retirement, having enough money to last you through your retirement days is essential.


Write your retirement plan (and review it often)

The first question we get as financial experts is: Will I have enough money for my retirement? No one wants to outlive their wealth, so our first tip is to make a plan. Having a comprehensive plan before you retire can save you headaches later.

To create the perfect retirement plan, you need to answer a few basic questions:

  • What are your income needs?

  • Do you have other sources of income?

  • Will you have a shortfall in your income needs?

  • If so, what assets will you have to address these gaps?

A financial planner can help you answer these questions and start putting a plan in place. Having a retirement professional by your side will help you identify your current and future needs.


Review different financial planning scenarios

One of the common difficulties of financial planning for life is that life is constantly changing, and the future is uncertain. While this may be true, running different scenarios that simulate real-life can help. For instance, consider determining the maximum amount you can spend on different retirement dates, travel expenses, business sales amounts, gift scenarios, second home purchases, medical or assisted living expenses, and life expectancy. Virtually any scenario can be modeled to clarify the impact of decisions before they are made. Different scenarios can also help identify financial constraints before choosing an unsustainable path. Wouldn't it be nice to know you were on a path that would increase your chances of running out of money before you choose it?


Invest your money in the right place

An important part of planning for retirement is deciding where and when to invest your money. This is one of the numerous reasons why, when designing a retirement plan, your risk tolerance is one of the first things a professional looks at. This is one of the essential things to know before investing. If you take more risk than you think and the market drops, you may panic and make a costly decision. Remember that an investment that suits one person may not be good for another. Speak to a financial expert to learn more about your options and the best approach for your needs.


Don't be a victim of fraud.

Fraudulent phone calls and phishing emails are increasingly common. This is true for those who are already retired. People are trying to scam our older generations. On average, our seniors lose $1 billion a year to scams. All retirees and those approaching retirement should be informed and educated on avoiding fraud.

First, research any purchase, donations, or investments before jumping into it. If an opportunity seems too good to be true, it definitely is. The outcome of being the victim of fraud can be considerable. You may believe this will never happen to you, but it is possible. It happens more often than you might imagine. Scammers are getting smarter, especially with all our information online.

If you've been defrauded or scammed, you may not know until it's too late. Always be proactive rather than reactive. Trust your instincts, worry, and ask lots of questions.


Have a budget and stick to it

When most people get to the retirement age, they want to maintain the same standard of living to which they are accustomed. Having a well-detailed budget can help you get there. While many of us might think this is an easy step, it's surprising how many people don't have a budget.

Start your budget planning by tracking all your expenses; this will help you see where every dollar is going. Start tracking your income, where it comes from, and how much you earn per month. After tracking your income, ensure your expenses are less than your monthly income. If not, find a way to cut some expenses. This budget will help you control how much money you need each month and each year to maintain the lifestyle you want and help you maintain that lifestyle until retirement.

A budget is a useful tool in your financial planning journey. But also ensure you have an emergency fund on hand. We witnessed how crucial this was for many people during the pandemic. Aim to have at least three to six months of expenses in this fund in case of job loss, car breakdown, or emergency home repairs.

No matter how close or far you are to retirement, you want to make sure you have enough money. You want to continue living the lifestyle you were used to during your golden years, and getting there starts with a plan.


Resize your home

Spending a disproportionate amount of income and assets on housing is a common problem for many Americans, especially in expensive parts of the country such as New York, New Jersey, California, Hawaii, Connecticut, and Massachusetts, where housing affordability is lowest. Although it is not always possible to leave a state due to housing costs, choosing a cheaper home can be an option. Some Americans spend 40-50% of their income on housing alone, leaving little income for travel or other discretionary spending. Instead of seeing a move as downsizing, think of it more as an "adjustment" to your home, less financial stress, and more discretionary income to apply elsewhere. Determining the right house plan is key to staying on track in retirement.


Reduce waste and eliminate debt

Financial waste is common for most Americans regardless of income or level of resources. There are many opportunities to reduce financial waste from purchasing depreciated assets such as cars, utilities, and subscription services. First, review your financial priorities and consider cutting expenses that are unimportant to you. For priority spending, consider renegotiating and looking for alternatives. Surprisingly, many retirees spend time and money on things that aren't that important to them. A budget is key to identifying these areas.

For many Americans, the likelihood of running out of cash is also directly related to debt levels. Unfortunately, more and more retirees are carrying the burden of debt in retirement. According to the Federal Reserve's Survey of Consumer Finances, the average debt level of retirees aged 55 to 64 is $61,500, while that of retirees aged 65 to 74 is $40,000. Eliminating debt before retirement can help improve the sustainability of your retirement lifestyle.


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