What Happens When You Run Out Of Money In Retirement?
In this video, I dive into the subject of what happens when you run out of money in retirement. Are you worried about running out of money in retirement? Most folks get one shot to retire the right way -- and there are plenty of ways to mess it up. Be sure to watch this video to understand what running out of money in retirement looks like and how to avoid it.
Patrick King: What happens when you run out of money in retirement? Find out, coming up.
Patrick: Hey folks, I'm Patrick King with Transformative Financial. Here, on this channel, we help people make money, keep money and feel more financially secure along the way. If that's something that interests you please contact me, my email is email@example.com. My contact information is below in the show notes. I'd love to talk with you and see if it's good fit. On today's episode though, what happens if you're in retirement and you run out of money?
There was a study done back in 2014, it's all got a little age on it now but what they projected was based on the research, four out of every 10 baby boomers would run out of money in retirement if they retire before age 60. That's an early retirement. That's a long period of retirement. You've got to think, maybe if they extend their retirement out a little bit, work a little bit longer, the numbers actually weren't that much better for those baby boomers that were retiring at age 70. That's a lot of people who are going to run out of money. If you're out there, you're saving, you're thinking about retiring or how to walk away money or whatever you want to think about it, this is something that you absolutely want to avoid.
Most folks get one shot at pulling this thing off right and there's a ton of ways to screw it up. Unfortunately, I have dealt with a few folks throughout my years of doing this, that in spite of my best efforts they've continued to spend like drunken sailors anyway. I've seen it happen a couple of times and it gets really ugly. First things first, usually, you start looking at- once the portfolio gets down, when your savings started, getting dwindling, most people start looking at the equity in their home. There's a few things that you can do there. First off would be a reverse mortgage to see if you can start a annuitizing - basically getting a monthly check off of the equity in your home.
There's only so much equity, then there's only so much that it's going to be able to pay you. Service mortgages one, we talk about home equity. Number two is downsizing, you got to be careful with that. The great example with this is, is couple of years back. I think everyone, every person who is approaching retirement, this is back in Atlanta when the Beltline was brand new, and everyone thought, "Hey, this is really cool." Half of the people that walked in my office said, "Hey, you know what I want to do? Is when we retire, we're going to downsize and buy a little bungalow in Inman Park, right by the Beltline."
Well, guess what? Six million of your neighbors in Atlanta had the same idea and they build those houses right up and turns out that bungalow is worth more than your McMansion is right now. Downsizing is one thing you've got to be really, really careful about, because think about those transaction costs. You've got the realtors fees, which could be a big chunk of the value of the home. You've got the expenses of moving, furnishing, all of that stuff, even if you say, "Hey, we're going to keep the furnishing from the house." Doesn't always work that way, you got to get back the curtains and all kind of crazy stuff.
You know the deal if you've ever moved and that sucks. It is what it is, though. People always go first to that home equity. Number two thing that I've seen a lot of is, people, if it's a couple, they'll sell one of their cars. This is obviously not ideal, because another one of the things that- especially that I recommend, is going out and finding part time work. Just having something come in. Social security is always going to be there for you, but the average social security check, the average is $1,400 a month. Now, that might be able to get you a long way in certain parts of the country, maybe in Costa Rica, but here in Atlanta it's not going to get you anything or not much. You're not going to get far on that.
When you think about Social Security supporting your lifestyle, that is not a place where you want to be. Getting that part time job is really important and that's where selling a car in order to reduce expenses becomes kind of a dicey situation. Always something to think about. Another thing that I've seen quite a bit is that, most folks who are in this pickle when they don't have a whole lot of savings left and they're burning through pretty quick is oftentimes, there's a financial drain on their situation and if there is more often than not it's an adult child. I get it. You love your kids and you want to make sure that they do well, but at the same time, you can't give what you don't have to give. It's going to be a tough reality for them to cut them off in a lot of ways, but at the same time, when you run out of money, are they going to be able to support you at that point? It's really bad. There are public assistance programs that you can look into. Of course, going to Medicaid, food stamps, public housing, those kind of things, that's when it's getting ugly. I don't want to see you getting to that place, but it's there and some people use that.
The other out that it's also uncomfortable, especially when you're having conversations with loved ones, is asking children and other relatives to pick up the slack for your shortfall on your expenses. It can be a tremendously humbling and embarrassing place to be in. I've seen people who were so prideful that they couldn't talk to their children. Matter of fact, that facilitated a conversation with a client who was spinning down their assets and their children who were doing very well and fortunately, we were able to come to a solution that favored everybody, but not everyone has that access to children and relatives who would be able to help them with the shortfall. That's there. That's what most people end up doing.
It's something to think about. It's an uncomfortable situation. If you can avoid, it please do.
Again, work, I mentioned part time work. I've seen folks who are retired go back as bus drivers, work on a landscape crew. It is usually not the ideal job that you had thinking about when you retire, before you were going into retirement. Maybe do a little part time some here and there. If you're not setting that stuff up before retirement, chances are you're not going to be doing those fun jobs. You're going to be doing the stuff that you really don't want to do. Obviously, don't want to be in that situation, but if you need to you've got to step up. That's it.
If you find yourself in a point where you're running out of retirement money, what do you do? First off, you've got to get real with your spending. Really, you have to go on to the austerity plan, "Oh Patrick." I've heard it all the time, "Oh, Patrick. We don't spend a whole lot. We can't give up the country club. We can't give up the week long vacation we pay for for all the family members every year to the beach." "No, yes you can. This [expletive deleted] is getting real. You need to, actually, look at your expenses, look real hard, and say what is truly necessary and what is something I've just become accustomed to."
That's number one, and that is the biggest and best lever that you could pull if you find yourself in the situation. Part time job, immediately go out. If you can get health care benefits, especially if you're under age 65, you're not a Medicare yet, highly recommend. Number three, look into that reverse mortgage. Downsizing again, it could be iffy, so be careful with that. Then fourth, look and find financial planner, a fee-only financial planner with low expenses is going to be able to help you maximize your nest egg realistically and their fees aren't going to burn through too much of your portfolio returns. Those are my four recommendations.
The easiest thing to do is just don't get in that situation. If you're retired now, go to a financial planner and see what's realistic. Most people don't really know how much they can take out their portfolio every year. If you're sitting there and be like, "Hey, I'm going to take out 10% every year. Heck yeah, we're going to go to Vegas again." That's silly, it's not realistic. Especially if we're talking about 30 year retirement, taking 10% out on a year can be gone. Don't want that. Then two, before retirement look, it's coming soon and it's coming quick, it's going to be here before you know it. The time to start is now.
Actually, the best time to start was 20 years ago, but the second best time is now. Let's get started. Max out that for 401(k), max out your IRA or Roth IRA contributions every year, if you can. On top of that, start sucking it away in and after tax like brokerage account. Get that money working for you. It is not a fun place to be, so don't just go there. [laughs] That's the easiest way to do it. Thanks everybody for the great comments.
This was a suggestion from a viewer. If there are topics that you want to hear me go off about, please me know. I'd be happy to do that. Yes, I am feeling better. Thank you to everyone for all your well wishes. Other than that, back on the horse and trying to help some people make money, keep money and feel good doing it. I'm Patrick King with Transformative Financial, thank you for watching. If you liked this video, click like, click subscribe for more of this, and until next time, cheers.