Most boomers and Gen X-ers are terrified about running out of money in retirement - even if they're already retired

Dow Jones

08/13

MW Most boomers and Gen X-ers are terrified about running out of money in retirement - even if they're already retired

By Richard Eisenberg

Anxiety has been peaking for people in and approaching retirement - how to manage it

More than half of those near or above retirement age are fearful about outliving their savings, a recent survey found.

Pre-retirees and those in retirement have one thing in common, based on recent surveys: rising levels of anxiety about retirement.

Ralph Spielman, who retired in 2016 from a career as a corporate travel administrator and lives with his wife in New York City, calls retirement "terrifying." Anxiety about running out of money in retirement "was always a worry and still a worry," Spielman said. "Worry is probably spending a lot more time in my brain than it really should."

Spielman said he is anxious "all the time" about the money he and his wife spend in retirement, often asking himself: "What kind of curve are we going to be thrown?"

This anxiety has been peaking for people a few years away from retirement age who are worried about a paucity of savings, and staying high in the first years of retirement amid fears that spending too much will cause them to run out of money, Kerry Sette, head of Consumer Insights & Research at Voya Financial, said.

That's a reasonable concern; a 2024 Morningstar study predicted that 45% of Americans will run out of money in retirement. Data from the Alliance for Retirement Income reveals that 54% of baby boomers and Generation X (combined) are fearful about outliving their savings, up from 48% last year, and a Vanguard study said the average 401(k) balance for Americans aged 55 to 64 is only $271,000.

Research also shows, however, that some retirees are overly cautious about spending money in retirement and can afford to spend a little more freely. "I've been told by our advisers that a number of their well-to-do clients struggle to spend money in retirement out of fear they'll spend too much. They don't end up with the retirement they would've liked to have had," said Craig Hawley, president of Nationwide Annuity.

But as Fritz Gilbert, author of "Keys to a Successful Retirement," wrote on his Retirement Manifesto blog: "It doesn't do us any good to be the richest corpse in the graveyard."

Consider these survey results:

-- More than two-fifths of pre-retirees the Nationwide Retirement Institute surveyed said their dreams for retirement have been delayed, altered or canceled as a result of economic conditions in the past five years - most notably, inflation.

-- Only 65% of employed Americans polled by Voya Financial are confident of being on track to retire at their target retirement age. Women, Black and Hispanic adults, and caregivers are especially anxious about retirement, Sette said.

-- The Alliance for Lifetime Income found that 47% of retirees said spending money in retirement gives them anxiety. An Employee Benefit Research Institute (EBRI) study said retirees with at least $500,000 had typically spent down only 11.8% of their money within the first 20 years of retirement.

"If you think about it, we've had a market crash, the highest inflation in 40 years, supply-chain issues, geopolitics, higher interest rates, hurricanes and wildfires. It's having a cumulative effect. And in the 50-plus segment, everyone's just kind of waiting for the rug to be pulled out from under them. The net result is financial anxiety," said Sette.

"Anxiety makes it very hard to plan for retirement," said Jason Fichtner, executive director of the Alliance for Retirement Income's Retirement Income Institute. This nervousness, Fichtner added, is causing some people in their early 60s to claim Social Security rather than wait, even though delaying would deliver larger monthly benefits.

More workers are relying on their own savings

"A lot more is being asked of the generations moving into retirement," said Hawley.

Their parents and grandparents often had generous pensions delivering guaranteed lifetime income. But some boomers (who are ages 61 to 79) and many Gen X-ers (ages 45 to 60) enter retirement with little or no pension income, relying primarily on their own savings for today's longer lives.

"Gen X-ers are completely depending on their own savings," said Jean Chatzky, host of the HerMoney podcast and an education fellow with the Alliance for Lifetime Income. "I think that engenders even greater fear."

Some Americans in their 50s and 60s are also shouldering caregiving costs for parents or spouses, plus financial support for their adult children.

Many worry they'll incur sizable health and long-term-care expenses themselves. Fidelity estimates that a 65-year-old retiring in 2025 can expect to spend $172,500, on average, on health costs in retirement. And "savings can quickly be wiped out when long-term care needs arise," said Natalie Kean, Justice in Aging's director of federal health advocacy, at a recent Alliance for Health Policy conference in Washington, D.C.

"I think all those things collide and result in the anxiety we're seeing, and how people may be having to rethink what their golden years will look like," said Hawley.

Debra Wallace, a widowed freelance writer and publicist in Huntingdon Valley, Pa., with a teenage son, is spooked about retirement.

"Things are tight," said Wallace, who has no 401(k) and calls her earnings modest. "I don't know if retirement is in my future."

In the coming years, Wallace expects to sell her house and downsize to a smaller home while scratching out a living. "It's not a great plan for retirement," she said.

Freelance writing, she noted, doesn't bring in nearly what it once did. "Print magazines used to pay $1, $1.50 or $2 a word; some people even got $3 a word. Today, if you're lucky, digital pays 50 cents a word," said Wallace.

Tackle the worry

There are a number of ways to lessen financial anxiety, whether you are nearing leaving your full-time job or in the throes of retirement, which could relieve worries.

If you're not yet retired, here's what experts suggest:

Get a financial adviser or meet with the one you have. Only 40% of the 55-to-65-year-olds that Nationwide surveyed work with an adviser.

"You don't have to hire an adviser to manage your money. You could hire one for a flat fee just to do a checkup," said Fichtner.

Use an online financial calculator to estimate your cost of living in retirement. The big financial services companies have free retirement calculators to help.

"Many people have never run the numbers on how much it's actually going to cost them to live in retirement," said Chatzky. "If you're not on track to get where you want to be, now is the time to make changes like downsizing or shifting your lifestyle to funnel more into retirement accounts and reset the clock on how long you're going to work."

Consider purchasing an insurance-company annuity for guaranteed monthly income. Studies have shown that retirees tend to give themselves more freedom to spend money from an annuity than by tapping their savings.

You could buy an annuity paying the same amount for the rest of your life. Or a bridge annuity providing monthly income just until you claim Social Security. Or a deferred annuity that will begin providing income at age 80 or so, when you might need it for long-term care or health expenses.

Look for an online support group of others planning to retire. Stephen Anderson, a retired emergency-medicine physician who splits his time between central Washington and Florida, runs the Exploring Retirement section of the American College of Emergency Physicians site. It's for retired doctors and "for people who haven't retired but want to know how to plan before they do."

If you're already retired, it's understandable to be nervous about spending money.

"Unless you hit the lottery, the question of paying for extra expenses in retirement is always going to be on your mind," said Anderson.

To alleviate spending fears, you may want to follow this advice:

Remember that Social Security benefits provide something of an inflation hedge. They have built-in, annual cost-of-living adjustments or COLAs. The 2025 COLA is 2.5%; inflation is currently running at 2.7%, slightly higher than the rate this spring.

Determine your safe withdrawal rate - the percentage of your retirement savings you can afford to withdraw annually. For decades, financial advisers have recommended a 4% withdrawal rate (its creator recently raised this guideline). But to feel safe, you might want to be more conservative with a slightly lower rate.

Read: The guy behind retirement's 4% rule now thinks that's way too low. Here's how much more money you could spend.

Gilbert and his wife currently use a 3.25% withdrawal rate. At the end of each year, they recalculate the rate based on the size of their retirement portfolio and how the stock market performed.

"I'm pretty confident we'll be OK, but it's been a work in progress to teach myself the freedom to spend," said Gilbert, who retired seven years ago at age 55.

A sophisticated retirement calculator can let you track expenses to determine a safe withdrawal rate from your savings. For example, the Boldin retirement site's PlannerPlus software ($144 a year) does this and lets you plug in what-if scenarios to see what a comfortable withdrawal rate would be if you cut expenses.

If you're worried that potential long-term-care costs could sharply raise your expenses, Gilbert advised, estimate what they might cost and subtract that number from your net worth to calculate your safe withdrawal rate.

"The average long-term-care stay is three years, so if you think your cost might be $7,000 a month, you'd subtract $200,000 from your net worth to get your withdrawal rate," he explained. "You can make the math work for you to address some of your anxieties."