Here’s how nervous Americans are about dying broke: 67% claim to worry more about running out of money than about death. Even for those with plenty of money saved, the fear of dying without money can consume their thoughts and steal their sense of well-being.
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A fear that’s rarely discussed
Whether they worry about healthcare costs in retirement or what happens during market downturns, financial concerns in retirement are widespread. However, it’s not always a fear people want to announce to the world. Instead, they privately worry about whether they’ll have enough money in retirement to carry them through.
Far from a niche worry, the fear of running out of money shapes how millions of Americans save, spend, and make decisions. There’s even a name for the fear: peniaphobia. Peniaphobia is described as the persistent fear of running out of money or falling into poverty.
Practical ways to address the fear head-on
When it comes to fears, concrete facts matter. The more you know about your finances, the more likely you are to feel in control. It begins by gathering facts.
Know your numbers
Estimate your post-retirement expenses by reviewing your current budget, adjusting for your retirement lifestyle, factoring in fun (such as money for hobbies or travel), and accounting for inflation.
Create a written withdrawal plan
Once you’ve recorded all your expected monthly expenses, focus on income. Include everything, including Social Security benefits, pensions, annuities, rental income, royalties, and earnings from a part-time job (if you plan to work). Consider making withdrawals in this order for optimal tax efficiency and longevity of your funds:
- Taxable accounts: Withdraw from brokerage accounts first to minimize taxes.
- Tax-deferred accounts: Next, draw from traditional IRAs, 401(k)s, or other tax-deferred accounts, as they’re taxed as ordinary income.
- Roth account: Finally, withdraw from a Roth IRA last, allowing the funds to grow tax-free as long as possible.
Maintain an appropriate mix
To maintain an appropriate portfolio mix, regularly assess your risk tolerance (it may change as you age), allocate assets based on age and market conditions, and diversify your investments so no single holding or sector can sink your overall portfolio. It’s important to rebalance your portfolio periodically to align with your income needs and goals.
Investigate dividend-paying investments
Whether you’re interested in dividend-paying stocks or a dividend-paying ETF like the Schwab U.S. Dividend Equity ETF, it’s possible to watch your investment grow while also receiving a steady stream of cash that can be withdrawn or reinvested.
Keep a cash cushion
A cash cushion provides financial security for unexpected expenses and reduces the need to sell investments at a discount during market downturns.
The fear of running out of money is powerful, but it’s not insurmountable. By grounding your decisions in realistic numbers and adopting a retirement income strategy you can live with, you can convert dread into a practical plan.