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How to avoid going broke in retirement

How to avoid going broke in retirement

September 25, 2019

A big scary question for many folks is, will they have enough money in retirement?

You might think that if everybody is worried about it, then somebody might come up with a solution. Well, they have . . . sort of. Maybe you have noticed the commercials for “lifetime income” popping up more often on social media and television. The insurance industry knows that people are concerned about making their money last, so they are turning up the volume on promotions for annuity products with “guaranteed income for life.”

It sounds like a great deal, and it can be. It’s one reason I’m such a booster for Social Security income benefits. Social Security is, in essence, a lifetime annuity with a cost of living increase. This is an extremely valuable tool in the retirement income toolbox. And, it’s baked into your working life. So make the most of it. (Ask me how.)

But the tricky thing about the commercials for annuities offered by insurance companies is that they sound like they will give you all the money you need for as long as you live. Unfortunately, for many people that’s often mathematically impossible. For example:

  • You have saved $100,000.  
  • You are 60 years of age.
  • You only need $1,000 per month to live on.
  • Your money will only last 12 years and seven months assuming a 6 percent return on principal and no taxes.
  • However, you will likely live 25 years.
  • Your money will only get you halfway through retirement.

Source: Systematic withdrawal calculator, Dunncreek Advisors LLC.

In another scenario, a couple might need $5,000 a month for as long they both live. In that case, they would need an initial deposit of $1,236,536, based on the following assumptions:

  • Payments to start on Oct. 1, 2019.
  • Husband is born Sept. 15, 1954.
  • Wife is born Sept. 15, 1959.
  • The contract will provide monthly payments for as long as either the husband or wife lives and when the second spouse dies, the estate will receive the original investment amount less all payments received.
  • Based on Schwab annuity calculator.

The fact is that most retiring couples are wrong about how much they will spend in retirement. It’s not surprising when you think about it. They have never retired before, so they often don’t really know what to expect. Even if they have a very good handle on their current bills, they will likely be surprised.

The reason is that retirement typically breaks into three phases:

  1. Go-Go Retirement. In the first few years after you stop working for money, there is often a pent-up list of goals.

  • See the pyramids.
  • Spend the winter in Florida.
  • Climb Mt. Kilimanjaro.
  • Spend the summer at the lake cabin.

The tricky thing is that all of these have added expenses attached. Even if you just spend the full summer at your lake place, you will likely find that you need new equipment or that you have different expenses than you expected, because you’ve never done it before.

2. Slow-Go Retirement. After a few years, you find that you have “been there and done that” enough to be less interested in a hectic retirement schedule. And you might be starting to feel your age a bit more. You still go places and do things, but you are much more selective.

3. No-Go Retirement. Later in retirement, couples find that they lose the desire to be away from home and familiar surroundings, or they find that their physical condition is just to frail to allow them to do the things they used to do.

Recent research from J.P. Morgan Asset Management analyzed more than 5 million Chase accounts and found confirmation that people tend to spend more at the beginning of retirement.

Even during the Slow-Go and No-Go phases, the rate of spending can vary. JP Morgan found that about 56 percent of households had significant changes in spending from year to year during retirement.

Since every family is unique, and most families experience some changes in their spending patterns, it’s wise to plan carefully at the start and then monitor closely as your retirement unfolds. This may sound daunting because it can be complicated. One suggestion to help manage that complexity is to work with a highly trained, experienced expert who can be your advocate for a sound retirement income plan that fits your needs.


A great place to start looking for the right expert advisor is to talk with a couple CERTIFIED FINANCIAL PLANNER™ professionals.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.