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4 Tips to Avoid Running Out of Money in Retirement

For a financially sustainable retirement that could last several years, here are 4 tips to help manage your risks and avoid a financial crisis.

  • 2,766 Views | Updated on: Jan 15, 2024

Finances play a critical role throughout our lives. When you are employed, you can rely on your monthly pay cheques for your expenses. But once you retire, you end up losing this stable source of monthly income.

So, running out of money during retirement is a reasonable concern as you only depend on your savings and investments for all the post-retirement expenses.

Why Running Out of Money is the Number One Retirement Concern?

  • Retirement is a time that many people eagerly look forward to. It represents a period of freedom, relaxation, and enjoying the fruits of one’s labor.
  • However, amidst the anticipation, there is a lingering worry that keeps retirees up at night: running out of money. This concern is not unfounded, as financial security plays a crucial role in maintaining a comfortable and fulfilling retirement.
  • The fear of running out of money in retirement is entirely valid and understandable. After all, retirement can last for decades, and it’s essential to have sufficient funds to cover living expenses, healthcare costs, and unexpected emergencies.
  • Without proper financial planning, individuals risk depleting their savings sooner than expected, leaving them financially vulnerable in their later years. It is this fear that drives many retirees to seek ways to safeguard their financial well-being and enjoy a worry-free retirement.
  • Life expectancies have been rising, with people living longer than ever before. While this is undoubtedly a positive development, it also means that retirees need to plan for a longer retirement period, requiring more substantial financial resources to sustain their lifestyle.
  • The changing landscape of retirement benefits adds to the concern. Traditional defined-benefit pension plans, which provide a reliable income stream for life, have become less common. Many employers have shifted towards defined contribution plans, placing the responsibility of saving and investing for retirement on the individual.
  • This shift has resulted in greater uncertainty and a heavier burden on retirees to manage their own finances effectively.

Will You Run Out of Your Assets in Retirement?

Determining whether you will run out of money in retirement requires a careful examination of your financial situation. Factors to consider include your projected retirement expenses, anticipated income from various sources, and your desired lifestyle. Consulting with a financial advisor can provide valuable insights into your specific circumstances and help you create a comprehensive retirement plan.

4 Tips to Avoid Running Out of Money in Retirement

If you are smart with your retirement planning, you can comfortably ignore this fear and prepare yourself for a joyful and rewarding retirement. Here are four tips that can help you avoid this crisis:

Start Budgeting

If you have not already, the first thing you should do is calculate the approximate retirement corpus. Consider factors such as average monthly expenses, inflation, and years to retire to find an approximate amount. This is the amount you should have to retire comfortably.

Once you know the retirement corpus, try to set up a monthly budget and stick to it so that you can contribute more towards your retirement fund. Even if there is no way to earn more, budgeting will at least help you save more money from whatever your current income is.

Invest Regularly

You can now find various investment options in India. If you are young and new to investing, start with understanding the basics of different investment assets. If you are in your 20s or 30s, you can have a more aggressive investment approach and prefer options like equity, mutual funds, and gold.

In your 40s or 50s, stick to safer investments like FDs, liquid mutual funds, real estate, and government schemes. Rather than investing what is left after all the monthly expenses, try to invest first and then manage your expenses with the amount you are left with.

Generate Post-Retirement Income

The lack of stable income is one of the primary reasons why people worry about running out of money in retirement. So, why not create a source of post-retirement income? It is not necessary for the income to only come from employment. Various investment products can generate a stable income before and after retirement.

For instance, you can consider investing in an insurance-cum-pension fund. These plans combine life insurance with a post-retirement pension. They require you to invest throughout your working life and receive a regular pension after retirement while being secured under a life insurance policy.

Create an Emergency Fund

An emergency fund with at least 3-6 months of average expenses is an absolute must pre and post-retirement. Before retirement, this fund could protect you against unexpected expenses, job loss, etc. The importance of this emergency fund only increases after retirement.

Post-retirement, when you will have limited resources, you can rely on this fund for emergency expenses. This will ensure that you don’t have to withdraw your investments that are generating income. You should also replenish this fund as soon as possible after using it.

Take Action!

Living a comfortable and dignified life after retirement depends on how well you plan for this life-changing event. Rather than relying on your family members for financial assistance, you can take multiple measures throughout your working life to ensure financial stability even after retirement.

The fear of running out of money in retirement is a genuine concern for many individuals. However, with careful planning and informed decision-making, it is possible to avoid this situation. By following these four tips, you can enhance your financial security and enjoy a comfortable and worry-free retirement. Remember, it’s never too early to start planning for your future.

Key takeaways

  • Once you know the retirement corpus, try to set up a monthly budget and stick to it so that you can contribute more towards your retirement fund.
  • Rather than investing what is left after all the monthly expenses, try to invest first and then manage your expenses with the amount you are left with.
  • Various investment products can generate a stable income before and after retirement.
  • An emergency fund with at least 3-6 months of average expenses is an absolute must pre and post-retirement.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors