Why do so many retirees run out of money in retirement? It’s not because they’re irresponsible—it’s usually because no one ever taught them how to plan for the long term.
The statistics are sobering. Studies show that a significant percentage of retirees worry about outliving their savings, and many are forced to dramatically reduce their standard of living in their later years.
Today, we’re breaking down the most common reasons retirees run out of money and the simple steps you can take right now to avoid becoming part of that statistic.
Disclaimer: This article is for educational purposes only and not personal financial advice. Everyone’s situation is different, so consult with a professional before making big financial decisions.
Reason #1: Underestimating How Long Retirement Lasts
Most people plan for 15 to 20 years of retirement—but many live 25, 30, or even 35 years after they stop working. If you retire at 65, there’s a good chance you (or your spouse) will live into your 90s.
This means your money needs to last much longer than you probably expect. Planning for only 20 years when you actually need 30 years of income is a recipe for running out of money when you’re least able to recover.
The Longevity Risk
People are living longer than ever before, thanks to advances in healthcare and healthier lifestyles. While this is wonderful news, it creates a financial challenge: your retirement savings need to stretch further than previous generations ever had to plan for.
And if you’re married, at least one of you is statistically likely to live well into your late 80s or 90s, meaning your joint retirement could easily span 30-35 years.
The Fix
Plan for at least a 30-year retirement. If you live longer, your plan still works. If you don’t need all 30 years, you have a comfortable cushion—and potentially money to leave to heirs or donate to causes you care about.
This conservative approach protects you from the worst-case scenario while giving you peace of mind throughout retirement.
Action step: When calculating how much you need to retire, multiply your desired annual income by 30 years, not 20. This ensures you won’t outlive your money even if you’re blessed with exceptional longevity.
Reason #2: Not Investing Enough (Or At All)
Some people save money their whole life but never actually invest it. Leaving money in savings accounts or CDs feels “safe,” but inflation quietly shrinks your buying power every year.
By the time you reach retirement, the money you thought was enough often isn’t, because it hasn’t kept pace with the rising cost of living.
The Inflation Problem
If inflation averages just 3% per year (which is below the historical average), prices double roughly every 24 years. That means what costs $50,000 today will cost about $100,000 in 24 years.
If your savings aren’t growing faster than inflation, you’re actually getting poorer in real terms every year, even though your account balance stays the same.
The Fix
Use simple, diversified investments like index funds. Your money needs to grow, not sit still.
You don’t need to pick individual stocks or try to time the market. A diversified portfolio of low-cost index funds historically grows at a rate that outpaces inflation over long time periods, protecting and growing your purchasing power.
Even conservative investors should maintain some stock exposure to combat inflation, especially in the early and middle years of retirement.
Action step: Review your retirement accounts. If more than 20-30% of your retirement savings is sitting in cash (unless you’re already retired or retiring very soon), consider reallocating to age-appropriate investments that offer growth potential.
Reason #3: Spending Too Much Early in Retirement
Many retirees spend heavily in the first 5-10 years after leaving work: extensive travel, major home renovations, helping adult children financially, buying that dream RV or vacation property.
These are all wonderful goals—but spending too aggressively early in retirement can deplete your savings faster than planned. Then, later in life when healthcare costs rise and your energy for generating income declines, you realize you’ve used too much too soon.
The “Go-Go, Slow-Go, No-Go” Years
Financial planners often talk about three phases of retirement:
- Go-Go Years (early retirement): Active, expensive travel and activities
- Slow-Go Years (mid-retirement): Less travel, more moderate spending
- No-Go Years (late retirement): Higher healthcare costs but lower discretionary spending
Many retirees overspend in the go-go years without accounting for the fact that they still have 20+ more years to fund.
The Fix
Use a spending rate—like the 4% rule—as a guideline. The 4% rule suggests withdrawing no more than 4% of your initial retirement balance in the first year, then adjusting that dollar amount for inflation each subsequent year.
It doesn’t need to be perfect, but it keeps you from overspending early on and provides a sustainable framework for long-term withdrawals.
Action step: Calculate what 4% of your current retirement savings would be annually. If you’re planning to spend significantly more than that in early retirement, reconsider whether those expenses are sustainable over 30 years.
Reason #4: Underestimating Healthcare Costs
Healthcare is one of the biggest and most overlooked expenses in retirement. Many people assume Medicare covers everything, but Medicare has premiums, deductibles, co-pays, and significant out-of-pocket costs—and they almost always rise over time.
Additionally, Medicare doesn’t cover everything. Dental care, vision care, hearing aids, and long-term care are either not covered or only partially covered.
The Real Numbers
A 65-year-old couple retiring today should expect to spend $250,000-$300,000 or more on healthcare throughout retirement, according to various estimates. And that doesn’t include potential long-term care needs, which can easily add another $100,000-$200,000 per person.
These numbers shock most people because they significantly underestimated healthcare costs in their retirement planning.
The Fix
Build healthcare into your retirement plan from the beginning. Don’t treat it as an afterthought or assume it will somehow work out.
And if you’re younger and eligible, consider opening and funding a Health Savings Account (HSA). It can become a powerful tax-free medical fund later in life. HSAs offer triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Action step: Research Medicare costs, supplemental insurance (Medigap) options, and long-term care insurance. Factor realistic healthcare costs into your retirement budget—at least $10,000-$15,000 per person annually, increasing over time.
Reason #5: Not Having a Flexible Plan
Many people think retirement planning is “set it and forget it.” They create a plan at age 50 or 60 and never revisit it.
But life changes—inflation fluctuates, healthcare needs evolve, markets rise and fall, family situations shift. Without flexibility and regular review, small problems compound over time until they become major financial crises.
The Danger of Autopilot
Retirement isn’t a static phase of life. Your spending needs will change, investment returns will vary, tax laws will evolve, and unexpected expenses will arise. A plan that worked perfectly when you created it might need adjustments five years later.
Retirees who refuse to adapt their spending when markets decline or who don’t adjust their investment allocation as they age often run into serious financial trouble.
The Fix
Check in with your plan at least once a year. Review your spending, investment performance, withdrawal rate, and upcoming expenses. Small adjustments made early can save you from big problems later.
This doesn’t mean making drastic changes annually—it means staying aware, being honest about your financial situation, and making minor course corrections when needed.
Action step: Set a recurring annual calendar reminder to review your retirement plan. Ask yourself: Are my expenses higher than expected? Has my investment allocation shifted? Do I need to adjust my withdrawal rate?
The Simple Formula to Avoid Running Out of Money
Here’s the simplest way to avoid running out of money in retirement:
1. Invest Consistently Throughout Your Working Years
Start early, contribute regularly, and let compound interest do the heavy lifting. Even small amounts invested consistently over decades grow into substantial retirement savings.
2. Know Your Retirement Number
Use the 25× rule (annual income needed × 25) to estimate how much you need to save. Having a clear target makes it possible to track your progress and know if you’re on track.
3. Spend Based on a Safe Withdrawal Rate
The 4% rule isn’t perfect for everyone, but it provides a reasonable starting framework. Adjust up or down based on your personal situation, but avoid withdrawing so much early that you jeopardize your later years.
4. Plan for Rising Costs
Healthcare, housing, and general living expenses will increase over time. Build inflation into your retirement projections—don’t assume your costs will stay flat for 30 years.
5. Review Your Plan Every Year
Stay engaged with your finances. Make adjustments when markets shift dramatically, when your spending changes significantly, or when major life events occur.
You Don’t Need Perfection
You don’t need perfection—you just need awareness and consistency. Most people who run out of money in retirement do so not because they made one catastrophic mistake, but because they made several small mistakes and never corrected course.
You Don’t Have to Be a Statistic
You don’t have to be one of the people who runs out of money in retirement. With a simple plan and a few intentional habits, you can build a retirement that truly lasts.
The key is starting now—not waiting until you’re already retired to think about these issues. Every year you delay implementing these strategies is a year of compound growth and preparation you’ve lost.
But even if you’re already in retirement or close to it, it’s not too late. Adjusting your spending, reviewing your investment allocation, and being realistic about your timeline can still make a significant difference.
Your future self deserves financial security and peace of mind. Take these simple steps today to ensure you’re not one of the millions of retirees who wish they had planned better.
Ready for the next step? Read our guide on how much you actually need to retire comfortably, or check out our article on the five retirement mistakes people realize too late.
