Is My Money Going to Run Out in Retirement?

Directors Take

By Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy

Is my money going to run out in retirement? I get that question all of the time. Here’s my answer. If you don’t plan ahead you could face some financial challenges in retirement. The best way to make sure you have money for the long-term to live the life you want to lead in retirement is to get an early start by setting goals and creating a saving and investing plan that will help you achieve those goals. If you’re getting a late start, don’t lose hope. There are ways you can make up some ground.

First things first. I know it may be hard, but think about at what age you would like to retire. Is it 55, 60, 67, earlier, later? Your retirement age is important because it lets you know how much time you have to save and how much money you need to put away each month in order to have “enough money” in retirement. According to the Department of Labor, the average American spends roughly 20 years in retirement. Being mindful of this kind of information can give you an idea of how long you may be living off of your retirement savings.

Start Early

If you’re reading this at the beginning of your saving and investing journey, give yourself a pat on the back. The earlier you start, the less money you’ll need to invest to reach your financial goals. And, there’s a great feature that really helps build wealth. Through the power of compounding, you can earn interest on the money you save and on the interest that money earns. You can watch your money grow over time even if you only put a small amount of money into savings right now.

Set Goals

Consider the lifestyle you want to lead.

Q Have you thought about major living expenses related to housing, healthcare, food, clothing, and transportation?

Q Do you like to spend money at will or are you the type of person who always lives within a budget?

Q What types of leisure activities and hobbies do you hope to pursue in retirement?

These are the kinds of important questions to ask yourself as you plan your retirement.

Make a Plan

Now that you’ve considered your lifestyle and goals, it’s time to make a plan. has free financial planning tools and resources that can help. Our saving and investing roadmap and Savings Goal Calculator can help guide you as you create a plan that helps you reach your goals. Whenever you’re creating a plan, it’s important to consider your risk tolerance, investment options, fees/costs involved in investing, your debt, and putting money into an emergency fund.

As you think about your investment options, you might want to consider investing in target date funds or lifecycle funds. These diversified mutual funds offer a mix of different types of assets designed to make investing for your retirement easier by automatically changing the mix of investments as you age. Generally, the funds are more stock heavy in the beginning shifting to a portfolio mix with more bonds, CDs and cash, and other less risky products as you get closer to your target retirement date. You pick a fund with the right target date based on your investment goals and fund managers make all of the decisions about asset allocation, diversification and rebalancing. It’s a “set it and forget it” type of investment strategy that helps take out the guess work.

Contribute to Your Employer’s Retirement Accounts

Contribute to your employer’s retirement accounts, such as a 401(k), 403(b) or 457(b) plan. Most importantly, if your employer contributes to these accounts, take full advantage of these matching funds. For example, if your employer contributes 50 cents for every dollar you save up to five percent of your pay. If you make $50,000 a year, and contribute at least $2,500 to these accounts, your employer will add an extra $1,250 to that amount. That’s an immediate 50 percent return. Take advantage of the “free money” as no other investment will give you that kind of guaranteed return.

Another easy way to get started is to establish an individual retirement account (IRA). IRAs provide tax advantages for retirement savings and you can contribute a certain amount each year based on the maximum amount allowed by the Internal Revenue Service (IRS). Traditional IRAs involve contributions that are typically tax-deductible and you pay no taxes on the IRA earnings until retirement. Roth IRAs involve contributions that are made with after-tax funds, are not tax-deductible, but the earnings and withdrawals are tax-free. Choose which is best for you.

Make Up Ground

If you’re getting a later start, there are ways you can make up some ground. If you’re over 50, you can consider contributing more to your workplace and individual retirement plans. The IRS allows investors to contribute $22,500 per year to a workplace retirement plan, like a 401(k), but will allow you to make an additional $7,500 in “catch-up” contributions if you are over the age of 50. Similarly, you can contribute $6,500 per year to an IRA that you set up yourself, but investors over 50 can contribute an additional $1,000 per year. Since these limits are subject to change from year to year you can check out the latest IRS contribution limits here.

While it may not be your first choice, another thing you can consider is to work longer, which will increase your contributions to your 401(k) and/or IRAs.

You can also consider putting off taking Social Security until you are older, which increases your monthly payment. For example, a person who puts off taking Social Security from age 62 to age 70 almost doubles their monthly payment.

As you can see, there are paths you can take even if you get a later start.

Enough Money

Starting early, setting goals, creating a diversified plan for the long term, making regular contributions to your retirement accounts, and sticking to your plan all adds up to helping to make sure you have enough money in your retirement to live the life you want to lead.

Note: Director’s Take articles are written in a short, non-legalese format intended to provide you with tips and information on timely investment topics that are important to you. You can subscribe to receive Director’s Take articles or find our latest article on the Director’s Take spotlight page.

This article is provided in the author’s official capacity as the Commission’s Director of the Office of Investor Education and Advocacy but does not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.