Almost Half Of All People Who Retire At This Age Will Likely Run Out Of Money

According to the Morningstar Center for Retirement & Policy Studies, via MoneyTalksNews, 45% of Americans who retire at 65 have an increased risk of running out of retirement savings before the end of their lives. Worse than that, the longer you wait to address your potential funding shortfall, the higher your risk. For example, Morningstar found that Baby Boomers have a 52% risk of burning through their savings early after retirement, while Millennials had a 47% chance. 

There are a few factors that can make this scenario more likely for you. If you don't contribute to a retirement plan at your workplace, or you work somewhere without one, your odds of running out of money before retirement rises to 57%, regardless of your age. Meanwhile, households who have contributed 20 plus years into a plan lower their odds of a retirement savings shortfall to just 21%. Complicating matters is that most companies in the U.S. have consistently dropped pension plans, specifically after the passing of the 1978 Revenue Act which allowed workers to voluntarily contribute pre-tax income toward their retirement. This gave employers a way to offload long-term risk onto their employees, leaving companies with more profit.

According to an April 2024 study by the Alliance of Lifetime Income Retirement Income Institute, 52.5% of the baby boomers surveyed had $250,000, or less, in savings, with a majority relying on Social Security. There are only a few places in the U.S. you can retire on Social Security alone but, realistically, not everyone will be in a position to live in those places. The study also found that boomers with between $250,000 to $500,000 in savings also face the possibility of a retirement saving shortfall. 

This aligns with another April 2024 survey, this time by AARP, which found that 20% of adults 50 years and over have no retirement savings to speak of at all — with 61% of those surveyed expressing a fear of running out of money in retirement. This could explain why just over one-in-four of those surveyed also stated that they expect to never retire.

The Morningstar study also revealed a particularly disturbing statistic for women who retire at 65 years of age. While couples who retire at 65 have a 41% chance of running out of money in retirement, and single men have a 40% chance, single women face an elevated 55% chance of running out of retirement funds when retiring at 65. While pushing retirement to 70 can help, women still face the highest risk at 36%, versus 26% and 21% for couples and single men respectively. 

Per the 1014 research by the Alliance of Lifetime Income, 51% of women on the verge of 65, from now through 2027, have less than $100,000 in retirement savings, while 67% of single woman approaching 65 face the same. AARP's survey similarly confirms this, with 40% of men with retirement savings feeling confident that they have enough savings compared to only 30% of women.

Low-income households face similar difficulties, with the the odds of a low-income household running out of retirement savings skyrocketing to 86%, compared to 21% for households with higher incomes. If you're in a lower income category but have been contributing to a retirement plan for 20 years or more, your odds of a retirement shortfall drops to 52%.

Considering how working an additional five years can lower your odds of running out of money in retirement, planning to work longer can be a practical way to avoid running out of retirement savings. Working until age 70 can lower the number of seniors potentially burning through their retirement savings to 28%. There's also the added Social Security advantage attached to taking your benefits later in life, which can make a huge difference to your monthly income.

The impact of your lifestyle in retirement may also impact your savings, so if you're unsure if your retirement is going to be as financially golden as you would like, staying away from overpriced retirement communities that can eat through your savings is a good idea. Also, while the risk of losing money if you retire at 65 is concerning, knowing what age you should start saving for retirement should be top of mind. No matter what your age, a good financial advisor can offer you a reasonable savings and investment strategy that can help your situation.