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3 steps to avoiding running out of retirement money

USA TODAY logo USA TODAY 5/6/2018 Ken Fisher
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Retirement investors’ most common risk is much more devastating than potential trade wars or crashing markets. It’s trying to be too safe, generating inadequate long-term returns, and then running out of money late in life. Too much cash now causes aged poverty later.

We all get blitzed by confidence-killing information daily. Breaking news, current events, economic wobbles -- even snarky friends’ opinions often make reasonable risks sound like God-awful gambles. So, folks end up holding excess cash cushions inside and outside 401(k) plans.  

That may feel safe. But it’s dangerous. Too many retirees end up too poor to cover basic expenses -- forget funding some dreamy retirement. To avoid that, follow my three-step self-checkup. 

Ask ‘How long will I be in retirement?’

The average retired household spends over $44,000 a year, according to the Bureau of Labor Statistics. More in some places! Yet a new survey reports nearly 40% of Americans age 55-plus have under $50,000 in savings. Social Security helps, but not nearly enough for most families to fund decades of retirement. Yes, decades. As explained in my January 21 column, medical advances keep lengthening lifespans. The Centers for Disease Control (CDC) claims 65-year-olds now average another 19 years. Future medical breakthroughs surely add a few more.

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Your total retirement expenses may well top $1 million, especially adding in how inflation whacks long-term purchasing power. Tally your expenses now to estimate your future needs. Remember, medical costs loom large late in life. Nearly half of retirees say they underestimated health care expenses, according to EBRI’s latest survey

Folks nearing retirement can’t afford big cash piles. If you’re drawing from savings now, holding enough cash for near-term expenses is wise. But without overwhelmingly long-term oriented investments, you’ll suffer steadily dwindling savings, not reliable income.

Know your goals

Ask yourself, “What are my retirement plans?” Most retirees crave financial freedom and flexibility to do whatever they want. Do you want to travel? More family time? Volunteer social activities? Financial help for heirs? 

If you keep working part-time in retirement, you can spend that additional income instead of your 401(k) savings. That lets your savings remain in higher returning, longer-term investments, making you less likely to outlive them. 

Consider your strategy

Many advisers urge saving 10-15% of career income annually to retire comfortably. Few do. One third of savers report saving 4% or less! Then investments must do the heavy lifting. The more cash you stockpile, the less your portfolio can lift. The other day I heard Tom James, legendary former CEO of Raymond James, call that, “disinheriting your children unintentionally.”

Stockpiling cash isn’t the only mistake retirement investors make. Not putting near enough in stocks is another. Many see stocks as super-risky, leading them to fear exposing savings to stocks’ wild wiggles. But historically, stocks have the highest long-term returns, and in the very long-term are less risky than almost anything. They outperformed bonds in every rolling 30-year period since 1926. Even over 20-year stretches, bonds won just twice. Both times, stocks still rose nicely. 

Risk takes many forms. Too many folks focus on stocks’ short-term volatility and lose sight of the vastly bigger risk: that they don’t get long-term returns high enough to reach their long-term goals. If you look solely to reduce your 401(k)’s wobbles, you’ll love bonds and cash. And you will end up much poorer for it late in life. (No, I don’t sell stocks as some claim.) 

What’s right for you, of course, depends on your situation -- your goals, needs and how long you need your money to work for you. But if all you think about is near-term risk, you’re choosing your emotional comfort now over your future financial security. So accept that there is no risk-free strategy. Then, strike the balance of risks that best matches your needs. 

Ken Fisher is the founder and executive chairman of Fisher Investments, author of 11 books, four of which were "New York Times" bestsellers, and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter @KennethLFisher

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.

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