If I’m 62 With $800,000 Saved, Am I at Risk of Running Out of Money?
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Having $800,000 saved for retirement at age 62 is a major accomplishment. For many people, reaching that level of savings represents decades of careful planning, consistent investing, and disciplined spending.
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But even with that much money in a retirement account, your risk of running out is far from zero. The unfortunate truth is that you could have 10 times your current savings balance and still technically be at risk of running out of money. But with the right strategy, you could lower that risk substantially.
It starts with a realistic spending plan
The reason your savings could run out, even if you have a lot, is simple. If you withdraw from your individual retirement account (IRA) or 401(k) faster than it grows, eventually, your account could be empty.
To avoid that fate, start by creating a realistic budget for retirement. Incorporate planned expenses, like housing, healthcare, and food, as well as one-off expenses like home repairs or insurance premiums you pay annually.
From there, apply a reasonable withdrawal rate to your nest egg. You can use the popular 4% rule or another percentage.
If you land on 4%, an $800,000 nest egg gives you $32,000 a year plus inflation adjustments. From there, you’d add in your estimated Social Security benefits plus other expected income streams.
If you have only Social Security on top of your savings and expect $28,000 a year in benefits, combined with your retirement plan withdrawals, that’s a $60,000 annual budget. If that aligns with your expected spending, you’re at less risk of depleting your nest egg. On the other hand, if your expected annual spending is $75,000 and you don’t make adjustments, your savings could run out if you withdraw at a higher rate.
Also note that if you claim Social Security at 62, you’ll reduce your monthly benefits compared to waiting until full retirement age, which is 67 for anyone born in 1960 or later. The lower those monthly checks are, the more pressure it puts on your savings.
The right investment mix and backup plan are equally important
As crucial as it is to have a solid spending and withdrawal strategy, another key component of preserving your nest egg is making sure your savings are invested strategically. Even though it’s common to scale back on stocks in retirement, you don’t want to dump yours completely. Doing so could limit your portfolio’s growth.
Some retirees aim for an equal split between stocks and bonds in their portfolios. Your allocation should hinge on your comfort level and income needs. Just know that completely ditching stocks could lead to slower growth, potentially increasing your risk of running out of money.
In addition to the right investment mix, it’s important to have a backup plan in case the stock market crashes. A market downturn in your 40s may not even be something you remember in your 60s if that’s when you first start tapping your nest egg. But if you’re at a stage of life when you’re taking regular withdrawals, protection from a down market is key.
A good bet is to maintain a solid cash cushion. You may want to aim for two to three years of living expenses in cash. You can look for a high-yield savings account or strategically construct a CD (certificate of deposit) ladder so you’re able to earn interest on your cash when you aren’t using it.
It’s also smart to reduce spending when the market is down so you can tap your portfolio minimally. You obviously have to buy food and pay your car insurance, but you could look to reduce spending on vacations or hobbies if the market crashes and you’re focused on asset preservation.
There are never guarantees
Whether you retire with $800,000 in savings or $5 million, the reality is that no single amount absolutely guarantees you won’t run out. But if you stick to the plan above, you can reduce your chances significantly.
And for the record, this guidance applies no matter how large or small your nest egg is. With careful planning, the right investment mix, and a solid backup plan, you can improve your chances of turning your savings into income that lasts throughout retirement, no matter how much you have or how long that period of life ends up lasting.
