Stop Fearing Running Out of Money: Build a Retirement Plan That Lets You Live Fully

Introduction: The Universal Retirement Fear

No matter how much you’ve saved, one fear haunts nearly everyone as they approach retirement: “Will I run out of money?” This anxiety doesn’t fade even if you have millions stashed away. It’s a fear rooted in uncertainty—about the markets, about life, about the future.

The Myth and Misunderstanding of the 4% Rule

Many people turn to the so-called “4% rule” to ease their worries. This rule suggests you can withdraw 4% of your retirement savings each year, adjusted for inflation, and be reasonably confident you won’t run out of money. But while helpful, the 4% rule isn’t perfect. It was originally designed for 30-year retirements and assumes you stick to the same inflation-adjusted withdrawal every year, regardless of market conditions.

The 4% Rule's Real Limitations

The 4% rule has blind spots. It doesn’t account for retirements that last longer than 30 years—especially common if you retire early. It also ignores one-time expenses, health care shocks, or unexpected family needs. Plus, it’s based on a simple 60/40 stock-bond portfolio, which might not match your actual investments or sources of income, like Social Security, part-time work, or rental income.

What History Really Shows About Running Out of Money

Research by financial expert Michael Kitces examined over 150 years of market data with a typical 60/40 stock-bond portfolio. The results were surprising: in nearly every 30-year period, retirees did not run out of money. In fact, two out of three scenarios ended with more than double the initial balance—even through wars, recessions, and market crashes.

Understanding Sequence of Returns Risk

While the past is reassuring, one genuine threat remains: sequence of returns risk. This means that if markets drop early in your retirement, your savings could take a bigger hit than if downturns happen later. That’s why flexibility with withdrawals is crucial in the early years.

Moving Beyond Rigid Rules: The Guardrails Strategy

Instead of blindly sticking to a fixed withdrawal rate, consider using guardrails. This approach involves adjusting withdrawals based on market performance: spending more when markets are strong, and pulling back when they dip. Studies show guardrails allow for higher initial withdrawals and reduce the risk of running out of money, especially over longer retirements.

The Power of Diversification in Retirement Planning

Diversification is another key factor in reducing risk and maximizing flexibility. Instead of relying solely on a 60/40 stock-bond split, consider adding real estate, cash, annuities, or TIPS to your portfolio. TIPS stands for Treasury Inflation-Protected Securities. They are U.S. government bonds specifically designed to help protect investors from inflation. The principal of a TIPS bond adjusts with inflation, ensuring that your purchasing power stays intact over time. These alternative assets often behave differently than stocks, giving you options during market downturns.

The Hidden Risk of Underspending

While overspending is risky, underspending can steal your joy and memories. Many retirees live far too cautiously, skipping trips, delaying home repairs, or missing chances to help loved ones. Ironically, their portfolios often grow anyway, leaving regrets rather than richer lives.

Building a Balanced Retirement Spending Plan

So how do you find the balance? Start by using trusted retirement calculators or tools to run projections. Consider speaking with a financial planner to double-check your assumptions. And always revisit your plan every year so you can adjust based on life and market realities.

Annual Reviews: Why Flexibility Wins in the Long Run

Your retirement plan shouldn’t be static. Markets change, and so does life. Reviewing your plan every year helps you adapt—whether it’s adjusting withdrawals, reevaluating investment allocations, or planning for new expenses.

Using Your Money to Live Fully Today

Remember: the goal isn’t to have the biggest portfolio when you die. The goal is to use your savings to live fully now—taking that trip, fixing up your home, helping family, or exploring new hobbies—without fear.

Conclusion: Spend Wisely, Live Fully, Sleep Better

Running out of money is a real fear, but it doesn’t have to control you. By building flexibility into your plan, staying diversified, and reviewing regularly, you can stop worrying—and start truly living.

Watch the video: