What Happens If You Run Out of Money in Retirement?

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This is not a happy post, but it’s also the reality for a lot of people so I think it is a valid discussion. The Early Retirement forums had a thread recently titled What If You Run Out of Money?:

I’m wondering–what would happen to someone who literally ran out of money before they died? I mean, if someone is in their 80s and penniless, would society really let them just die in their home? […] Does anybody actually know anybody who ran out of money after they retired because they didn’t save enough?

As you can see in the pie chart, an Allianz Insurance survey found that 61% of the Baby Boomer generation feared outliving their money more than they feared their own death (source).

My answer is yes, I know someone who essentially ran out of money in retirement. The person was an older, single female coworker who retired right when I started working. While I don’t know her entire life story, she did not have any sort of savings when her job ended. Without a pension, 401k, or individual savings, her sole source of income was Social Security of about $1,000 a month. (Now that I know the terminology, maybe there was SSI.) She was forced to sell most of her things and relocate to a cheap part of Florida (warmer weather, no state income taxes) and move into a mobile home where the rent was under $500 a month. It had a name like “Sunny Gardens”, and while she wasn’t starving or homeless, it was a very precarious lifestyle. Many of her neighbors were in a similar situation.

This Atlantic article This Is What Life Without Retirement Savings Looks Like tells pretty much the same story.

  • You will work as long as you are physically able to do so.
  • You will rely on Social Security, Supplemental Security Income (SSI), which is a program for low-income seniors, and/or Social Security Disability Income (SSDI).
  • You may have to find a roommate to sharing housing costs and utilities. Otherwise, you might move into a mobile home, or simply rent a room in a house.
  • You will rely on whatever other local/state governmental assistance is available, for example Section 8 housing vouchers.
  • You may have to ask for assistance from family, friends, church-members, and charities.
  • You may have trouble paying for your medications when not covered by Medicare or Medicaid.
  • It will be difficult to avoid racking up debt and thus making it even harder to get back out of survival mode.

I was going to say “No, society wouldn’t just let them die” but then I read the stat that nearly half of all single homeless adults were aged 50 and older in 2016, as compared to 11 percent in 1990. There is a social safety net as described above, but that net has holes.

In terms of public policy, it remains quite a challenge to design a better social safety net that people think is fair, compassionate, and not open to abuse. I root for the people fighting that fight. Some people have overcome struggles that I can’t even fathom, and I try to avoid making judgments on others without knowing the entire picture. At the same time, I also think it’s important to keep believing that our individual actions matter. All we can do is play our best with the cards we were dealt. (And maybe help others out based on our own abilities.)

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  1. Some portion of the increase from 1990 to 2016 is likely due simply to the changing demographics of our population (higher percentage of citizens over age 50): https://www.infoplease.com/us/population/population-distribution-age-race-and-nativity-1860-2010

  2. This is really sad. I’m a big advocate of side businesses – even into retirement. Ideally, more passive-type things if you can manage or passion projects. It will not only keep the cash flow positive, it will keep your mind active / spirit engaged. Hopefully our generation will catch on to this.

    • Thanks for the advice, I’ll do my part to make sure that my social bubble knows about this.

      I am 22 years old and being raised by my grandfather brought me here.

  3. Michael Collins says

    Did the person you knew retire for reasons that were more or less unavoidable (e.g., health)? It’s hard for me to imagine walking away from a paying job to adopt a survival lifestyle in a mobile home park in Florida, unless there were really serious obstacles to continuing working.

    I have coworkers making 6 figures who have crazy debt, don’t take the company 401k match, and seemingly aren’t making any provisions for the future. I’ve wondered what life will look like for them in 30-40 years.

    • Let’s just say that in some companies, it is much easier to “push” out a 65-year old worker with 30 years of pay raises when you can replace them with a 22-year-old willing to work for a very low starting salary like $15 an hour. Her job was more of the administrative assistant type and not managerial/executive.

  4. Billy Zhao says

    Well, the 2nd part of the question is that if we have a substantial population that is living in a very dire situation, and their are growing into a sizable social force (look at the last election), a revolution of some sort will occur. A revolution is basically a reshuffle of wealth and power. So even if you think you are a good saver and you deserve every penny you earned, they will find a way to take away from you one way or another – through voting, regulation, or through violent revolution.

  5. Douglas Fitzgerald says

    The problem here is trying to replace the institution of the family that has sustained us for thousands of years with capitalism and the government. Old people should live with their kids and be taken care of by their kids. Saving money and then paying a nursing home to take care of you doesnt work and neither does paying taxes and relying on the government.

    The other issue is that people are short sighted. If you give them tax breaks, employer contributions, and time, they will still not use it… its a grasshopper vs. and situation. Then when the government comes in to save people from their mistakes, it reduces the incentive to save even more. It’s human nature.

    • Especially when the govt take the money we worked and sacrificed to save. Sometimes I wonder why I do the responsible thing (in all areas, not just money). There just doesn’t seem to be any incentive anymore.

    • Doug,
      A term for this is ‘moral hazard’.

  6. This is basically my mother in her eighties. Or will be within a year or so. My father just passed and we, the kids found out that the nest egg has been spent, they are in credit card debt and the reverse mortgage that was apparently taken as a lump sum 8-9 years ago has now accrued a balance in equal to the value of the home. With my father’s passing the SS income drops from 2,400/mo to about 1,700. The expenses of the house (taxes, utilities, insurance, etc) are about 1,300. Studio rents nearby would be similar. She has a bit of cash left, mostly from life insurance (burial plus a bit more) on my father. She is either going to take help from her kids or she will eventually get pushed out of the house.

    My parents maintained the illusion that they were prosperous for a long time. It came as quite a shock. My mother won’t be able to live out life the way she would have planned but we will take care of her. The reverse mortgage is a killer. If they had held onto that equity she would have had a lot more options. But that probably would have meant dropping the illusion of prosperity a lot sooner.

  7. I know here in Washington if you cannot afford your property tax you can defer it, and once you’ve died or sold the home they will take their share. Also the same if you are on Medicaid – they will pay but after your death they will take your assets, if there are any remaining. I believe if you are part of a couple they will wait for both to pass before taking the primary residence.

  8. Douglas is exactly right. The breakdown of the family and the concept of family responsibility can never be filled by any institution or government seemingly at any price. My take on America is: George Orwell meets The Fall of the Roman Empire. And of the tens of thousands of people that are being warehoused, many against their will at $10,000/month after being bankrupted by Medicaid to qualify for their horrific imprisonment in some for profit, Vampire owned wing of the US Medical Industry is indicative of the social breakdown, corruption and digitally distracted culture that permeates every aspect of America today.

    • Wow!

    • As harsh that is, it is more or less correct.
      In Asian countries where the institution of family is intact, the seniors are taken care of by their kids.
      and why shouldn’t they ? after all, they took care of their kids when they were little.
      but the shameless pursuit of greed in america has caused the loss of this most basic of human institutions.

      • I just have to point out that most of those Asian countries that your probably picturing have very robust safety nets compared to ours and the gov’t is helping out massively. Yes the kids are around more but then again most of the countries you are probably picturing are densely populated and have a mass transit systems that actually work so the kids are usually not far away. Finally, especially for Japan, those societies are pretty darn good at hiding away their elderly poor and disabled. Now China’s safety nets aren’t so good and if you do some digging I’m sure you’ll find that things aren’t quite as rosy as being made out here.

        Finally, since we are all investors here, would you really put all your retirement help on just one or two kids? If you had just one kid and he/she died early/incarcerated/disabled where would the parent be? There was a reason before modern times that couples shot for 6-7 kids, diversification! If you can afford to have 6-7 kids more power to you but the rest of us are going to have to spread the risk of something bad happening to our one or two offspring with Social Security.

      • @GR,
        At best, there’s a tenuous link between greed and decline of family structure. I think a better cause-effect relationship is from a turn away-from-family & either: a) to individual, and paid out-of-pocket, or b) to-the-state, followed by state-run, and still $-based care. When turned away from family obligation, the care becomes money-based, whether of the right (#a) or left (#b).

  9. Actually, isn’t this one of the points of having strong family relationships? They’re there to cover you in the event that something goes wrong.

  10. ” would society really let them just die in their home? ”

    Social security is the solution that keeps a large % of senior citizens from destitute poverty.
    On top of that medicare/medicaid will step in to care for us if we’re ill when we’re elderly.

  11. The Frugal Millionaire says

    I feel that some of the comments stressing the importance of families might be missing one very important point. The average lifespan in America is longer than ever before. This has two important ramifications. First, living longer means the need for more money, obviously; and we all know pensions are/have disappeared, so more of that burden is on the individual than ever before. Second, and crucial in my opinion, is that longer lifespans lead to greater age-related health issues.

    Case in point: before we were married, my now wife owned a duplex, she lived in one half, her mom in the other. At age 80 mom was diagnosed with Alzheimer’s. We did our best to care for her, but after four years finally surrendered and placed mom in a local nursing home. Caring for someone with this disease is a 24 hour a day, seven day a week, 365 day a year proposition. You feed them, bathe them, assist them in the bathroom, shop for groceries, cook, do their dishes and laundry. ferry them to numerous doctor and dentist appts., and worry about their safety constantly. Anyone who states that it is the job of the family to take care of their elders has never been down the path we went down.

    Ironically, after a few months in the home, mom’s assets ran out, qualifying her for Medicaid, so the govt. ended up paying for her final year or two. (Getting back on point about finances.)

    Final point…regarding Oriental cultures and their elderly…last month I read about a growing trend in Japan where elderly (mostly women) are committing small crimes to get placed in prison, trading their freedom for shelter, three meals a day, and companionship.

  12. Yeah my pills I take for digestion because I have no pancreas cost thousands of dollars will Medicare pay for it?

  13. My parents worked pt time late into their 80’s. I plan to do the same. Our great grandparents didn’t have ss and they figured it out- they just worked till they dropped.

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