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The fear of running out of money in retirement is overblown

·Sam Dogen, Financial Samurai

This article originally appeared on The Financial Samurai in August 2016.

One of my biggest concerns about early retirement was running out of money. What if there was another massive correction in the stock market? What if my rental properties went vacant for an extended period of time? What if Financial Samurai died? What if I accrued unexpected medical expenses? What if I underestimated how much I needed to be happy? Such worrisome thoughts can paralyze even the best of us.

Whether you decide to retire in your 60s or in your 30s, I’m here to say the fear of running out of money in retirement is overblown. Journalists and government officials, most of whom have never retired, have fear mongered the general population long enough! Through firsthand experience, let me explain why your retirement life will probably be just fine.


1) You will need less than you think.

I’ve been out of the workforce since early 2012, and my biggest surprise has been how much less I need to live a comfortable retirement life. Like any good retiree, we plan for multiple scenarios over an extended period of time before making a decision. I spoke with at least two dozen retirees about retirement spending and they all said they are spending much less than they anticipated. For myself, on average I’m spending 30% less than projected.

It costs nothing to play tennis at a public park. There are plenty of cheaper food alternatives once you no longer have to work in an expensive downturn area. You can read all the latest magazines at your local library, surf the web, and enrich your mind with classic literature for free. In fact if you look, you’ll find a plethora of free activities.

2) You don’t need to save for retirement once you are retired.

What many retirees “forget” is that once they reach retirement, they no longer need to save for retirement. It’s not so much forgetting, but being so accustomed to saving that you just can’t stop! If you’ve spent a lifetime maxing out your 401k, you’ve suddenly got $18,000 a year more in gross disposable income.

For the life of me, I cannot stop trying to save at least 50% of my after-tax income, while also contributing as much as possible to my Solo 401k even though I’m supposed to live it up more in retirement. I tried blowing money on mid-life crisis cars this year, but both my low-ball offers were rejected. I tried spending more while I was in Europe for three weeks, but couldn’t stomach paying more than $250/night after taxes and fees for a hotel. I still can’t convince my dad to get cable. Old habits die hard!

3) You will adapt to different income levels.

For the first two years after I left my job, my annual income decreased by 70% – 80%. Yet looking back, there were minimal lifestyle changes. I still lived in the same house that I had been living in for seven years prior. Refinancing my mortgage before leaving helped. I still stayed in the same house in Hawaii for the past 30 years every time I visited my parents. I also drove the same paid off car named Moose for a couple years until I bought a snazzier car in late 2014.

Yes, I had to cut back on eating prime rib for a couple years. But I replaced $50 dry-aged steaks with $2.5 In N’ Out cheeseburgers. Yum! $12 toro sashimi was replaced with regular old $4 salmon sashimi. Still quite tasty.

Just like the lifestyle of a one percenter is not much different from the lifestyle of a middle income person, as long as you have the basics covered, the lifestyle of a lower income person isn’t much different from a middle income person either. The lower income person has a harder time saving for retirement, which ironically gels well with a retiree who doesn’t need to save for retirement.

As long as I have food, shelter, clothing, dental floss, companionship, and internet access, I’m 85% of the way there. For most of you, it’s going to be the same thing. The joy of doing anything you want, whenever you want more than makes up for a lower income.

4) You will be in a lower income tax bracket.

The great thing about making less money is that you’ll be in a lower income tax bracket. Therefore, you’ll have a relatively higher amount of disposable income for each dollar earned.

It felt wonderful going from a 39.6%, 35%, or 33% marginal income tax bracket (depending on my deductions and bonus) to a more reasonable 25% tax rate for a couple years. Just imagine killing yourself at work for 70 hours a week to give over 50% of some of your income to a fiscally irresponsible government. No thank you.

The double benefit of no longer having to work and paying less taxes made me much happier. Paying less taxes will make you much happier too. Related: Start A Business To Pay Less Taxes And Help Loved Ones

5) You will find many ways to make money.

supply and demand curve
supply and demand curve

Lower your price from P1 to P2 and demand for your labor increases from Q1 to Q2

If you retire with only part of your living expenses covered, logically you’ll need to come up with a solution to cover the “income gap” required by your desired lifestyle. Throughout our entire careers, we are always asking for more. Thus, in retirement it’s often hard to accept less. But once we learn to control our egos, a bevy of new income earning opportunities materialize.

Since retiring, I’ve done consulting with four financial technology companies at an hourly rate 60% – 80% less than what I used to earn at my full-time job. Initially, it felt odd making so much less. But I soon got over it because the experience was fun and I was learning something new. I even let some people who had no idea what they were doing, tell me what to do! The experience was insightful because it allowed me to write the post, How To Get A Job You Do Not Deserve.

Then I really squashed my ego and spent time driving for Uber for $25 – $35 net an hour. One time I picked up an ex-client at his place in Pacific Heights. Perfect. I wanted to see if making a living driving was possible. It’s hard, but doable. The experience was good and driving added about $5,000 more gravy to my plate in 2015. From there, I wrote some articles about my experience and added another $5,000 through driver referral income. I still pick up passengers when going long distances to make gas money.

If you don’t have a car, not to worry. Recently, I hired some “Taskers” from TaskRabbit to help transport some furniture from a buddy’s place to my house this past weekend. After paying a 35% (!) commission to TaskRabbit, the Taskers still made $54 an hour. Further, they had a couple other “tasks” lined up that day. And if you aren’t strong enough to be a mover, you can do a hundred other tasks that don’t require muscle, like cat sitting.

If you’re allergic to all animals, don’t worry. You can always sign up to be a greeter at Walmart or flip burgers at McDonald’s while also eating free food. You’re not too proud to work a minimum wage job are you?

If you are willing to swallow your pride and make much less than you once did, you’ll have no problem making up the income gap between your covered expenses and your desired lifestyle.

6) You have more to offer than you think.

When I left finance, I thought I‘d be done for good because I didn’t think I had any transferable skills like a software engineer or electrician. When you’re used to doing one thing for a large portion of your life, you begin to doubt your versatility. Every colleague I spoke to felt the same way, which is why so few ever leave.

Having transferable skills is overrated. All you really need is to be: 1) likable, 2) trustworthy, and 3) consistent. To make life easier, build a high EQ. Anything technical can be learned on the job. Think about how much you remember from high school and college. Not much! The CEOs earning $25 million a year aren’t coding or rewiring your house. All they’re doing is managing people, building business relationships, and making decisions.

Given you’re close to or already retired, what you’ve got more than most is experience. Experience cannot be taught or bought. Acquiring it takes time. Your experience is extremely valuable. I never anticipated companies approaching me for online marketing consulting work. But at least eight firms have done so because over the last seven years with little budgeted, I’ve organically built my own platform into something significant. For any startup that wants to build its brand online, this is valuable experience.

7) Your existing assets have upside.

You might have a business that invites couples into your home to learn how to cook. Why not expand and shoot videos of the cooking sessions to sell online?

You might have rental property that hasn’t been spruced up in a while. Perhaps if you did some minor remodeling, you could get a much higher rent.

Your investments might not be properly allocated based on the current state of the economy. Perhaps instead of having 50% of your assets in a Treasury bond yielding 1.5% in a bull market, you could double your money by allocating more to blue chip dividend stocks that pay more than a 2% yield and provide stronger capital appreciation. Or perhaps instead of having 100% of your net worth in public equities, you should be more diversified in order to not get pummeled during the next downturn.

It’s rare that all of our assets are fully optimized. Only car manufacturers are able to trick us into changing the oil every 3,000 – 5,000 miles. The reality is, if you didn’t change the oil and spark plugs for 10,000 miles, your car would probably still work just fine!

If necessary, we can probably all do some fine-tuning to make our existing assets generate more income. It’s just a matter of taking the time and expending the energy to make it happen. Don’t let a steady paycheck make you comfortably numb!

8) You can always tap your pre-tax retirement accounts early.

If you so happen to retire before the age of 59.5, you can follow Rule 72(t) and withdraw money from your pre-tax retirement accounts penalty free provided that the holder take at least five “substantially equal periodic payments” (SEPPs).

According to the IRS, the maximum you can borrow from your pre-tax retirement account such as a 401k is (1) the greater of $10,000 or 50% of your vested account balance, or (2) $50,000, whichever is less. For example, if a participant has an account balance of $40,000, the maximum amount that he or she can borrow from the account is $20,000.

Finally, you could simply pay a 10% early withdrawal penalty if you were absolutely desperate. Luckily, if you incur unreimbursed medical expenses that are greater than 10% of your adjusted gross income in that year, you are able to pay for them out of an IRA without incurring a penalty.

9) You can create your own destiny.

Let’s say nobody at McDonald’s is willing to hire you. Why not be your own boss? Startup costs are extremely low nowadays. All you’ve got to do is throw up a site for less than 5 bucks a month and you’re literally in business.

After retiring, I wanted to take Financial Samurai more seriously. So I committed to writing at least three posts a week by spending 2-4 hours each morning before tennis. I didn’t know exactly how I was going to build the business, but I knew that if I kept on writing, opportunities would arise. After a full year of sticking to my plan and publishing my freedom book, the traffic on this site grew as did its income.

My story is a classic case of “do what you love to do, and the money will follow.” To maximize profits, I should spend more time optimizing this site. But why bother when this site’s income is already a bonus? I’m having too much fun to go back to a stressful work mindset.

The key is to just start your own site / business endeavor. You don’t need to have all the variables pre-mapped because as you tinker, your variables will change. Overanalyzing a situation will make you do nothing.

10) Plenty of safety nets.

Let’s say you miscalculated how much you need in retirement. For whatever reason, you’re also unable to generate the required extra income to make up the shortfall. Your savings are depleted, your passive income streams dry up, your business ideas all suck, and nobody likes you. Not to worry! You’ve still got family, insurance, and the government to help out.

Because of the Affordable Care Act, everybody can now get health insurance. Thus, the possibility of paying out-of-pocket massive medical bills has been reduced. In 2014, bankruptcies resulting from unpaid medical bills affected ~2 million people and made health care the No. 1 cause of such filings. Bankruptcies due to credit-card bills or unpaid mortgages were a distant second and third, respectively.

Now that health, your most important asset, is taken care of, you can consider getting affordable term life insurance to take care of your dependents when you pass. We’re talking about a ~$25/month premium for a $250,000 20 year tax free policy for a healthy 35 year old. If dependents are involved, most people are highly conflicted (and stressed) about whether it’s irresponsible retiring early. Insurance helps assuage such feelings.

If you just can’t make it on your own, there may be a family member who can lend a helping hand. If your parents are no longer living, perhaps you have a sister, brother, nephew, or niece who will provide shelter until you find work again. I know if anybody in my extended family needed help, I’d do so without question.

Finally, if you’ve just got nobody, the government has programs that can help you with food, employment and shelter. It is extremely unlikely you will plunge from being able to retire to becoming homeless with all this planning and support.


If you’ve been able to entertain legitimately the idea of retiring early, then you probably also have the intelligence, courage, and game plan to adapt to any unexpected changes that happen after retirement.

Change is scary. But the fear in your head is almost always greater than the reality. Just make sure you have something you enjoy doing once you pull the ripchord. You might have so much time you won’t know what to do with yourself!

Read the rest of this post at The Financial Samurai.

Sam Dogen is the founder of FinancialSamurai.com, a leading personal finance site established in 2009 that teaches people how to achieve financial freedom sooner, rather than later.