Fear of Running Out of Money

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I bet you fear running out of money.  It is a common fear, especially for the early retiree.  Let’s suppose you retired early. You love it more than you thought. You have time to read, sleep, workout, make friends, enjoy hobbies and to spend time with your family members while they are awake.

But you have no paycheck coming in. Is that ok? Are you spending too much? What if there is a big stock market crash? Does the thought of this cause your anxiety level to spike? Being on a limited fixed income can be scary. To make your money last decades takes a big chunk of equity in your portfolio. But in market declines much of that equity can disappear before your eyes.

Darrow Kirkpatrick, author of Can I Retire Yet? retired at age 50. He has thought deeply about this issue. The first question is how do you know there is trouble on the horizon. How do you know when you are spending too much of your portfolio? There are four indicators of possible trouble on the horizon.

Trouble is Brewing


Trouble Indicator #1

Being forced to sell at a loss. If you are having to sell shares at a value less than you paid for them, trouble is likely lurking.

Trouble Indicator #2

Withdrawal rate >5%. A withdrawal rate of 3-4% may be sustainable for decades but 5% or more will likely not be. If that is the rate you require to cover your expenses, that isn’t a good sign.

Trouble Indicator #3

High market valuations. While in the accumulation stage, market fluctuations have little impact. If anything, a market decline can be a good thing since it is an opportunity to pick up shares at an affordable price. When you are living off a portfolio, market decline is something else altogether.

One measure of market value is Shiller’s CAPE. The Cyclically Adjusted Price-to-Earnings ratio can be tracked at Multpl.com. Historically it runs in the 15 – 20 range, depending on the reference time-frame. If the CAPE is greater than its historical average, a market decline might come soon.

Trouble Indicator #4

Jim Otar, in his book Unveiling the Retirement Myth, wrote about the “Fourth-Year Check-Up.” Otar analyzed portfolios using historical data back to 1900. He compared values at year 4 and year 20. Portfolios that were winners at year 4 were winners in the long term as well.

To use this tool, do a spot check on the fourth anniversary of your retirement. Compare your portfolio value to when you first retired. Ask the simple question, “Is it now worth more than 4 years ago?” If it is worth less now, the SoR (Sequence of Returns) may be working against you. You are likely to run out of money unless you change something.

If you are an early retiree, you need a financial fuel gauge to monitor if you are doing okay. The four “trouble indicator” lights should serve that purpose well.

The Fear is Real

So what if your suspicions are confirmed and trouble is brewing.  In that scenario your fear of running out of money is justified.  Can anything be done about it?  Kirkpatrick in his book, “Can I Retire Yet?” explained that without adequate savings, a frugal lifestyle, and regular financial/portfolio checkups, running out of money is a very real possibility.

At its simplest level, there are two ways to approach the problem. One is to reduce expenses. The other is to increase income. And of course, doing both would be best.

Reducing expenses is a solution that is most under our control. Mr. Kirkpatrick recommends reducing expenses prior to retiring early. That way you have a paycheck coming in and can adjust accordingly. Voluntarily living a more modest lifestyle is much more pleasant than being forced to change later in retirement.

There are many ways to increase income. One is to continue working or to start working again – full time or part-time. Early retirees always have the option of working for money in some capacity. You can also attempt to increase your investment return from your savings. This is an option particularly if you are very conservatively invested with a large portion of cash, CDs, short-term bonds etc. Of course, demanding a higher return from your portfolio will introduce new risks as evidenced by increased volatility or possibly a large drawdown at some point.

He also talks about “Lifeboat Strategies.” They can give you an action plan to continue living a comfortable life.

Steps to Avoid Running Out of Money


Cut Discretionary Spending

Many of us have a recreational budget that accounts for about 20% of our spending. This includes dining out, entertainment, travel, etc. If times are tough financially we can live without these for a time. We could make excellent, healthy, and tasty meals at home instead of going out. Amazon Prime would allow us to watch shows and movies at minimal cost.  Low cost or free recreation options abound and include hiking, cycling, climbing, swimming, and camping.


Another expense strategy would be to downsize your house. Shelter tends to be one of our larger expenses. If you have a large house you may be able to downsize to a smaller house. If you are already in a small house you may be able to downsize to a townhouse, condo, apartment, or recreational vehicle.

For example, if your house is worth half a million and you look around and find a nice 2 Bedroom place near downtown for $200,000 you could invest the difference which is $300,000. Using a 4% withdrawal rate would result in $1,000 of extra monthly income.

Income Strategies



You can safely increase your retirement income by purchasing a single premium immediate fixed annuity (SPIA). This generates higher cash flow than you would get from comparable investments. This also guarantees you will not outlive your income stream since the annuity payments are guaranteed for life. You may find that your bond fund is yielding only 3% but a comparable amount in a fixed annuity may yield closer to 6%.

Reverse Mortgages

If you own a house and have significant equity in your house (small or no mortgage against the property) then you may consider a reverse mortgage. This financial tool lets you generate income from your home equity that is guaranteed for life if you stay in your home. You will also never owe more on the loan than the value of your home.

Be sure to understand the costs and complexities associated with reverse mortgages. Nevertheless, it can be a predictable income stream and is particularly helpful for those who are “house poor.” Don’t forget the option of downsizing though. It may be a simpler and potentially more cost-effective way of cashing in on your home equity.

It is not unusual that one can double or even triple their available monthly cash flow by combining these tools such as annuitizing plus using a reverse mortgage. By having some assets and choosing to give up some control over the principal, you can significantly boost your retirement income.

The fear of running out of money can keep us vigilant.  As long as we know the warning signs and take action accordingly, our money will continue to flow.  What about you?  Are you retired?  Do you fear becoming broke?  Does fear of running out of money keep you working longer than you would like?


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  1. Xrayvsn said:

    Excellent post. I love the 4 year checkup and was not aware that that particular milestone would be a great predictive indicator of how you will be at 20 years. Will keep that tidbit in the back of my mind when it is my turn to analyze how I’m doing.

    I do think that the people who FIRE are the ones most capable of handling most of life’s situations thrown at them. We have done things most people do not do that allows us to retire early in the first place and are the ones that have a frugal lifestyle to begin with otherwise wouldn’t have been able to RE. Plus we build in so many contingency plans for worst case scenarios like SORR that we are more likely to die with too much than too little (a good problem to have).

    Adaptibility plus the ability to supplement income in dire circumstances will likely suffice for the vast majority.

    December 3, 2018
    • Xrayvsn,
      Thanks. Yes, Otar is super-smart. He came up with that four-year check as far as I know. It seems to work in almost all time periods and is a quick and useful rule.
      The SORR is a big one right now since we have had a 9+ year historic bull market. I agree that the FIRE community is more sophisticated than some give them credit. Reducing the withdrawal rate alone during tough times can make a huge difference. Also, young retirees have the option of going back to work – at least part-time. That really moderates the risks of retiring early.

      December 3, 2018
  2. Dr.MB said:

    Hi WealthyDoc,

    This is a great review of what to watch out for in retirement. I think the regular review is invaluable. The concept of a “set it and forget it” retirement number is simply not practical. And could be dangerous for one’s financial health.

    Recognizing when one has to correct their course is never a bad idea.

    December 3, 2018
    • MB,
      Yes, reducing discretionary spending or boosting income briefly during tough economic cycles can make an enormous difference.
      Checking somewhere between once a quarter and once a year should be enough though. We don’t need to obsess over our investments and spending. Actually frequent tinkering with investments can reduce our returns.

      December 3, 2018
  3. I had this fear. I was very hesitant to quit working because of it. My wife kept telling me we had plenty of money to retire. I calculated it out and we had plenty of money to retire. But I was still a little hesitant in pulling the trigger. You can’t go back into surgery after awhile and it becomes an irrevocable decision. All was well. After I did it, there was plenty of money, in fact my net worth continues to climb even though I am no longer practicing surgery. My fears were for naught. I wrote several articles about my experience in retirement and two of them are referenced below.


    Dr. Cory S. Fawcett
    Prescription for Financial Success

    December 3, 2018
    • Cory,
      When will you start listening to your wife?
      From my perspective, she has been right about 100% of everything!

      December 3, 2018
  4. Gasem said:

    One thing you can do is cover yourself. I’m using my Roth’s as an insurance policy. I won’t take anything out of them hopefully ever. I have other accounts for my hamburgers to eat. I will annuitize a small TIRA which will throw off 25K/yr, SS will throw off about 55K/yr and give me a tax load of only 46K, so out of a possible 104K in the 12% bracket using standard deduction my income will muse only 71,000. I can then sell post tax brokerage stocks tax free as long as I stay in the 12% bracket and pay only 15% on money over that, except I tax loss harvested so I can go well into the 22% bracket if needed at 0% tax. The Roth grows unmolested. If bad times come like a cancer diagnosis the Roth stands at the ready to fill in the breech. This requires more planning than 4 x25 so what? Plan. It also requires working a little longer, so what? Work. In the end there will be no fear.

    December 10, 2018
    • Gasem,
      Nice strategy.
      I likely will never have to tap into all my Roth money if all goes well. So I guess I think of it as a fall back insurance policy too. Interesting idea.
      We all are benefiting from the lower tax rates and the wider and higher cutoffs for those brackets. That gives more power to the kind of tax mitigation strategies like what you suggest.

      December 10, 2018
  5. JSA said:

    Nowhere near retirement but the fear of running out of money is something I might relate to.
    Having been in a natural disaster (relatively minor though) with limited food/supplies and not knowing when stores will open or what the future holds, I can imagine there’s some similarities to relying on a portfolio in retirement. In my situation, I found myself rationing more and trying to prevent dipping into my supplies either by find other food/supply sources (open convenience stores, restaurants, etc.). I’m sure there’s something analogous in retirement.

    December 12, 2018
    • JSA,
      I’m still in “accumulation mode” myself. Once the portfolio balance starts declining as I spend in later years I imagine that will be nerve-wracking. Having some money coming from pensions, annuities, and social security will help allay some of those fears.
      I think most of us are not well-prepared for disasters. If I didn’t have power, WiFi, food, reliable transportation etc. I would be hurting. Even ATMs can be down in widespread power outages. We can only do so much to prepare, but most of us should probably do more than we have done to prepare for disasters of all kinds.

      December 12, 2018
  6. Crispy Doc said:

    Great article, WD, and I’m enjoying the comments just as much. From Gasem and his hamburgers to Cory and his wife, it’s a great community with diverse strategies that always teach me something.

    I’m going to elevate Otar’s 4 year rule above the 4% rule, since it has deeper implications. I’ll call it set it and remember it in honor of Dr. MB.
    Crispy Doc recently posted…Alchemy In Medicine: How One GI Doc Spun Turds Into GoldMy Profile

    December 23, 2018
    • I agree, Crispy Doc.
      I’m enjoying the engagement of so many bright and experienced readers.
      That is what keeps me plugging away at this endeavor.
      I do think the Otar rule is a great one too.

      December 23, 2018

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