Experts Warn: Nearly Half of Americans Risk Running Out of Money by Age 65

Many millennials and Gen Zers are saving excessively for their future. However, retirement risks loom large, with nearly half of Americans retiring at 65 facing the danger of outliving their resources. The peril is pronounced among single women, who experience a 55% chance of financial exhaustion, exceeding that of single men (40%) and couples (41%).

Contrasting Saving and Planning Trends

Despite accumulating significant savings, many individuals overlook vital aspects of financial planning upon quitting their jobs. Among the most common missteps is the failure to effectively manage taxes associated with their retirement funds.

Perplexingly, many retirees anticipate transitioning into a lower tax bracket post-retirement, yet, in reality, they often remain in the same bracket or even face a potential increase. This misjudgment leads to higher withdrawal rates from their accounts, propelling them into elevated tax brackets.

Investing in Roth IRA

To combat this, financial experts recommend integrating a Roth IRA into retirement savings. This after-tax account allows individuals to withdraw gains tax-free, providing a strategic option during years of increased withdrawals. Furthermore, moving funds in a tax-efficient manner is vital to optimize returns and minimize tax liabilities.

Sequence Risk

Another significant challenge is sequence risk. This occurs when retirees withdraw from their portfolio during a market downturn, making it exceedingly difficult to recover to pre-dip levels. Therefore, diversification should encompass not only stocks and bonds but also principal-protected assets such as CDs, fixed annuities, or government bonds.

Choosing Appropriate Risks

Moreover, an appropriate level of risk-taking during income-earning years is essential to preventing financial depletion in retirement. Many individuals remain excessively conservative, earning meager returns, while others fall victim to speculative investments, leading to financial setbacks.