Will You Outlive Your Retirement Funds? How to Prepare and What to Do If It Happens

retirement funds

Will You Outlive Your Retirement Funds? How to Prepare and What to Do If It Happens

If you have RM1 million on the day you retire, how long would you think it will last? Considering your gender, health conditions, and lifestyle, can you stretch it as far as 20 years? What will happen if you live longer than planned? According to data from EPF, 70% of Malaysians outlived their retirement funds

Of course, everyone wished for longevity and to watch over the family and community for as long as they can. Retirement is a time to enjoy the fruits of your labour, but what happens if you outlive your retirement funds? This scenario, while daunting, is a reality for many seniors. It can happen to you too but with careful planning and proactive measures, you can avoid or manage this situation effectively.

How Likely Will You Outlive Your Retirement Funds?  

To understand the scenario, we must ask the question; how might it happen? Outliving retirement savings can occur for several reasons. 

  • Longer Life Expectancy

Advances in healthcare have increased life expectancy, meaning retirees may need funds to last 20-30 years or more. While living longer is a blessing, it also means you need to stretch your retirement savings over a longer period.

  • Inflation

The rising cost of living can erode the purchasing power of your retirement savings. Even moderate inflation can significantly impact your ability to afford necessities over time.

  • Healthcare Costs

Unexpected medical expenses can significantly impact your retirement budget. With age often comes increased healthcare needs, which can be costly.

  • Poor Investment Returns

Market volatility and low returns on investments can deplete your savings faster than anticipated. Economic downturns and financial crises can affect the value of your retirement portfolio.

  • Insufficient Savings

Underestimating how much you need for retirement can lead to a shortfall. Many people fail to save enough due to inadequate planning or financial constraints.

Preparing to Avoid Outliving Your Funds

Making the preparations to avoid outliving your retirement funds is crucial for ensuring financial stability in your later years. With rising healthcare costs, increasing life expectancy, and potential market volatility, it’s essential to take proactive steps to safeguard your savings. Proper preparation today can provide peace of mind and a comfortable lifestyle for the future. 

Here are some steps you can consider:

  1. Start Early and Save Aggressively

Begin saving early. The power of compound interest can significantly boost your savings over time. Start saving as early as possible to maximise growth. Aim to save at least 15% of your income annually. If you start later, you may need to save more to catch up.

  1. Create a Detailed Retirement Plan

If you can afford it, work with a financial advisor. The aim is to create a comprehensive retirement plan that includes estimated expenses, income sources, and withdrawal strategies. An advisor can help you navigate complex financial decisions.

Once you do have a plan, don’t forget to update it regularly to reflect changes in your financial situation and goals. Life events, market changes, and health issues should all prompt a review of your plan.

  1. Diversify Your Investments

Diversify your investment portfolio to include a mix of stocks, bonds, and other assets. Diversification can protect against significant losses. You can also consider low-cost funds. Look into low-cost index funds and other diversified investment options to minimise fees and maximise returns.

  1. Plan for Healthcare Costs

Have a good estimate on your healthcare expenses. You can include potential medical costs in your retirement plan. Consider long-term care needs and other health-related expenses. Getting a health insurance policy could also help mitigate the costs associated with ageing. 

What to Do If the Inevitable Happens

If you do find yourself in a situation where you have outlived your retirement funds, consider the following steps:

  1. Assess Your Financial Situation

Take inventory and review all of your assets, liabilities, and income sources. This comprehensive view will help you understand your current financial standing. Then, create a detailed budget. Identify essential expenses and areas where you can cut costs. A budget helps manage your money more effectively.

  1. Adjust Your Budget

You can start by reducing non-essential spending such as dining out, entertainment, and travel. Instead, prioritise the necessities. Focus on essential expenses such as housing, food, and healthcare. Ensure these needs are met first to ensure you can stretch your funds. 

  1. Explore Additional Income Sources

If you’re able to, think about getting part-time work or freelance opportunities that match your skills and experience. Even a small income can make a significant difference. In a day and age of the gig economy, look for gigs or jobs like driving for ride-share services, pet sitting, creative work, or offering handyman services. These jobs can provide flexible income. 

  1. Leverage Government Programs

In Malaysia, there are numerous social benefits given to senior citizens, such as senior discounts on healthcare and transport. Make use of all the benefits you are entitled to. There could also be programs and schemes initiated by the government from time to time, such as the SMUE scheme by the Selangor state government for senior citizens above the age of 60. 

  1. Seek Financial Assistance

Other than the government, there are other organisations that offer financial aid for seniors. Ask around and research those that can help with housing, food, and medical expenses.

Of course, during hard times, we could also seek support from the family at large. Discuss your situation with family members who might be able to provide financial or practical support. Family can often provide crucial assistance during tough times.

  1. Revisit Your Investment Strategy

If you still have some investments, consider rebalancing your portfolio to focus on generating income. This might involve shifting to more conservative, income-producing investments. Get advice from a financial adviser on the best course of action. 

7. Consider Community Living Options

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Downsizing is a common thing done by seniors to reduce expenses and to ensure simplicity of living in the later years. Selling your home and moving to a smaller, more affordable place can free up significant funds. This can reduce expenses and provide additional savings.

Some people opt for co-housing, where they live with other fellow seniors. This living arrangement helps share living expenses and resources. It can also provide social benefits and a sense of community.

Lastly, you can also consider moving into a senior living community. Explore affordable senior living arrangements that offer services tailored to seniors. Places like Komune Care are specifically organised to support active ageing with a strong sense of community and wellness. 

Preparing for the Worst Case Scenario

Outliving your retirement funds is a challenging scenario, but it can be managed with careful planning and proactive measures. Start by saving early, creating a detailed retirement plan, and diversifying your investments. 

If you do find yourself in this situation, assess your financial situation, adjust your budget, and explore additional income sources. By taking these steps, you can maintain financial stability and continue enjoying a good quality of life. Remember, it’s never too late to make adjustments and seek support to ensure a secure and fulfilling retirement! 

“No one escapes pain, fear, and suffering. Yet from pain can come wisdom, from fear can come courage, from suffering can come strength – if we have the virtue of resilience”.

— Eric Greitens

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