Running out of money in retirement is a growing concern for many seniors. With people living longer than ever, retirees are at risk of depleting their retirement savings before the end of their lives. This can leave retirees in a precarious financial situation in their later years. In this article, we will explore some of the key things that can happen when retirees exhaust their retirement funds.
Reduced standard of living
One of the first things that happens when retirees run out of money is a reduced standard of living. No longer having a steady stream of retirement income means making difficult spending cutbacks. This may include downsizing or moving to a cheaper home, giving up travel and leisure activities, and cutting back on dining out, entertainment, and other non-essential expenses. For some, it may even mean skimping on groceries, medical care, and utilities to make ends meet on a shoestring budget. The inability to maintain their preretirement lifestyle can take a psychological toll.
Reliance on family and friends
With depleted retirement savings, many seniors have to turn to family and friends for financial assistance. This can include moving in with children or other relatives, having others pay for living expenses, or receiving cash gifts. While family support can help, it can also negatively impact relationships and the retiree’s sense of independence and dignity. Some retirees may feel uncomfortable having to rely on others for financial help after having been self-sufficient for so long.
Returning to work
Some retirees attempt to return to the workforce after running out of retirement funds. However, finding employment at an advanced age can be challenging. Age discrimination in hiring is still common, and seniors may lack up-to-date job skills after being out of the workforce for many years. The types of jobs available to seniors are often physically demanding minimum wage positions. Returning to work out of financial necessity rather than choice can be dissatisfying. Health issues may also limit seniors’ ability to work.
Part-time and gig work
For those able to work, part-time jobs or gig work may be an option. Retail, food service, and customer service roles often employ older workers. Gig jobs like rideshare driving, delivery, and TaskRabbit tasks can provide flexibility but usually lack benefits like health insurance. Earnings from part-time or gig work are rarely enough to fully replace depleted retirement savings.
Starting a small business
Some ambitious retirees start small businesses, like consulting in their former career field or turning a hobby into an income source. However, this takes significant time and energy that not all seniors have. There is also risk in starting a business, and age limits access to small business loans. Self-employment income tends to be sporadic. While business ventures may supplement other income, they are rarely a cure-all solution.
Government assistance programs
When retirement savings are exhausted, government assistance programs provide a safety net for some. Low-income seniors may qualify for subsidized housing, food stamps/SNAP benefits, energy assistance, and other aid based on eligibility rules. Medicare and Medicaid provide crucial medical coverage, though there may still be significant out-of-pocket healthcare costs. Some assistance programs have lengthy waitlists or complex application processes that make accessing benefits difficult. The aid is helpful but usually not enough to meet all living costs.
Social Security
Social Security is a key source of income for retirees without savings. The average monthly benefit as of 2022 is $1,668. While Social Security was not intended to fully replace salaries, for many seniors it is their only stream of income. Strategies like delaying claiming benefits can maximize this monthly payment. Even at maximum levels, Social Security generally does not cover housing, food, medical, and other costs.
Senior nutrition programs
Local and government-funded senior nutrition programs, like Meals on Wheels, provide free or low-cost meals to lower-income seniors. For those who cannot afford groceries, these food assistance programs are vital. Waiting lists for meal programs can be long as needs have outpaced funding. While they help stretch limited food budgets, seniors still need funds for all other living costs.
Section 8 housing
Seniors can apply for subsidized Section 8 housing vouchers to help cover housing expenses. However, waitlists for Section 8 can be years long, and the number of vouchers is capped. The limited affordable senior housing options make these vouchers hard to obtain. And the housing allowance usually does not fully cover rent and utilities.
Difficult financial decisions
Outliving retirement savings forces many excruciating financial decisions in senior’s later years. With fixed incomes, rising living costs often outweigh limited funds.
Substandard housing
Some move into substandard housing they can afford like run-down apartments or homes needing major repairs they cannot make. Living in undesirable, unsafe conditions risks health and personal safety. But if funds are lacking for better housing, choices are few.
Choosing between necessities
Without adequate funds, difficult trade-offs arise like choosing between food vs. medicine, utilities vs. housing, or repairs vs. gas for the car. Seniors must constantly prioritize what bills they can pay each month when all expenses exceed their incomes. Financial worries and stress can take a heavy toll.
High-interest debt
Covering expenses often means resorting to undesirable options like payday loans, credit cards, and reverse mortgages which carry high fees, interest charges, and repayment risk. Debt exacerbates financial woes. Struggling to pay it off diverts money from other living expenses.
Poor health outcomes
Lack of retirement funds can negatively impact seniors’ mental and physical health in several ways.
Forgoing medical care
Inability to pay forces many retirees to forego recommended medical treatments, doctor visits, and prescription medications. Lack of preventive care or routine care contributes to declining health. Untreated conditions are likely to worsen without care.
Food insecurity
Insufficient funds for groceries can lead to hunger and poor nutrition. Seniors may skip meals or eat cheap unhealthy foods lacking proper vitamins, minerals, fiber and protein. Malnutrition severely impacts health, especially for seniors.
Loss of independence
Declining health and lack of care often necessitates dependence on others for assistance with daily living activities. Moving into a nursing home may be the only option without family caregivers. This results in loss of autonomy and control for retirees.
Mental health problems
The extreme stress of poverty in later life takes a toll mentally, resulting in higher rates of depression, anxiety, and other issues. Isolation, loss of independence, and hopelessness impact quality of life without adequate finances.
Premature death
In the worst cases, completely exhausting retirement savings can lead to premature death. Those unable to afford housing may end up homeless, exposing them to serious dangers on the streets. Lack of access to medical care means treatable, even potentially curable conditions can go undiagnosed. Diseases turn terminal and lifespans shorten without proper treatment. Insufficient funds contribute to malnutrition and faster bodily decline. Financial despair has driven some elders to take their own lives. Running out of retirement money can essentially be a death sentence.
Ways retirees can protect themselves
While running out of retirement funds has dire consequences, there are ways for retirees to reduce the risks:
Delay retirement
Staying in the workforce longer grows savings and reduces early retirement drawdowns. Even part-time work boosts income. Delaying Social Security also increases monthly payments later.
Lower living costs
Relocating to cheaper areas, downsizing homes, and cutting discretionary spending expands retirement savings. Creating a lean budget focused on essential needs makes money go further.
Generate more income
Earning part-time income from side gigs or small businesses provides a buffer for unexpected costs. Annuities and reverse mortgages add income streams in later years.
Seek government aid
Applying for subsidized senior housing, food stamps, energy assistance and other programs covers important costs and protects limited funds. Veterans benefits or disability income assist qualified retirees.
Improve health
Focusing on healthy eating, exercise, mental wellbeing, and social connections can extend quality years and reduce medical costs. Preventive care maintains health.
Long-term care insurance
Policies cover in-home care and nursing homes protecting assets from being depleted to pay for care. This adds financial security in later retirement.
Conclusion
The repercussions of outliving retirement savings are severe. Preventative measures and creative solutions for generating income can help protect retirees from complete destitution. But increased support and solutions for seniors are clearly needed to address this growing problem, as longer lifespans collide with precarious retirement finances. Without intervention, the crisis of impoverished seniors is sure to worsen. Many retirees now face their golden years with fear rather than security in their financial future.