Running out of money is a common retiree fear. Here’s how to shake it

When pre-retirees meet with Marc Siciliano, a wealth advisory partner at William Buck, the most common concern they voice is that they will run out of money before they die.

“It generally doesn’t matter how wealthy they are,” Siciliano says. “The dual questions of: ‘How long am I going to live?’ and ‘How will markets perform in that time?’ weigh on almost everyone.”

In addition to a generalised fear of running out of money, many Australians fret about their future healthcare and aged care needs, he says.

“It’s important to remember that these concerns are normal and justified. It’s part of getting older. But there are ways you can dial down the fear.”

Below, Siciliano outlines a five-point plan to help pre-retirees conquer their fear of running their money out.

1. Give yourself permission to spend money. Many of us move through our working years saving diligently, paying down mortgage debt and perhaps making other investments along the way.

Retirement requires us to think differently and, in most cases, begin drawing down our savings, rather than accumulating more capital. “That can be a difficult psychological shift,” Siciliano says. “I talk a lot with my clients about getting comfortable spending money.”

After all, he says, the express purpose of building wealth earlier in life is to support yourself and your family later on.

2. Figure out how much you actually need. Siciliano advocates a three-step approach to budgeting for your retirement years. “First, look at your fixed costs and essential expenses on an annual basis; then, estimate your desired discretionary spending; and finally, think about a war chest for contingencies, whether that’s healthcare or assisting your children.”

Together, these sums can help you achieve financial clarity and allow you to assess whether your existing savings and income will carry you through retirement as you envisage it, or if compromises need to be made. “A clear pathway is the best way to achieve financial peace of mind,” he says.

3. Don’t forget about the age pension. The age pension functions primarily as a support for Australians who reach retirement age with a small superannuation balance or no super at all.

But the payment can also help Australians of all socioeconomic backgrounds who run low on capital – or run out entirely – during their retirement. “The pension is a backstop,” Siciliano says. “Your eligibility is based on the income and assets you currently have, not on how much money you started retirement with.”

While the pension is modest and designed to cover essential expenses only, it nevertheless acts as a reliable safety net for long-lived retirees, preventing them from ever truly “running out” of money.

4. Develop a tolerance for uncertainty. Together, superannuation and the age pension can set the parameters for a comfortable retirement. But Siciliano says no retiree – even one with significant assets outside of super – can foresee exactly how the future will play out financially.

“Currently, for example, inflation is very topical, and in the 2000s, the global financial crisis was a huge curveball that affected Australians’ perceptions of super.”

His approach for dealing with financial uncertainty is two-pronged.

“Firstly, it’s about making sure you’re clear on what comprises your essential, discretionary and buffer expenses, which creates a more flexible mindset should circumstances change,” he says.

Secondly, retirees shouldn’t run from uncertainty but face it head on and accept it. “It’s like giving yourself permission to spend money, except here, it’s about giving yourself permission not to have all the answers.”

5. Ask more of your advisers. It’s natural not to want to pepper your financial adviser, accountant or superannuation representative with what you might feel are obvious questions, Siciliano says.

“But because everyone’s situation is different, asking as many questions as you can is critical.” You should also expect the professionals from whom you seek advice to be inquisitive about your wants and needs, and to respond in a way that feels personalised.

“People in my shoes should be trying to understand what retirement looks like for each of their clients,” Siciliano says. “There is no one-size-fits-all solution, and the people who you seek advice from should reflect this in the support they offer.”

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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