Running Out of Money in Retirement

Why Your Retirement Savings May Be Running Short

Which of these sounds familiar? Savings usually run short for a handful of common reasons, and several can happen at once.

• A longer life. A retirement that runs into the late 80s or 90s stretches savings further than first planned.
• Health care costs. Medical bills, prescriptions and premiums often grow in later years and are easy to underestimate.
• Inflation. Inflation means prices rise over time, so the same dollar buys less. A fixed income loses buying power year by year.
• Sequence-of-returns risk. This is the risk that the stock market falls early in retirement, while money is being withdrawn. Selling investments at low prices can leave a lasting hole in savings.
• Unplanned expenses. A new roof, a family emergency or the need for help at home can arrive without warning.
• Withdrawing too much too soon. Larger withdrawals in the early years leave less to grow for later.

These are common patterns, not personal failures. Knowing which ones apply makes the next steps easier to sort out.

What Income Typically Remains When Savings Run Out

Here is the reassuring part. A person who has spent down savings usually still has income and coverage. Each program has its own eligibility rules, and the agency that runs it publishes current figures.

Social Security retirement benefits are a monthly payment from the federal government. The payment does not come from a savings account, so it keeps arriving after savings are spent. The Social Security Administration publishes current benefit amounts and rules.

A pension, for those who have one, is a fixed monthly payment from a former employer.

Supplemental Security Income (SSI) is a federal program that pays monthly benefits to people with limited income and resources who are 65 or older, blind or disabled. The Social Security Administration publishes current eligibility details.

Medicare is federal health insurance for people 65 and older and certain others. Medicare.gov publishes current coverage details.

Medicaid is a joint federal and state program. It can cover long-term care costs for people who meet income and asset limits. Each state runs its own program, and Medicaid.gov and the state Medicaid office publish current rules.

Practical Options to Review When Savings Feel Tight

Before thinking about the house at all, there are practical steps that often help. These are real options, not last resorts.

A budget review. This means sorting spending into fixed costs, like utilities and insurance, and flexible costs, like dining out or subscriptions. Small cuts in flexible spending can make savings last longer.

A benefits check. Some programs exist for people with limited income. SNAP, the Supplemental Nutrition Assistance Program, helps pay for groceries. LIHEAP, the Low Income Home Energy Assistance Program, helps with heating and cooling bills. Medicare Savings Programs can help pay Medicare Part A and Part B premiums, and for those who qualify, may also pay deductibles, coinsurance and copayments. People apply through their state, and the state decides which program fits. The CFPB notes that information about these and other benefit programs is available through benefitscheckup.org.

Property tax relief. Many localities have programs to help older homeowners with property taxes. These include exemptions, deferrals or freezes, and the rules vary by place. The county assessor or tax office can explain the local options.

Delaying Social Security. For someone who has not yet claimed, waiting usually means a larger monthly benefit. The Social Security Administration explains how claiming age affects the payment.

Help from family. Some families share costs informally, or a relative moves in and helps with expenses. More ideas appear in the guide to more money in retirement.

Some of these programs go unclaimed simply because no one knew to ask about them.

Your Home Equity: What the Options Actually Involve

For someone who paid on a mortgage for decades, the house may hold more wealth than any bank account. That value is called home equity: what the home is worth minus what is still owed on it. Equity can be used in several ways, and each trades something. The guide on money out of your house compares them more closely.

Selling or downsizing. Selling and moving to a smaller home or a rental can free up a lump sum and lower costs. It also means moving, paying sale costs and giving up the home.

A home equity loan. This is a lump-sum loan secured by the house, repaid in fixed monthly payments. The home is collateral, meaning the lender can foreclose if payments stop.

A home equity line of credit (HELOC). This is a credit line secured by the house, which the borrower draws on as needed. It requires monthly payments, and the home is collateral. The CFPB notes that these loans may cost less than a reverse mortgage but depend on income and credit.

A cash-out refinance. This replaces the current mortgage with a larger one, and the borrower receives the difference in cash. It creates a new monthly payment. The comparison of a reverse mortgage vs cash-out refinance sets the two side by side.

A reverse mortgage. A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a home loan only for homeowners who are 62 and older. Borrowers make no monthly mortgage payments. Interest and fees are added to the balance each month, so the amount owed grows and equity shrinks. The borrower must live in the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition. The loan must be repaid when the last borrower, co-borrower or eligible spouse sells the home, moves out or dies. A borrower could face foreclosure if they cannot keep paying taxes, insurance or other housing costs.

A reverse mortgage is not free money. It is one option among several, and it fits some situations and not others.

Each option trades something, and understanding those trade-offs matters before any decision is made.

Long-Term Care: The Cost That Can Reshape a Family's Plans

This is often the part that worries families most. Long-term care means ongoing help with daily activities, such as bathing, dressing, eating or moving around, that a person needs because of age, illness or disability. It may happen at home, in assisted living or in a nursing home.

The cost can be large, and it is often the biggest single expense in later retirement. A few ways to pay for it exist:

• Long-term care insurance. This is a policy bought in advance. It pays a daily or monthly benefit toward care costs.
• Medicaid. It can cover nursing home care and some home care for people who meet income and asset limits. Medicaid.gov and the state Medicaid office publish the current rules.
• Spending down assets. Some people use up savings on care until they meet Medicaid's limits.
• Home equity. The options in the prior section may also help pay for care.

The CFPB cautions that if a health issue may mean moving out soon, a reverse mortgage is an expensive way to cover a short-term need. Looking at these choices earlier, while more of them are open, tends to make decisions calmer. The guide on how to stay in your home covers changes that support aging in place.

A Practical Starting Point: What to Look at First

When everything feels tangled, a simple order can help.

1. What income continues. List Social Security, any pension and other steady payments.
2. The budget. Compare that income with fixed costs and flexible costs.
3. Benefits not yet used. Check programs such as SNAP, LIHEAP, Medicare Savings Programs and property tax relief.
4. The home's equity. Consider whether the house is a resource worth exploring.

Anyone weighing a reverse mortgage meets a counselor first. The FTC explains that HECM applicants must meet with a counselor from an independent government-approved housing counseling agency, who explains the loan's costs, financial implications and alternatives. HUD lists counselors on its HECM Counselor Roster and by phone at (800) 569-4287, through its HECM program page.

This page is general information. Questions about a specific situation belong with a qualified professional: a HUD-approved counselor, a lender, an attorney or a tax professional.

Having this picture in hand makes every conversation with a professional more focused and less overwhelming.