Here’s how to never run out of money


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Most people I meet don’t really care about acquiring great wealth. But everyone wants to make sure they never run out of money. If that resonates with you, I have good news. You really don’t have to worry or stumble around in the dark.

All you need to do is estimate what it’s going to cost you to live, calculate how much income you can generate and make a plan to bridge the gap if there is one. Let’s break this down.

What is it going to cost you to live?

You may not have a crystal ball but that doesn’t have to limit you. You can easily project out what it’s going to cost you to live in the future.

All you have to do is track what you spend now on average and adjust the amount based on projected changes in your lifestyle, medical costs and inflation. (Read this for a complete step-by-step post to help you estimate your future cost of living.)


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If you visit Wealth Pilgrim regularly you know I constantly harp on readers to track their spending.

This is a great habit because it gives you a very reliable estimate of your future spending. But you really have to track this. Don’t assume you intuitively know this number.

Whenever I meet a new client, we always go through a fun little exercise together.

First, I ask them to estimate their current cost of living and then I ask them to go home and get the real numbers.

90% of the people underestimate their average monthly spending by 25% or more. And if you do that you are flirting with disaster. Why?

If you don’t know your actual cost of living while you are working it may not be a problem. But if you try to build a plan based on faulty data it’s just not going to fly.

If you do this you’re almost begging to spend your retirement in anxiety – and working at Flippy Burger. Don’t let it happen to you.

What are you going to earn?

Once you’ve estimated what it will cost you to live you can rest easy because you’ve done the heavy lifting. Now it’s time for the easy part. You need to tally up what your income is going to be over your life. That consists of pensions and Social Security, passive income from investments and any work that you do.

It’s pretty easy to determine pension and Social Security income. Just contact the HR department of your current and previous employer for pension information. For Social Security just visit this website. It provides an estimate of your retirement income and it only takes a few minutes to complete.

With respect to your passive investment income, I’d like you to think outside the box a little. If you don’t need income right now, you don’t need investments that generate income right now either.

What you do need is to grow your assets so your stash will be sufficiently large when you do need those monthly checks. But when that day comes, consider your choices carefully. You may be surprised by the best alternatives to invest and create retirement income.

Once you’ve estimated your future income and cost of living, you can easily see if you are going to run out of money or not. If you see that you don’t have enough income to cover your monthly draw, you have to figure out a way to either increase the income, decrease the draw or a little of both. There is, of course, another alternative and that is to spend down your assets each year. This sounds terrible but it doesn’t have to be.

Example: Let’s say a hypothetical investor invests $100,000 over 15 years and withdraws more than she earns. Assume she earns 5% but withdraws 8% the first year and adjusts that withdrawal up for inflation each year. You can see that the income rises each year – until she runs out of capital in year 15. If she is 50 years old this is probably not a good approach. But if she is 75 or 80 this might be okay. In this example, she could simply sell her home and use the equity to replace the capital that she’s spent down. Of course, it depends on the situation.

You can see that when it comes to never running out of money there are quite a few ways to peel the potato. But the math is not difficult if you are willing to be brutally honest and flexible.

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