The Scary Plight of Going Broke in Retirement

BOSTON (TheStreet) -- A survey by Allianz Life Insurance of North America this past summer found that among a sampling those ages 44 to 75, more than three in five said they worry more about running out of assets than dying.

The upside of such fears is that they may spur a more serious savings strategy. The considerable downside, however, is that some of these spooked respondents may see their premonition come true.

So what happens if, into your retirement, you run out of money? What options are you left with?

"You hope you have good family and good services in your community and that sort of thing," says Noel Abkemeier -- a retirement actuary for Milliman and an active member of the Society of Actuaries. "Of course when your account runs dry, hopefully you still have Social Security coming in your direction."

One in six older Americans lives below the federal poverty line, according to a recent government analysis.

At 16%, the proportion of seniors living in poverty is higher than the proportion of all Americans in poverty, according to the Supplemental Poverty Measure Research, an alternative calculation from the U.S. Census Bureau that factors in such traditionally overlooked costs as out-of-pocket medical expenses and taxes that can affect those on fixed incomes.

"Millions are suffering and millions more are living on the edge of a financial crisis," says Sandra Nathan, of the National Council on Aging, a nonprofit service and advocacy organization. "Many seniors desperately need help assessing and navigating the options available to assist them in getting on a pathway to economic security, to meet their basic needs, survive an emergency and afford medical care."

Cash in your assets
The first move, when you see your proverbial tank is running on empty, is to refuel if you can. Take stock of any and all assets that can be made liquid.

In the past, if you owned a home it would be a logical step to put it on the market and move to a more affordable apartment. That may still be an option, but the current housing market may mean you suffer a loss, comparatively, to what that property might have fetched a few years ago.

An alternative is a reverse mortgage, which will provide immediate access to the equity in your home. Carefully review any such arrangement before signing off to ensure that the terms meet your short- and long-term goals.

Get advice on using the proceeds
Once a sale is complete, or you have cash on hand from a reverse mortgage, don't just draw upon the proceeds. Consult with a financial adviser (if needed, a local agency or Council on Aging may be able to provide one to volunteer their services) to make sure you have a new plan in place that allows that money last as long as possible.

Go where your dollar means more
Another, perhaps drastic option, is to take whatever proceeds the sale of real estate or other assets yields and move overseas.

In its ranking last year of the "best countries for retirees," InternationalLiving.com put the U.S. at No. 15 among 25 nations in eight economic, health and lifestyle categories. Ecuador topped the list, cited for its low cost of living and relatively inexpensive real estate. Other countries that ranked high for affordability and lifestyle were Panama, Mexico, France and Italy.

Go back to work
Depending on your age and health, returning to the work force may be an option. Though finding a full-time job amid high unemployment rates and the specter of ageism may be a challenge, some companies may be interested in bringing you in as a consultant if your past expertise is useful to them. From the company perspective, your abilities might be considered a bargain, especially if you are an independent contractor and they aren't on the hook for benefits.

Take advantage of assistance programs
If your family isn't capable of helping provide a safety net, you may need to rely on the kindness of strangers.

To that end, NCOA recommends tapping into services and programs that can help create an "economic action plan."

Local agencies and national organizations alike can help with employment and training assistance, it suggests. Help is also available, locally and nationally, for financial and legal counseling, including bankruptcy and eviction assistance and debt counseling.

Housing assistance -- including foreclosure mitigation, reverse mortgage counseling and property tax relief -- is available and worth seeking out. Health insurance counseling, including help with prescription drugs and Medicaid, may also prove invaluable. The website BenefitsCheckUp.org, for example, offers a free screening tool that searches more than 2,000 federal, state, local and private programs that help seniors pay for prescription drugs, utility bills, meals and health care.

Keeping your head above water
"The bigger issue is how do you avoid getting there in the first place," Abkemeier says.

In broad strokes, he views this as a "four-step program."

"You have to save enough, you have to spend with a disciplined plan, you have to invest wisely and you have to prepare for the uncertainty of longevity," he says. "People really have to understand their situation. What do you have as an accumulation and what it will do for you? Many don't really have much of an idea on that end. You can see what looks like a big number, a couple hundred thousand dollars in a 401(k) plan, but what does that mean for monthly income? They probably don't know."

He sees promise in proposed legislation intended to help on that front.

Having languished during the last Congressional session, a bipartisan bill that would give investors a better idea of their post-retirement income has been refilled. The Lifetime Income Disclosure Act (S. 267), sponsored by U.S. Sens. Jeff Bingaman (D-N.M.), Johnny Isakson (R-Ga.), and Herb Kohl (D-Wis.) would require 401(k) plan sponsors to provide participants with an easy-to-understand estimate of the monthly income they would get upon retirement based on their account balance. It would be similar to the annual statements provided by the Social Security Administration that project monthly benefits.

"What I like about it is that instead of giving people some great big number far in the future, it offers a way to show individuals in an easily relatable way how much money their balance is going to produce in terms of income," says Scott Holsopple, president and CEO of Smart401k, a Web-based service that advises participants in company-sponsored 401(k)s. "I think what people have a hard time dealing with in 401(k)s is visualizing something that is 20 or 30 years in the future."

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