How To Retire at 65 Without Running Out of Money

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Retirement is the dream of most American workers. However, if you retire too early, or without enough preparation, there’s a real risk that you will outlive your money. To avoid this situation and enjoy your ride into the sunset, it’s best to start preparing as soon as possible.

Here are some of the most important steps you can take to ensure you can retire at 65 without running out of money, along with some insights from a study conducted by Morningstar.

Also see how much savings you need to retire in each state.

Work For an Employer With a 401(k) Plan

According to research from Morningstar, if you don’t participate in a defined-contribution plan, like a 401(k), you are more than twice as likely to come up short in retirement. Put another way, according to Spencer Look, the associate director of retirement studies for the Morningstar Center for Retirement & Policy Studies, “Participating in an employer-sponsored defined-contribution plan significantly lowers the risk of retirement shortfalls.”

Part of the reason for the increased success rate is a 401(k) plan is, for the most part, a “set it and forget it” type of plan. Once participants set up an asset allocation and contribution percentage, they don’t have to do any extra work to build up their account value.

If you’re left on your own to make contributions, on the other hand, it’s far too easy to forget or to “temporarily” stop them. Once you slow or stop your contributions, it can be hard to restart them.

If You’re Self-Employed, Set Up Your Own Plan

If you run your own business, you can set up your own retirement plan. In fact, you have a number of different options, from SEP IRAs to SIMPLE IRAs and solo 401(k) plans. Which one is right for your company will depend on a number of variables that you should discuss with a financial advisor.

However, the important point is that you should set up some type of retirement plan for your business since you won’t be contributing to another company’s 401(k) plan. 

Automate Your Contributions

If you rely on yourself to remember to make regular investment contributions, your chances for failure increase. When transfers are not made automatically, it’s far too easy for life to get in the way and prevent your contributions. For example, you might find yourself overspending one month and stopping your contributions just to balance your cash flow, a pattern that can be hard to get out of.

It’s also common to simply forget to make contributions in the hustle and bustle of daily life. Automation ensures that your contributions are made on time, every time, and this is one of the best ways to build up your retirement account balance and protect yourself from running out of money.

Stick To a Strict Investment Budget

The amount you set aside for your investments shouldn’t be “whatever’s left over” every month after paying your bills. Rather, you should create a budget line item for your investments and stick to it no matter what.

For example, if you’ve decided to invest 10% of your monthly income, you should ensure that you set that money aside even if you have a slow month or need more money for other bills.

The “pay yourself first” investment mantra means that the first cut you take out of your paycheck should go toward your investment budget. Whatever is left over is what you should live on, not the other way around. 

Maximize Your Social Security Benefits

Although you shouldn’t rely on Social Security to fund your entire retirement — as the average monthly benefit for retired workers was just $1,919.40 as of July 2024 — it can still be a big help in terms of your retirement income.

As your Social Security benefits will last until you die — and will be adjusted every year in line with inflation — you will never outlive them. For this reason, it pays to get the largest possible Social Security benefit that you can. 

During your working years, this means maximizing your taxable earnings, as they are used to calculate your retirement benefit. It also means that you should wait as long as is feasible to claim your benefits. If you file at age 62, for example, your benefits will be permanently reduced by as much as 30%. If you wait until age 70, on the other hand, you’ll snag a benefit 24% above your full retirement benefit, which is the amount you’re entitled to at age 67 if you were born in 1960 or later.

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