What It Looks Like to Run Out of Money

By Dr. Jim Dahle, WCI Founder

Many people, including white coat investors, have a subconscious or even a conscious fear of running out of money in retirement. Most people will qualify for Social Security, so running out of money doesn't actually mean having nothing. It means having to live on Social Security. The Wall Street Journal ran a fantastic article about four individuals who were living on little more than Social Security. I found it really interesting how they got by. I also found it useful to read the lists of what they wish they had done financially.

The average Social Security check these days is about $1,900. Two of the four individuals had checks close to that. The other two received significantly less. Some people have car payments higher than these Social Security checks. Let's dig into the details a bit.

The Retired Chef

The first guy was a 70-year-old professional chef with a Social Security check of $1,400 a month. He had been working 12 hours a day for 6-7 days a week until age 63 when he went into the hospital with a heart issue and then never worked again. His financial plan prior to that event? To work until he died. Thus, no savings. He had been making $8,000 a month; that's almost $100,000 a year. And now he's living on less than $17,000. How does he do that?

He rents his sister's basement for $500. Social services pay for his heart meds. The rest of his money goes for food, gas, and insurance. He's proud to be debt-free, although it sounds like the way he got out of his $12,000 credit card debt and his $100,000 medical debt was because his creditors gave up on collecting from him. He never budgeted before retiring but now does it religiously.

He spends his days watching TV, and he is thinking about getting a new dog from the pound.

Lessons learned:

1. You might not work forever, so you better save something for retirement.
2. Learn to budget before you retire.
3. Lots of people will help you fill financial gaps, including family, social services, and charities.
4. When the funds are limited, they need to go to the “four walls”: shelter, utilities, food, and transportation.
5. If you're not going to save for retirement, your TV is going to be your entertainment.

More information here:

Doctors Need to Budget, Too (with a Few Examples)

Real Life Examples of Physician Budgets – From the Frugal to the Extravagant

The Retired Social Worker and Disability Advocate

The second person is a 73-year-old woman with a Social Security check of $1,040 a month. She had polio as an infant and then had a career working for a nonprofit. She became disabled in her 40s, and she went on SSDI. She transitioned to retirement benefits at age 66. She bought a home in Tucson for herself and her 90-pound dog with the $60,000 her uncle left her, and she has no debt. She gets income-related discounts on property taxes, utilities, and wireless bills. Her utilities run $135 a month, and about 15% of her income goes toward her property taxes. Food is $200 plus a $157 benefit from her Medicare Advantage plan. She spends $300 a month on people to help her with food prep, wheelchair maintenance, and cleaning. However that gets reimbursed by a nonprofit focused on keeping people in their homes. She helps with a folk festival and hangs out with friends singing and eating.

Lessons learned:

1. Buy disability insurance. Make sure you buy enough that you can live on the proceeds and continue to save for retirement.
2. What you earn affects your ability to save and how large your Social Security will be.
3. Taking advantage of services available from insurance products, government entities, and charities can really stretch a limited budget.
4. Owning your home free and clear dramatically reduces housing costs in retirement. Buying a home or paying off a mortgage can be a fantastic use of an inheritance.

The Widow

The next person is a 77-year-old woman with a Social Security check of $1,800. Her husband was a trucker, but she never had a job that paid more than $25,000—mostly in retail or healthcare customer service. She was 70 when her husband died, and she felt thrown to the wolves. She sold their home (netting a trivial gain) and moved into low-income senior housing. She gave up her landline and her car and learned how to budget for the first time. She spends $584 on rent and has a storage unit for $343. She spends a couple of hundred bucks a month on food, and the rest goes toward insurance, basic cable, a cell phone, and laundry.

She spends her days at the senior center hanging out with friends, playing pinochle, and enjoying free coffee and $1 meals that are “better than what she'd make herself.” She gets around for $1 a ride via a subsidized senior housing transportation option.

The article says:

“[She] wishes she’d spent more time learning about money when she was younger. She didn’t know then how much boosting her earnings during her working years could have raised her Social Security benefits. She regrets not pushing herself to pursue higher education. She also wishes she had learned to pay her family’s bills so she didn’t have to get a crash course after her husband died in 2015.”

Lessons learned:

1. You can't just assume your spouse will take care of you. They might not be there as long as you are.
2. Education pays off.
3. Learn about money as early in life as possible.
4. Your (and/or your spouse's) earnings affect your Social Security benefit.
5. Sacrifice when you are young or sacrifice when you are old, but you will sacrifice.
6. Senior centers can be a great place for cheap entertainment, eats, and knowledge about other available services that might help you.
7. Don't accumulate so much stuff that you have to pay to store it.

More information here:

What to Do If Your Doctor Spouse Dies Young

Preparing for Tragedy: Ensuring Your Partner Can Manage Without You

The Wanderer

The last person is a 63-year-old woman who loves to travel and has a Social Security payment of $1,970. She worked as a fundraiser for nonprofits, and she was planning to work until 65. But when she hit 62 and was eligible for a Social Security payment, she punched out. She sold all of her belongings (except, amazingly, a Tesla). She loves to travel, and she spent her money on travel instead of saving for retirement. YOLO! She began saving late in her career and managed to save up $151,000 in a retirement account and $22,000 in a brokerage account. She was married for 18 years but is presumably now divorced.

She spends her money on, no surprise, traveling, although her biggest expense is her $706 Tesla payment. She spent five months in Australia in 2023, totaling $10,000. Last winter, she did a 50-day cruise to South America, Antarctica, and the Galapagos. She boosts her income (and reduces her expenses) by housesitting. She also rents out the car on Turo when she isn't home, and she is planning to launch a travel agency for solo women travelers.

This example actually seems the least extreme. She is clearly a “die broke” type, but I don't have a problem with that. She made a conscious decision to take Social Security at 62. Had she waited until 70, she likely would have had a 50% higher payment, but she would have had to draw down her savings more. She saved something for retirement. While $173,000 might not seem like much to a white coat investor, it's probably more than the average person. The median retirement 401(k) balance for someone in their 50s is only about $53,000. Most importantly, she is still working—at least somewhat. That will help her retirement savings last much longer and provide a higher standard of living during these “go-go” years. I worry about what she is going to do for housing when she becomes too old/infirm/poor to be either on a cruise ship or housesitting. But she won't ever be any worse off than the widow above.

Lessons learned:

1. Don't assume you will actually want to work a full career. Desires change.
2. You only live once. Money may be limited, but so is time.
3. You spend more in early retirement than later.
4. Pay off your cars before going into retirement.
5. You aren't what you drive. When your income is $25,000, there is no Tesla model that is affordable.
6. You can travel pretty cheaply, especially if you're willing to be creative.
7. You can often do some work in retirement, especially early retirement, and it makes all the numbers look better.
8. Figure out a way to travel while working and you won't have to retire to travel.

More information here:

How to Add Adventure to Your Life

What’s the Value of Our Time, Anyway?

Takeaways

There are a few takeaways for white coat investors that can be had from this review of the financial lives of four real people.

#1 Nobody Actually Runs Out of Money

In our society, with almost everyone qualifying for Social Security and tons of great charities and government services, nobody actually ever runs out of money. There will always be something to spend and budget.

#2 People Are Incredibly Adaptive

People adapt to their circumstances far more readily than they think they will. I can't tell you how many young people look at a chronically ill elderly person and think, “I would never want to live that way.” It turns out that when you actually become that person, you simply adapt to your new circumstances. You still find joy in life, even with limited capabilities. The same applies to limited funds. You adapt and find the joy in life, whether that's a cruise to Antarctica, pinochle at the senior center, or your favorite college basketball team on TV.

#3 At the Low End, More Income Makes a Big Difference

When you make $15,000-$50,000 a month, there doesn't seem to be a big difference between $1,000, $2,000, or $3,000. When that $1,000-$3,000 is your monthly income, there's a huge difference in the lifestyle that can be provided by $1,000 vs. $3,000. With $3,000, you can go on cruises. With $1,000, your entertainment is TV and pinochle.

#4 Charities, Government Services, and a Progressive Tax Code Reduce Income Disparities Significantly

None of these folks are paying any income taxes, but they get a whole lot more in benefits from the government and nonprofits than a wealthier person—subsidized housing, subsidized food, subsidized healthcare, and subsidized transportation. It's a pretty good list. Somebody with $10,000 of retirement income probably doesn't have 5X as good a life as someone with $2,000 of income. It's probably only 2X as good.

#5 Get Rid of the Debt

Having a paid-off house, a paid-off car, and no debt payments really matters when the income is low.

#6 Bad Things Happen to People

Spouses die. Couples get divorced. You become disabled. Each of these has a huge effect on your income and your wealth. Save up a little more than you think you need. Insure against financial catastrophes as best you can.

#7 Partner Up

Each of these four people is single. I don't want to imply that it isn't OK to be single, but there's a reason that married folks, on average, are wealthier than single folks. A second income (or at least a potential second income) and someone who can watch out for you and lend a hand and who has a different set of skills provides a tremendous amount of financial security. There is also a certain economy of scale that occurs when two people are sharing a set of assets, such as a home.

#8 You Don't Need Millions to Have a Nice Life

I see white coat investors who think they need $5 million, $8 million, $10 million, or even more to have a secure, fulfilling retirement. That's probably not the case. You can probably work a little less, save a little less, and retire a little earlier with less money, and you'll still be OK.

What do you think? Do you worry about running out of money? How much is “enough?” Would it really be that bad to retire with little more than Social Security?

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