7 Ways People Become Poor in Retirement

Retirement should be a time of financial security, yet many individuals face unexpected struggles. A 2023 study by the Employee Benefit Research Institute revealed that 54% of workers are "not at all confident" or "not too confident" about having enough savings to retire comfortably. This uncertainty stems from common missteps that erode wealth over time. Below are seven critical pitfalls to avoid.

1. Underfunded Retirement Accounts

The first major risk is failing to save adequately during working years. shows that 45-year-olds hold just $65,000 on average—a far cry from the $1.5–2 million many experts recommend for a 30-year retirement. Compounding interest requires decades to work its magic, and delays in contributions can leave retirees with severe shortfalls.

2. Overreliance on Social Security

While Social Security provides a baseline income, it was never designed to be a sole retirement source. stands at $1,896 per month, or $22,752 annually—far below the median pre-retirement income of $64,000. Those expecting to live comfortably on this alone will inevitably fall short.

3. Ignoring Healthcare Costs

Medical expenses are a hidden retirement killer. reveals healthcare costs have risen nearly twice as fast as overall inflation. A 65-year-old couple today can expect to spend $295,000 on healthcare in retirement, per Fidelity estimates, excluding long-term care costs.

4. Poor Investment Strategies

Investment missteps, such as overconcentration in risky assets or excessive caution, can derail plans. shows stocks historically outperform bonds by ~4.5% annually. Retirees who avoid equities entirely risk outliving their savings, while those who overleverage face catastrophic losses.

5. Failing to Plan for Longevity

Life expectancy at age 65 has risen to 20+ years for many, yet savings are often planned for shorter horizons. highlights how lifespans have increased by nearly 6 years since 1960. This means retirees must stretch savings further than previous generations, often requiring annuities or dynamic withdrawal strategies.

6. Excessive Withdrawals

The "4% rule" is a guideline, not a guarantee. shows that in volatile markets, withdrawals exceeding 4% risk depleting savings within 20–30 years. Overdrawing early can leave retirees with little to no funds in later years when health costs surge.

7. Inflation Neglect

Inflation silently erodes purchasing power. averaged 2.5% annually, but spikes—like the 9.1% rate in 2022—can quickly drain savings. Retirees must invest in inflation-protected assets (e.g., TIPS, real estate) to maintain their standard of living.

Conclusion: Proactive Planning Yields Security

Avoiding these pitfalls requires a holistic strategy. Diversify investments to balance growth and stability, maximize Social Security benefits by delaying claims, and build a healthcare reserve using tools like Health Savings Accounts (HSAs). Those who act early—saving aggressively, investing wisely, and stress-testing their plans against longevity and inflation—can secure a prosperous retirement. As the data underscores, preparation is the ultimate antidote to financial fragility in retirement.