Here's What Happens if You Retire Without Enough Retirement Savings

It's important to save for retirement in an employer's 401(k) or in another tax-advantaged account that you open with a brokerage firm of your choosing.

If you do not have enough savings when you get to retirement, the consequences could be dire. Here's what you can expect to happen if you have insufficient savings when the time comes for you to leave the workforce for good. 

1. You'll have to live on much less income

If you do not have retirement savings, you may be forced to rely solely on your Social Security benefits, which are designed to replace only about 40% of pre-retirement income. Taking a 60% pay cut is most likely going to be a huge problem for most seniors.

The reality is, while many experts recommend replacing at least 70% of your pre-retirement income, studies have shown that many seniors end up spending 90% or more of what they earned on the job. If you need 90% of what you were making to be able to cover things like housing and healthcare and you only have 40%, that's a very big problem.

2. Your money could run out during your lifetime

If you have some retirement savings but not enough, you're at a very high risk of draining your nest egg too quickly.

See, you should withdraw only a small amount of money from your investment accounts each month so you can leave enough invested to earn reasonable returns and stop your balance from declining too quickly. Most experts recommend limiting withdrawals to about 4% of your balance (or less) in the first year of retirement and then adjusting up for inflation. 

If you can't live on just 4% of your nest egg (along with Social Security) because you have too little saved, you'll probably be tempted to take out more. Your account balance could dwindle quickly, leaving you without any savings to rely on later in retirement.

This is an especially big problem because health issues are more likely to develop in the later years of retirement, you're less likely to be able to work then, and your buying power from Social Security will likely have declined because benefits aren't fully keeping up with inflation.

3. You may struggle to afford the necessities

Sadly, if you don't have a lot in retirement savings, you could find yourself struggling to cover all of the basic costs you need to pay out of your checking account. In fact, according to Fidelity research, a single 65-year-old in 2023 may need as much as $157,500 saved (after taxes) in order to be able to afford to cover healthcare expenses in retirement. And that is just one of many expenses. 

You'll also have to pay for things like housing, food, and transportation. And the sad reality is, there may simply not be enough to cover all of these things and you may find yourself forced to choose between groceries and medication or heating bills.

4. You may have to downsize your lifestyle

Without enough retirement savings, you will likely need to make drastic lifestyle changes. This could mean selling a home, if you have one, or moving to a lower cost of living area. It could also mean giving up life's little luxuries you've come to enjoy.

You do not want to find yourself in this situation. So, try to save as much as you can for retirement from as young of an age as possible -- you'll have longer to benefit from compound growth in your retirement account. This will help you ensure you have the money you need to enjoy your later years instead of facing a dire financial situation.