Retirees Depleting Savings Faster Than Expected in 2025

The Phone Call That Changed Everything for One Retired Couple

Last March, I got a call from a couple I’ll call Dave and Linda—both 68, both retired for about three years, living in suburban Phoenix. They’d done everything “right.” Dave had a solid 401(k), Linda had a modest pension from teaching, and together they collected about $4,200 a month in Social Security. Their original plan, built with a previous advisor, projected their savings lasting comfortably until age 92.

But something had gone wrong. “Margaret, we’re already dipping into principal way more than we should be,” Dave told me, his voice tight. “Our grocery bill is up. Our supplemental insurance premiums jumped. We replaced the HVAC last summer—$11,000. We’re three years in and I feel like we’re seven years in.”

Dave and Linda aren’t unusual. In my 18 years as a Certified Financial Planner, I’ve never seen so many retirees coming to me mid-retirement with the same panicked realization: their money is disappearing faster than the spreadsheet said it would. And the data confirms what I’m hearing in my office every week.

The Numbers Tell a Troubling Story

A 2025 survey from the Employee Benefit Research Institute found that nearly 40% of retirees are withdrawing from their savings at a faster rate than they originally planned. That’s not a small statistical blip—it represents millions of American households burning through nest eggs ahead of schedule.

The primary culprit? Inflation that refuses to fully cooperate. While the Consumer Price Index has moderated from its 2022 peak of 9.1%, it remains sticky. As of mid-2025, annualized inflation hovers around 3.5-3.8%—well above the Federal Reserve’s 2% target. For retirees on fixed or semi-fixed incomes, even “moderate” inflation compounds in devastating ways over time.

“A 3.5% inflation rate doesn’t sound alarming until you realize it erodes roughly 30% of your purchasing power over a decade. For someone who retired at 65 with a plan built around 2% inflation, the math starts breaking down by their mid-70s.”

What I see most often is that retirees planned for one economic reality and are living in another. Their retirement projections assumed inflation averaging around 2-2.5%. They assumed healthcare costs would rise at historical norms. They assumed Social Security’s Cost-of-Living Adjustment (COLA) would roughly keep pace with their actual expenses. None of those assumptions have held up.

The Triple Threat Squeezing Retirees Right Now

I often tell my clients that retirees today face a “triple threat” that’s unlike anything we’ve seen in recent decades. It’s not any single factor—it’s the convergence of three forces hitting simultaneously. Understanding all three is the first step toward building a defense. For a deeper breakdown of this dynamic, I recommend reading Retirees Face a Triple Threat From Inflation in 2025-2026.

Threat #1: Everyday Costs That Won’t Quit

Grocery prices are up roughly 25% compared to early 2020, according to Bureau of Labor Statistics data. Home insurance premiums have surged 30-60% in many states, particularly in Florida, Texas, Louisiana, and California. Property taxes continue climbing as local governments reassess home values inflated during the pandemic housing boom.

These aren’t discretionary expenses. You can’t skip homeowner’s insurance. You can’t stop eating. For retirees on fixed incomes, these baseline costs are non-negotiable—and they’re consuming a larger share of monthly income than ever before.

Threat #2: Healthcare Costs Outpacing Everything

Medicare Part B premiums for 2025 are $185 per month—up from $174.70 in 2024. But the real pain often comes from what Medicare doesn’t cover: dental work, hearing aids, long-term care, and the growing out-of-pocket maximums in Medicare Advantage plans. The official Medicare site outlines current premiums and coverage, but many retirees don’t fully understand their exposure until a major health event hits.

And then there’s the IRMAA surcharge—Income-Related Monthly Adjustment Amount—which catches more retirees than you might expect. If you took a large IRA distribution, sold a rental property, or did a Roth conversion without proper planning, you could be paying significantly more for Medicare premiums two years later. I’ve written about strategies to manage this in the context of avoiding higher Medicare IRMAA premiums in 2026.

Threat #3: Social Security COLA That Doesn’t Keep Up

The 2025 Social Security COLA was 2.5%, following a 3.2% adjustment in 2024. On the surface, that seems reasonable. But the CPI-W formula the Social Security Administration uses to calculate COLA doesn’t weight the expenses that seniors actually spend the most on—namely healthcare, housing, and food.

Early projections for the 2026 COLA suggest it may land around 2.2-2.6%, which would be the smallest adjustment in several years. For the average retired worker receiving about $1,976 per month, that translates to roughly $43-51 extra per month before Medicare premium increases are deducted. In many cases, the net increase after healthcare adjustments is close to zero—or even negative in real terms.

Back to Dave and Linda: What We Actually Did

When Dave and Linda came to me, we didn’t panic. We ran the numbers fresh. Their original plan had assumed a 4% annual withdrawal rate—the classic “4% rule” that Investopedia and countless financial planning textbooks reference. But in the current environment, they were actually pulling closer to 5.8% when you factored in unplanned expenses and inflation-adjusted spending.

That’s a red zone. At 5.8%, their portfolio had a meaningful probability of depletion before Linda’s actuarial life expectancy of 89.

Here’s what we did—and what I’d recommend any retiree in a similar position consider doing right now.

Reassessing the Withdrawal Rate

We restructured their withdrawal strategy from a flat percentage to a “guardrails” approach. In good market years, they could take slightly more. In down years, they’d tighten spending to a floor amount. This dynamic method—sometimes called the Guyton-Klinger approach—has been shown in financial planning research to extend portfolio longevity by 5-8 years compared to rigid withdrawal rules.

For Dave and Linda, this meant identifying roughly $600 per month in spending that was flexible: dining out, travel, gifts to grandchildren, and subscription services. They didn’t eliminate these categories—they created a decision framework for when to scale back.

Rebalancing Their Portfolio

Their original allocation was 40% stocks, 55% bonds, and 5% cash. That’s a common “conservative” retirement allocation, but with bond yields having been volatile and inflation running hot, we made adjustments:

• Increased equity allocation modestly to 48%, focused on dividend-paying large-cap stocks and REITs that tend to keep pace with inflation
• Shifted a portion of their bond holdings from long-duration to shorter-duration Treasury Inflation-Protected Securities (TIPS)
• Added a small allocation (about 5%) to a commodities index fund as an inflation hedge
• Maintained 3-4 months of expenses in a high-yield savings account earning 4.5% APY, giving them a cash buffer without dragging down overall returns

This wasn’t about chasing returns. It was about making sure their portfolio had some built-in inflation resistance rather than slowly losing purchasing power inside a bond-heavy allocation.

Optimizing Their Social Security and Tax Strategy

One thing we discovered was that Dave and Linda were both collecting Social Security at the same time, and neither had explored whether a delayed filing strategy might have helped. Since Dave had already filed, that ship had sailed. But we optimized their tax situation by strategically sequencing withdrawals between their Roth IRA, traditional IRA, and taxable brokerage account to keep their adjusted gross income below IRMAA thresholds.

This single move saved them approximately $2,100 per year in Medicare premium surcharges—money that went right back into their spending budget without touching principal.

What Every Retiree Should Be Doing Right Now

Dave and Linda’s story has a hopeful trajectory because they acted. What worries me—what keeps me up at night professionally—are the retirees who are depleting savings and haven’t yet looked at the problem clearly. If you’re reading this and feeling a knot in your stomach, here’s where to start.

Run Your Numbers Again—Honestly

Pull your last 12 months of bank and credit card statements. Add up what you actually spent, not what you think you spent. In my experience, most retirees underestimate their real annual spending by 15-20%. Include everything: insurance premiums, property taxes, home repairs, medical co-pays, pet expenses, Amazon purchases. All of it.

Then compare that number to your income sources—Social Security, pensions, annuities, and portfolio withdrawals. What percentage of your invested assets are you drawing down annually? If it’s above 4.5%, you need to take action.

Don’t Ignore Your Housing Costs

For many retirees, housing is the single largest expense category, especially those who own their homes outright but face rising insurance, taxes, maintenance, and utility costs. Some of my clients have found that the house they planned to “age in place” in is actually becoming a financial anchor. If that resonates, I’d encourage you to read this honest look at aging in place myths that could derail your retirement.

Downsizing, relocating to a lower-cost area, or even exploring a reverse mortgage (with extreme caution and proper counseling) are all options worth evaluating honestly rather than emotionally.

Review Your Medicare Coverage During Open Enrollment

Too many retirees set their Medicare coverage once and never revisit it. But plan networks change, formularies shift, and your health needs evolve. The Medicare Advantage landscape in particular is undergoing significant changes heading into 2026, with some plans reducing benefits and increasing out-of-pocket maximums.

Every October through December 7, you have the opportunity to switch plans. Use it. Compare your current plan’s total cost—premiums plus expected out-of-pocket expenses—against alternatives. The savings can be substantial.

Protect What You Have From Fraud

This might seem like an odd inclusion in an article about inflation and savings depletion, but financial fraud targeting seniors is at epidemic levels. The FBI’s Internet Crime Complaint Center reported that Americans over 60 lost $3.4 billion to fraud in 2023 alone. A single scam can wipe out years of careful saving. If you haven’t taken steps to protect yourself, read up on how to protect yourself from financial scams targeting older adults.

“The most dangerous financial threat to retirees isn’t a stock market crash—it’s the slow, invisible erosion of purchasing power combined with the assumption that the plan you made five years ago still works today.”

The Savings Depletion Crisis Is Real—But It’s Not Hopeless

Let me be direct: retirees depleting savings faster than expected is a genuine crisis unfolding right now across America. It’s not hypothetical. It’s happening in Sun Belt retirement communities, in Midwestern small towns, in coastal cities where property taxes alone can eat a pension.

But every retired client I’ve worked with who was willing to look at the numbers honestly—and make even moderate adjustments—has found a path forward. Dave and Linda? Six months after we restructured their plan, their withdrawal rate was back down to 4.1%. They took a slightly shorter vacation. They switched Linda’s Medicare Advantage plan and saved $140 per month. They didn’t transform their lifestyle—they fine-tuned it.

The retirees who struggle most are the ones who avoid the conversation entirely, assuming things will “work out” or that Social Security increases will catch up. They won’t—not at current COLA levels, and not with healthcare inflation running at roughly double the general CPI.

A Final Thought on Taking Action

I started this piece with a phone call from a worried couple. I’ll end it with what I told them on that first call, because I believe it applies to anyone reading this:

“You’re not behind. You’re not broken. You just need an updated map, because the terrain has changed.”

If your retirement plan is more than two years old, it was built in a different economic world. Update it. If you don’t have a financial planner, consider at least a one-time consultation with a fee-only CFP® who can stress-test your portfolio against current inflation assumptions. Many offer flat-fee reviews for exactly this purpose.

The worst financial decision you can make right now is no decision at all. The numbers won’t fix themselves. But with clear eyes and a willingness to adapt, most retirees can still protect their savings and live well—even in this challenging environment.