Imagine this. The year is 2040. You are 80 years old, in
reasonably good health, and you have just spent your last penny of
retirement savings. You have no other sources of income. For the
rest of your life, you will rely on government handouts and the
charity of others.
Sit with that image for a moment and then answer the following
... which is worse? Running out of retirement savings or death?
I know what I would answer. I would rather be dead than run out
of money deep into retirement. It is not even a question for me.
Destitute or dead? I'll take dead every time. I honestly can't
think of many things that would be worse than the indignity and
lack of control over my circumstances at that age.
I am not alone. In a survey, done by Allianz Life Insurance
Company of North America in May 2010, two-thirds of Baby Boomers
said they are more afraid of running out of money than of
So, if for you, running out of money is a fate worse than death,
what should you about it? In my book,
How to Be the Family CFO
, I break personal finance into four areas: plan prudently, save
prodigiously, invest wisely and manage risk.
The Allianz survey says 31 percent aren't sure what their
expenses will be in retirement and 36 percent have "no idea" if
their income will last. Prudent planning includes having a clear
understanding of two crucial numbers: what will your expense be in
retirement and how much money will it take to support that standard
of living indefinitely into the future.
One of the biggest mistakes I see people make is to assume these
numbers are "unknowable". That isn't true. It isn't mysticism; It's
math. These numbers aren't very difficult to figure out and there
are plenty of tools out there, including our My Financial Plan Web
App, which you can use to do it.
Granted, you will have to revisit them periodically. Things
change. Assumptions prove to be more or less correct over time. But
the closer you are to retirement, the more accurate these numbers
will be. If working this out on your own really and truly makes you
pull your hair out, take a retirement planning course or consult
with a qualified retirement planner to help you.
The key is not to retire until you have accumulated as much
money as you will need to support the lifestyle in your plan.
Retirement savings are a function of four variables: income,
expenses, time and after-tax return. If you see, in advance, you
can't get there, you will either have to increase income, reduce
expenses, make your money work harder and smarter or work and save
for a longer period of time.
Here are five easy action items you can take now to reduce the
chances of running out of money in retirement:
- Carefully track your expenses, using a program like Quicken
or Mint, so you start with reality when projecting expenses
forward into retirement. If you are not doing this already,
download or register for one of these super-easy programs today.
The more powerful Quicken will set you back a few bucks but Mint
- Avoid bad debt. If you have it, pay it off as soon as you
possibly can. Those interest payments would go a long, long way
in retirement. If you need help creating a plan to get rid of
your bad debt, see our previous article entitled, "
Step #3-Retirement Preparedness Checklist: Get Rid of All Bad
- Don't make the mistake of being under-insured. Too many
people think they can rely on their savings, their spouse's
income or their kids if they become disabled or need long-term
care. If you think you may need disability or long-term care
insurance, set up an appointment with an insurance expert today.
Hot Tip: You may have a life insurance policy that is no longer
needed that can fund the new policies.
- Invest your money for cash flow instead of capital
appreciation. We think it is blindingly obvious cash flow
investing is much better suited to a retirement portfolio than a
traditional portfolio of stocks, bonds, mutual funds and
annuities. Don't know what cash flow investing is? You are not
alone. Download the free special report, "How to Not Just
Survive, but Thrive, in Turbulent Financial Markets (featured
- Become your own portfolio manager. You are the only person
who has no conflict of interest when it comes to your money.
Moreover, the reduction in fees represents the easiest risk-free
return you will ever earn.
Maybe you are reading this and thinking to yourself, "It's too
late for me!" There is an old proverb: "The best time to plant a
tree is twenty years ago. The second best time is today."
Make it a goal to do one little thing each and every day that
will have a positive impact on your retirement savings and how long
it will last. If you aren't sure where to start, start with a
Following these steps cannot guarantee you will avoid running
out of money, but they certainly will go a long way. And if, for
you, running out of money is scarier than even dying, then doesn't
it make sense to do something about it today while you still
No statement in this article should be construed as a
recommendation to buy or sell a security or to provide investment
advice unless specifically stated as such. All investments involve
risk including possible loss of principal.