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Figuring your spend-down rate

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Will boomers go bust?
Some suggest that the recent assault on traditional retirement-planning assumptions is itself a thinly veiled rationalization for baby boomers to continue their wanton spending ways. After all, who wouldn't like to hear that their nest is sufficiently feathered and it's OK to buy that plasma TV?

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But Bernicke says don't confuse the spend-down debate with a license to consume. "Nobody is advising against saving," he says. "The issue is spending AFTER retirement."

How to find your perfect post-retirement spending zone? Kotlikoff says the key is to input more (not less) of your data and have it crunched by a disinterested party (i.e., not affiliated with a financial company) whose calculations are free of the rules of thumb of interested parties (i.e., financial institutions). Bankrate's retirement calculator is one place to start.

"This stuff is rocket science, and it's time for people to realize that it's not just fun and games here. You can't dumb it down," Kotlikoff says. "It's a little like trying to target to the moon; if you're off a little bit in the calculation of the trajectory and you don't have any self-correcting mechanism, you're going to miss it. If you miss it by a small deviation, one degree, that can leave you thousands of miles away.

"If you target for the wrong retirement spending, you make a 10 percent mistake, you're making it for 40 years if you live to be 100. A 10 percent mistake times 40 is a big number."

Software programs such as ESPlanner and the similarly priced Financial Engines emphasize their roots in economic theory and intentionally distance themselves from the financial products market.

Kotlikoff predicts financial planners in the future will be required to have economics degrees.

Bernicke says seeking objective advice from a living, breathing -- and reliable -- financial planner is even better if you hope to spend happily ever after.

"We're starting to talk about it and be more reasonable about it, as opposed to getting our information directly from the very financial institutions that stand to benefit the most from telling us that we need too much. It's sort of like asking Philip Morris if you should take up smoking. Why would we ever go to an investment company to get objective advice on how much we need to save? How much do they stand to benefit by telling us we need to save, on average, 40 percent more than we actually need? Their revenue goes up by the billions."'s corrections policy -- Updated: Oct. 1, 2007
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