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Running out of money scares most people more than dying

By Jennie L. Phipps ·
Wednesday, July 7, 2010
Posted: 2 pm ET

Retirement planning paralyzes people.

Some 61 percent of baby boomers say they fear outliving their money in retirement more than they fear death, according to a survey of 3,200 boomers by Allianz Life Insurance Co.

But 31 percent said they don't know what their expenses will be in retirement, and 36 percent have no idea if their income will last.

Don't be scared. You can figure this out. It's not rocket science; it's just boring. At our house, even my husband, an accountant who lives for the details, found the prospect of calculating this to be numbing. We picked a snowy Michigan weekend and devoted it to digging out information and recording it on a spreadsheet.

In this exercise we tried to be as thorough as we could, breaking out things like dog food and other pet expenses; the amount that we spend at holidays feeding and entertaining guests; and the dollars we give our grown children when they come up short -- a tough subject in our blended household.

After we broke expenses down into monthly subtotals where possible and annual figures where that seemed most efficient, we added it all up. We also calculated income from various sources, including Social Security, pensions, and modest earnings from taxable and nontaxable investments. We estimated that both of us would work part time until we were 70 and added in those earnings. Then my accountant husband added a 3 percent inflation factor and extended the totals as if we were both going to live to be 100.

His last step was to calculate state and federal taxes on our income based on the current law and taking into account the tax breaks both the federal government and the state give seniors.

This exercise doesn't result in perfect information. It will undoubtedly change with age and circumstances. But it does give anyone planning for retirement a good starting point.

And while these calculations aren't calculus, if you don't have a live-in accountant, you may want to find a professional to help you with the math because even small mistakes can make a big difference.

The exercise is worth the bother because the results can be surprising and you can manipulate them and see the difference. For instance, working full time a year longer is a huge benefit. And even making small changes -- getting rid of pets or cutting down on restaurant meals -- can have a big impact over 30 or 40 years.

A good next step is asking your accountant or retirement planner to use this information as the basis for a more sophisticated retirement plan. With these details available, a professional should be able to tailor a plan that maximizes your resources and offers real reassurance that your money will carry you through a long retirement.

Financial journalist Jennie L. Phipps writes about retirement planning from the viewpoint of a baby boomer who is as concerned about retirement issues as most others of her generation.

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