Boomers must think about retirement spending

updated 1:46 p.m. ET May 26, 2005

NEW YORK - Most Americans focus on saving for retirement during their working years and don't think much about how they're going to spend their nest eggs in retirement.

But planning is important if today's retirees — who can expect to live much longer than their parents or grandparents — hope to avoid outliving their money.

It's an especially timely issue for baby boomers, who begin turning 59 1/2 this year, making them eligible to begin drawing money without penalty from tax-deferred accounts, such as Individual Retirement Accounts. And some of those boomers also may be aiming to retire at 62, when they can start drawing Social Security benefits.

"This retirement isn't going to be your parents' retirement," said Michael Tilles, a financial planner with American Express Financial Advisors in Walnut Creek, Calif. "People are going to live longer. They're going to be healthier longer, so they'll need to spend money longer. And many don't have the secure pension plans their parents had."

As a result, Tilles said, people need to start doing their retirement calculations early — determining how much they're likely to get from Social Security, retirement annuities and their own savings — and balancing that against what it will cost to live over the next 30 years. Figuring out which accounts to tap and when to tap them is critical to making the money last.

Tilles worked with Dan and Rose Marie Glaze to help the California couple edge into retirement last year.

"You have to be really realistic," Dan Glaze said. "You can't wish success in retirement. You have to do some very hard planning for it."

For Glaze, who is 56, the first step was to pay off the mortgage on the couple's home in Vallejo, Calif. He then left his job as an environmental engineer for Shell Oil in April 2004 and began part-time consulting work with local refineries, "a bridging strategy" that allows the couple to avoid using their retirement savings right away.

He draws a pension, but hasn't tapped Social Security. His wife, meanwhile, plans to work at least another two years before she leaves her job as a first-grade teacher.

"Our goal is to protect our nest egg so we won't have to touch it until we really need to draw it down," Glaze said.

When he taps that money, he intends to do so in a disciplined way because he wants it to last.

"You have to be concerned about inflation going up the longer you're around, about taxes going up — not to mention the possibility of a long-term care situation," Glaze said.

MORE FROM RETIREMENT

Retirement Section Front

How to start saving for retirement BusinessWeek: The case against retirement Deficit doubles for government pension insurer Amid panic, uncertainty, they retired anyway Out of work, out of options, into retirement Obama seeks $250 payments for seniors Your Career: As work force ages, employers lag When golden years include a commute The new ‘retirement’ plan: Keep working Vote, discuss: When do you plan to retire? Retirement Section Front   Add Retirement headlines to your news reader: