Create plan to avoid outliving your savings

For most of the working years, Americans have worried about saving enough for retirement. Now, as baby boomers close in on that retirement, more are worrying about how to spend those savings without running out.

Almost half of wealthy Americans worry about outliving their savings, up from 1 out of 3 in 2001, according to a poll by the Phoenix Wealth Survey of 57-year-olds with more than $3 million. If the wealthy are that worried, imagine how tense the rest feel.

While most Americans have a plan to save, most don't have a plan for taking it out. That's why a financial plan for retirement is needed.

Some topics that should be addressed include:

HEALTH CARE: Where will the money for insurance and care come from beyond Medicare? More companies that provide retiree health benefits are forcing retirees to pay higher premiums. In fact, 79 percent of these companies increased premiums in 2005, the latest numbers available. In addition, Medicare premium increases are also in the pipeline. Therefore, a plan should account for higher expenses for insurance. For expenses just for out-of-pocket medical care in retirement, recent reports point to a need of more than $250,000. That will eat into savings quickly.

EMPLOYMENT: If health care will take a bigger bite, the consideration of employment to supplement Social Security and savings needs to be made. This is easily determined by how much savings is available and whether a retiree wants to spend more in retirement than can be paid for through savings. If work is needed, a plan needs to be established as to what kind of job is desired and how much is expected in pay so that a budget can be created. People planning to switch careers for retirement can get a head start by starting to train for that second career. Staying employed could also be a solution to having access to health insurance and controlling costs through a group plan.

EXPENSES: The plan should guide withdrawal strategies for desired activities beyond living costs. For example, lots of travel or a second home requires a more detailed withdrawal strategy. Of course, also include those living cost estimates, especially if a relocation is planned. Creating a retirement budget brings more reality to savings goals.

INFLATION: Retirees often turn conservative with savings in order to avoid big losses in the stock market. But being too conservative means savings have little chance of outpacing inflation. With lifespans reaching closer to 90 for most Americans, switching to a bond-heavy portfolio after retirement can cut down future growth and lead to running out of money sooner. Long-term, stocks provide higher returns. Developing an investment strategy that includes stocks at levels that are needed yet are comfortable is a critical part of the plan.

WITHDRAWALS: How much can be taken out each year? The answer is determined by individual goals, budget and savings available. The first question to answer is what account to withdraw from first – a taxable account or a tax-deferred account? Then, what percentage is safe to withdraw? While most workers have put away a set sum each month in a retirement plan, dollar-cost averaging is not the way to go when taking it out. A withdrawal of $50,000 every year will hurt future growth in a year when the market is down, so instead look at a percentage range and be willing to accept years of lower income in order to preserve future income.