The economics of running out

By Richard Barrington

Published: Wednesday, June 18 2014 3:37 p.m. MDT

Updated: Wednesday, June 18 2014 3:37 p.m. MDT

  1. Shoot for conservative targets. This means low return assumptions, but a high longevity assumption. This will force your savings targets higher, but reduce your risk of unpleasant surprises later in your retirement savings.
  2. Give yourself an allowance. Being careful financially is great, but you should not compulsively save every possible dime. Give yourself a set allowance that you are allowed to spend. This will allow you to enjoy your money, but also the discipline of keeping discretionary spending within a known limit should also make you feel more secure.
  3. Keep your financial plan current. This is advisable anyway, because so much can change over the years, but in the context of overcoming the fear of running out of money, updating things regularly (such as once a year) will help you feel confident that things are on track.
  4. Have a what-if plan. Setbacks such as market corrections or a job loss are part of financial life. The problem is, when they occur the emotional distress involved makes it difficult to think rationally. Try building some what-ifs into your financial planning — some negative scenarios to make you think through how you would cope with them. This will help you think through the possibilities more calmly because, to some extent, the more you plan for setbacks, the less you have to worry about them.
  5. Give something away. This is definitely more philosophical than practical, but sometimes the philosophical side of things is a necessary part of getting comfortable with your financial situation. If you have a fear of running out of money, it can dominate your thinking to the extent that however much you earn and save is never enough. Most likely, though, you can give some money to people less fortunate than yourself without jeopardizing your financial future. This will demonstrate that letting go of some of your money is not the end of the world, but it will make that point without the guilt involved in splurging on yourself.
Personal finances are exactly that — they are personal, which means there is an emotional as well as a practical component to them. For this reason, both the reality of your financial situation and your perception of it are vitally important.

Richard Barrington is a personal finance expert for MoneyRates.com. He has earned the CFA designation and is a 20-year veteran of the financial industry.

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