Retirees fear outliving their savings Advisers emphasize reducing expenses


After health, the biggest concern of Americans over 65 is whether they will outlive their savings.

In the planning to avoid such a crisis, the emphasis has usually been on the income side -- how to safely invest one's money to generate the biggest returns. But focusing on expenses can, in many cases, have a more substantial effect on extending one's nest egg.

"People need to figure out what their annual expenses are going to be so they can determine how long their assets are likely to last," says Steve Norwitz, author of T. Rowe Price's "Retirees Financial Guide." The best strategy, of course, is to pare your monthly bills to the bone.

"Don't put a new roof on your house, don't buy a new car -- don't go anywhere," says Ricardo Ulivi, a finance professor at California State University and a retirement-planning expert. "Cut, cut, cut."

That's not the lifestyle most Americans envision after working hard and saving diligently for decades.

But cutting expenses doesn't have to be painful. For starters, it's wise to pay off your house if you haven't already, provided you have the money. A 1991 Labor Department study found that Americans over age 65 devote 33 percent of their expenditures to housing.

The rest of the cost-containment process can be modest, like buying airline tickets at sale prices, using coupons at the supermarket, renting videos instead of going to movie theaters and limiting restaurant outings.

The effects of such a campaign can be impressive. Take a 65-year-old single woman who has amassed a $350,000 nest egg that is conservatively invested in certificates of deposit (70 percent) and bonds (30 percent). After retiring from her full-time job, she takes a part-time position that pays $20,000 a year.

She fully retires at age 70 and begins to draw full Social Security benefits. With modest annual living expenses, including a $250 monthly house payment, her nest egg will last until she's 83. But paring her expenses by modest amounts can stretch the money up to six more years. Under Mr. Ulivi's example:

* By paying off the house, which trims her annual expenses by 10 percent, her income and savings will last three more years, to age 86.

* Trimming the remaining monthly expenses by 10 percent will add two additional years.

* Cutting her income-tax rate to 15 percent from the assumed 20 percent will add another year, to age 89.

"Taxes have become a real burden for many seniors," says Porter Morgan, senior vice president and market strategist at Liberty Financial Cos. of Boston.

If you live in a high-tax area, you may want to consider moving to a lower-tax region like the South or Midwest, Mr. Morgan says.

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