To avoid running out of money before you die, the general rule of thumb is that, when you retire and start to spend you nest egg, you should start by spending no more than 4% of the amount of your nest egg. Then, every year, you give yourself a raise for inflation, say, 3%. If your nest egg is prudently invested ( a big if ), say, 50% in stocks and 50% in bonds, preferably in ultra-low cost index funds like those from Vanguard or Fidelity or T Rowe Price, you should be all right for the long term.

That's the theory. How it plays out is another story. For example, studies have shown that how the market is doing when you first retire and start drawing on your nest egg is a very importatn factor. It's best to start when the market is doing well. If you start spending when the market is taking a big hit, which it does occasionally, you could run out of money. So you need to take into account the market conditions when you start spending.

The other thing is that there will be years when the market does very, very well, but that does not mean that you can splurge when that happens. Try to keep within the spending benchmarks.

Other issues: long-term care. If you're poor you don't need it. Medicaid will take care of you . If your have very deep pockets, you can self-insure. But if you're somewhere in the middle, you are at risk of depleting your nest egg if you need to spend 2-3 years in a nursing home at the end.

You can of course play all kinds of "what if" games with the retirement projection software packages promoted by various investment firms. But I think these general benchmarks are worth considering. The best thing is if you can start spending less than 4% of your nest egg. Then you might safely project that your nest egg will be "self-sustaining," which means that you'll never run out of money if your assumptions are correct. That's the "sweet spot."

If, with tax-deferred retirement accounts, you have a choice as to whether to make withdrawals, it's usually wisest to delay withdrawing until a good portion of your non-deferred investments are depleted, for usually they are fully added to taxable income, so with substantial current income from non-registered accounts one would likely be put into a higher tax bracket.

On the other hand, Canadians are advised to put interest-earning assets into the tax-deferred accounts, for when invested outside of a tax-deferred retirement account, there are tax advantages to both current income from Canadian stocks, and tax on increased value of assets is deferred until liquidation, then the tax rate of capital gain is only half the regular rate, which means that some owners like to defer the liquidations in order to achieve larger gains.

Usually, after attaining a specified age, there is a requirement that one withdraw at least a certain specified percentage of the value of a tax-deferred retirement account annually.

Many evaluators of our economy claim that a high percentage of the Boomer generation have made inadequate investments to fund their retirement.

With a large increase in numbers to be making withdrawals from government pensions in coming years, and fewer working people coming along to pay into that system, it will be impossible to maintain payouts at rates that have been in place up until now.

I recommend highly a book written by Peter G. Peterson, who was Secretary of Commerce under Nixon's Presidency, called, "Running on Empty: How the Democratic and Republican Parties are Bankrupting our Future and What Americans Can Do about It". Written back in 2003 or 2004, prior to the huge costs and debts run up to manage the Iraqi war, plus tax cuts, his messages are even more important now, I think.

It is important to start building one's retirement nest egg ... NOW!! Even if one is 20 years of age.

Good wishes for a comfortable retirement - shrewdly planned for, and implemented, over the long term.

ole joyful

Thanks you "haus proud" and "joyfulguy" for the helpful feedback. I would read Running on Empty, but it sure sounds depressing!

My wife and I (both mid-to-late 20s) are very active in the planning of our retirement. Sadly, we are not the norm - most people we know (friends and family) haven't even started any type of saving or investing plan yet. We try to evangelize, but are usually met with a barrage of excuses.

the best planning calculator I've used to date is called "Firecalc" and can be found at firecalc.com.

It performs "what if" scenarios to show what would happen to your investment portfolio in each of the major market upturns and downturns since the year 1867. For example, while I'm 47 and my husband is 44, the scenarios that we've run so far shows that our current strategy would be successful in only 86 out of 100 scenarios ran. We've had to do some tweaks to enable us to retire at 55/51 and have a 100% success rate of not outliving our money (i.e., increase savings and change how much we'd take out each year).

Obviously even though the analyzer shows we won't run out of money based on our current scenario, nothing is guaranteed...but bottom line, this is the only calculator I use anymore.

Lisa -
That's a very interesting tool. I've played with it enough to get an idea of what it does, and I'm sure I'll be exploring it a lot more. Thanks for the tip!

A good retirement Calculator is the one that efficiently calculate the inflation rate for the retirement to a good approximation.

Here is a link that might be useful: Retirement Calculator

Hi again Jimbg,

I imagine that you've had some interesting thoughts regarding your retirement nest egg during the last half year or so.

I hope that you have not been so smitten with fear of the stock market that you've decided to stay out of it. There are losses suffered from time to time, which can be substantial ... but over the long term, carefully chosen stocks, ETFs, etc. have produced well for their owners. As have mutual funds ... but, despite their substaial claims to superior performance, about 85% of mutual fund managers are unable to produce a higher rate of return than their chosen portion of the market.

As you encourage your friends to start a retirement plan, you can follow a savings plan that's specifically geared to setting up a payout system during one's retirement, but many choose to carry investment accounts that are not geared toward retirement, as well.

If one chooses to build a regular investment program, with a view to having it available to fund one's retirement, though unwilling to be tied up with the restrictions that govern retirement accounts, there's an extra benefit that can be used during one's lifetime.

When I own a number of stocks or mutual funds, I can have the certificates issued to use as collateral when I make loans, often allowing me to pay a much lower rate of interest that if I must use other kinds of collateral. For example, if I want to buy a car and use the car as collateral, if the lender wants to repossess it in case of my delinquency, there's a hassle to collect it, then advertise it for sle, or go through a brokerage, which charges fees, etc. and they must wait for their money ... plus, if I didn't take good care of the car, they may not be able to collect all of the amount owing, plus costs. So they usually charge high interest rates on such loans.

If, however, one has some stocks or mutual fund certiicates to use as collateral and isn't able to pay, it's fast and easy to liquidate the stock or mutual fund collateral, so the borrower almost always enjoys a much lower rate of interest on the loan.

Should one have an emergency, it is a great help to one's financial and emotional well-being if one has some assets on hand to either liquidate or, perhaps more frequently, use as collateral to make a loan to cover the need, and the interest rate will be advantageous.

Such a cushion helps a great deal in case one suffers long-term layoff, as many have experienced in the past few years.

When one uses money that one had planned for retiremen for either an emergency, or to fund one's living during long-term layoff, one should make a strong effort to replace the money withdrawn, plus allowance for inflation, when one's financial stability is restored.

Good wishes as you proceed with your plans ... and encourage others to do the same.

On the day that you began work, you had brains and hands at work ... but no money.

On the day that you retire, you have brains and money at work ... and no hands.

If you've set aside a substantial amount regularly over the years, and learned how to manage it for a reasonable rate of return, plus some tax savings, you may well have developed enough assets in order to provide you with sufficient money to retire early.

Good wishes for increasing skill in managing your income and assets.

ole joyful