Ask Mr. Senior
Avoiding Money Problems in Retirement 

By Ron Smith

Mr. Senior: I'm nearing retirement, and with rising gas, food and health care costs I'm concerned about running out of money. What should I do? ­ E.G., Atlanta

Dear E.G.: Your concerns are merited. Many seniors living on fixed incomes go broke toward the latter part of their retirement years and become dependent on their adult children or state welfare to survive. Since our country is in for a sustained period of inflation, expect a further erosion of your purchasing power. Here are some suggestions:

· Hold a conservative investment portfolio. If you were heavily into common stocks during your working years, now is the time to switch to more conservative investments such as corporate or U.S. savings bonds, preferred stocks, bank certificates of deposit, and treasury notes. Keep in mind the dot.com market in the early twenty-first century. A lot of seniors bought technology stocks at inflated prices. When the market collapsed, their nest eggs disappeared.

· Live within your budget. Assuming you have one, of course. If you don't, you're asking for trouble. When you're unsure how much you spend each month, guaranteed you will spend more than you can afford. A budget is a simple but powerful tool. Remember how you budgeted when you were raising a family, particularly in the early years? Do the same now, and make a habit of it. And don't forget to plan for inflation. Prices rise every year; your budget needs to reflect those increases.

· Resist impulse buying. Most of us were born during the Depression or World War II. Our parents learned to live frugally during those years and passed on their habits to us. But habits erode over time. Today many seniors are behind the financial eight ball because of purchases they can't resist (a practice more common among Boomers, but quickly catching on with seniors).

· Pay off your outstanding credit card balances monthly. We've all heard horror stories of families racking up thousands of dollars in credit card debt. The simplest way to avoid falling victim is to hold a minimum number of credit cards (my wife and I have one each,), and pay the balances off monthly. Failing that, you'll soon be faced with the dilemma of paying your credit card bills or having money to buy food and prescription drugs. Insolvency lurks around the corner for those caught in this trap. Credit cards are a great resource as long as you use them wisely.

· Don't rely on the federal government to continue Medicare expenses at current levels. They're unsustainable give the massive amount of debt our government has assumed. Your legislators are slowly but surely chipping away at Medicare benefits, so you should expect reductions. It's inevitable, regardless of which party is in control of the government. Your budget should reflect plans for increased out-of-pocket medical expenses.

· The same comment holds true for pensions. The company providing yours may find itself unable to fund its pensions, and despite the government's guarantee, there's nothing preventing private companies from suing the government for relief. In that event you'll wait years before you see a penny as lawsuits grind their way through the courts. The trend for private companies has been to not only reduce, but to eliminate, pensions. You'll need money set aside to handle a possible pension meltdown, which ties into the final suggestion:

· Hold a cash reserve. Financial experts recommend enough cash to tide you over for at least six months, and preferably a year. In my opinion, two to three years is better and will prepare you to ride through most emergencies. Having a ready reserve of cash on hand lets you sleep easy at night.

Ron Smith is the author of books for seniors including Scambusters and Making Your Golden Years Golden. E-mail your questions to him at seniors_advocate@yahoo.com .