Editors' pick: Originally published Oct. 27.
There are few tasks in life that Americans avoid as much as they do a household budget.
According to Gallup's economy and personal finance survey, only one-third of Americans keep a detailed written or computerized monthly budget. People were more likely to have a plan if they had a college degree (38%) or if they made more than $75,000 a year (43%).
Financial planners say a budget is important, but in retirement, when people are living on fixed income for the rest of their lives, it is critical. For one thing, people are living longer and many are in real danger of running out of money in retirement.
"When we're putting together retirement plans, we need our clients to have a good idea of what their retirement vision will look like," says Jennifer Landon, founder and president of Journey Financial Services in Idaho Falls, Idaho. "Because, if we have someone who believes they will be O.K. on $60,000 a year, and we build a retirement plan around that, then they retire and find out they can't live on $60,000, but need $80,000, it would put a lot of strain on that retirement."
"Basing (the retirement plan) on inaccurate information could put them in a situation where they could run out of money quickly," she adds.
Landon says the industry sometimes uses a rule of thumb to get an idea of what retirees need to live - 80% of pre-retirement income. But, she says, that is not always the case.
"Some need just as much money when they retire and other need more," she says. "You have more time to travel and more time for those types of activities that require more money."
David Fleisher, president of Firstrust Financial Resources in Philadelphia, says having a budget is so important in retirement "because every day will feel like a Saturday. There is more time to travel, eat out and enjoy the fruits of your labor."
"Because of people living longer, it's a marathon and not a sprint," he says. "People have a list of things they want to do, travel and other adventures, especially in the earlier and presumably more active years in retirement."
Fleisher says financial security in retirement is not based on the size of your nest egg, nor the amount you spend. "People often ask, 'I have X dollars saved up, will I be O.K.?'" he says. "But what's important is the relationship between the nest egg and the amount individuals spend. "
He says it's also important to have a balance of guaranteed income streams, like pensions, annuity payouts and Social Security, along with the traditional investments and liquid cash savings.
"You must have a balance," he says. "You need a guaranteed income stream because it is predictable and easy to budget against. Traditional investments have a greater growth potential to help keep pace with inflation."
Catherine Collinson, president of the Transamerica Center for Retirement Studies, says one of the things that is so alarming is that retirees are, for the most part, living on very limited income and don't have a lot of savings.
"They are doing well," she says. "However, it looks like they are unprepared for a major financial shock like a medical emergency, hospitalization or the need for long term care. Those things could wipe out a nest egg.
"That speaks to the importance of having a budget and continuing to save for retirement even though you are already in retirement," she says.
Landon says her firm has budgeting forms to guide people through the process.
"We take them through lifestyle questions," she says. "We spend quite a lot of time talking about vision and lifestyle. How much are you spending on this item? Do you anticipate increasing or decreasing that when you retire? You may not need as much (in retirement). But if you travel, you may need more."
"It gives you a better path to run on," she adds. "The other thing a budget provides people is a sense of control. It's easier to feel you have control if you know how much money is being allocated. You don't have to focus on the bottom line if you know what your needs are and you can be enjoy the journey a little bit more."