I have a confession: I am an “awfulizer.” I'm always afraid that something awful is around the corner, especially when it comes to my personal finances and the overall economy. Folks like psychologist Martin Seligman (author of Learned Optimism) would point out that my physical and mental health suffers from all my dooming and glooming, and he's probably right. Nevertheless, as Seligman points out in his book, pessimists are more accurate when it comes to assessing reality. In other words, all you optimists are just deluded!

Plan B for peace of mind
Andrew Grove, who fled communist-run Hungary at the age of 20 and co-founded semiconductor company Intel, had a guiding motto: Only the paranoid survive. (He also published a book of the same name.) No, that doesn't mean you have to turn into Howard Hughes, who would demand that people remove dust and stains he saw on their clothes, but there's value in having a defensive nature. People used to tell me that I was just being overly pessimistic. But after the last 11 years, and the accompanying recessions, layoffs, and market crashes, I no longer seem so irrational.

From both a financial and psychological point of view, I've learned to live with my “awfulizing” by having a plan for what would happen if my family's situation changed significantly — what expenses we'd cut, which relatives we'd move in with if we lost the house, even where we'd rendezvous in case a major catastrophe prevents us from getting to our home. (After all, I do live in the Washington, D.C. metropolitan area, and have a picture I took from the balcony of Fool HQ of smoke rising from the Pentagon on Sept. 11.) Fortunately, I haven't had to put my Plan B into effect, but knowing it's there has provided plenty of peace of mind.

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Looking for an effective way to improve the chances that you won't run out of money in retirement? It's easy: Just delay retirement.

That may not be the solution you wanted to hear. But by working just a few years more, you can greatly enhance your portfolio's longevity, as well as have a higher Social Security benefit to rely on in the event that your money runs out. To illustrate these benefits, consider a 62-year-old who has saved $250,000 for retirement. In the past year, she earned $75,000 at her job, and contributed 15% of her salary, or $11,250, to her 401(k). She figures she could live on 75% of her pre-retirement income.

How long would her money last if she retired today as compared to later ages? We fired up the “Am I saving enough? What can I change?” calculator (found among the retirement calculators at The Motley Fool) to analyze her situation. Here are the results.

I'm a big advocate of crunching retirement numbers to make sure someone is saving enough to retire when and how they want. One of the big variables in that calculation is how much someone will receive from Social Security. We're all aware that the program is not on rock-solid footing. So how much should people assume they'll receive when fiddling around with a retirement calculator?

I put that question to several experts, and their responses are below. But first, a word from our sponsor.

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I regularly recommend that people spend time with a good retirement calculator to make sure they're saving enough to retire when and how they want, or — for people who are already retired — to make sure their money will last as long as they do.

However, one consequence of using these calculators is that the result may indicate you need to have, like, an octillion dollars saved before you can retire. (Technical note: Octillion comes after septillion, which comes after sextillion, which comes after dinner and a movie, if you're lucky.) One reason for the high numbers: High assumptions for the income needed in retirement. I won't say “too-high” assumptions, because the amount you think you'll need in retirement is up to you, depending on your own plans for what you'll do in your golden years. But the less you need, the sooner you can retire.

Yet reducing your retirement income doesn't mean your retirement has to be boring. That's the message of Akaisha and Billy Kaderli, who retired 20 years ago when they were both 38. They've travelled the world on less than $30,000 a year. Just about every page of their recently published e-book, Your Retirement Dream IS Possible, is graced with a beautiful photograph from their travels in Guatemala, Vietnam, Australia, China, Ecuador, Belize, Mexico, New Zealand, Bali, Thailand, and the Philippines. If some of those locales don't strike you as particularly exciting or picturesque, visit the Kaderli's website and peruse their many galleries.

As I mentioned in my missive from two weeks ago about the power of dividend reinvestment, I attended the Morningstar Investment Conference earlier this summer and heard from all kinds of mutual fund managers and investment professionals. However, the presentation that had the biggest impact on me — which is to say, it depressed the bejeezers out of me — came from Harvard professor David Laibson. His main point: From age 53 or so on, our cognitive skills begin to decline to the point where approximately half of people in their 80s suffer from some kind of impairment that could lead to significant financial mistakes. Recently, I grabbed a box of tissues and interviewed Dr. Laibson.

Robert Brokamp
We all expect to slow down as we get older. However, your research indicates that the slowdown starts sooner than most people expect.

David Laibson
There are two types of intelligence that are particularly important.

A few weeks ago, I attended the Morningstar Investment Conference and took in the insights and predictions of all kinds of mutual fund managers and financial experts. On the whole, these folks weren't too optimistic about earning exceptional returns on any kind of investment. Bonds and cash have paltry yields, and stocks aren't as cheap as they were a couple of years ago. I think the collective investment advice of the event could be summed up by a line from Tom Hancock of money-management firm GMO, who said, “The only thing I like about stocks is they're not bonds.”

During the opening session, Pimco co-chief investment officer and bond fund manager Bill Gross bemoaned the low rates on Treasuries. He also argued that investors shouldn't expect 10% returns from stocks. But at the end of his talk, Gross suggested investors look for a solid, inflation-beating return from companies that pay steady dividends — companies such as Coca-Cola, Proctor & Gamble, Johnson & Johnson, Southern Company, and Duke Energy. (Full disclosure: I own shares of Johnson & Johnson, and when children pass me in the street they scream, “Gross!”)

Bi

We financial planners and financial writers love to trot out hypothetical illustrations along the lines of “If you save 20% of your income starting at age 40, you'll be able to retire by your late 60s, assuming an 8% rate of return” — a scenario I wrote about in March. While such projections are necessary for planning for the future, the truth is that they will most definitely be wrong once the future rolls around. There are just too many unknowable variables, such as future investment returns, inflation rates, and tax rates.

However, the unknowable unknowns aren't just limited to economic variables, as readers often remind me after I write such an article. Here's a tale a GRS reader told in the comments section after my March post:

In 1996 I had $78,000 in retirement funds and was 32 years old (hubby was 38). Then our home was flooded because a contractor doing a city project made a mistake. While struggling with being unable to live in the house, I was diagnosed with cancer and needed surgery ([we had] no insurance). Within a year I had cashed out the $78,000 to begin rebuilding the house and pay for surgery (we recouped a very small portion of the loss from the contractor). We sold the house and walked away with $11,000 to our name. That was in 1998.

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Unless you're Obi-Wan Kenobi, you're not going to be able to visit your relatives after you die to offer advice, explain things you said when you were alive, or just totally freak them out. However, you can choose the next best thing: Get an estate plan, which tells everyone what you want done with your stuff, your body, and the things that came from your body (i.e., your kids) if you become temporarily or eternally incapacitated. But having a will isn't enough; a solid estate plan involves several documents and occasional updating.

For each issue of my Motley Fool newsletter, I interview an expert (in fact, the feature is called “Expert Corner”). I usually don't port them over to the GRS audience, but this one is required reading for everyone who will eventually die — or knows someone who will. It's with Deborah Jacobs (@jdworking), a graduate of Columbia Law School and the Columbia Graduate School of Journalism, and the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide. (Pass it along to any friends and relatives, too, if their lack of financial planning will cost you time, money, or sanity.)

When I'm not reading about personal finances or World War II, I'm often reading some sort of psychology-related book or article in an attempt to answer the age-old question, “Why do we do sub-optimal things when we know better?”

Of course, that question can be applied to personal finances and world wars. For years, people have asked themselves such questions as “Why did I spend my money on something that provides no lasting value?” Or “Why did I watch ‘American Idol' rather than open an IRA?” Or “Why did I take orders from a guy with a bad mustache and gas problems?”

My latest attempt to solve this conundrum (the one about making less-good decisions, not the one about following smelly people into moral depravity) began with reading an article by Sebastian Marshall on Lifehacker, which listed seven cognitive costs of doing things. Among them is “ego/willpower depletion.” It's a concept I've heard of before, but hadn't delved into.

Ego Depletion

An IRA is a simple little thing. It's a common, garden-variety retirement vehicle, basically nothing more than a savings account with initials — right? Wrong.

The rules regulating IRAs are varied and vexing; IRS Publication 590 [PDF], the definitive source for Uncle Sam's shalls and shan'ts regarding IRAs, weighs in at a hefty 108 pages. And then there are all the guidelines about employer-sponsored plans — e.g., 401(k)s and 403(b)s. Whew! Seems like all this would be enough to fill a two-day conference focusing on nothing but retirement accounts.

Actually, it is. I know, because I attended one — Ed Slott's two-day IRA workshop (fun!). Slott, a CPA and the operator of IRAHelp.com, is recognized as one of America's foremost authorities on individual retirement arrangements (yep, that's what the “A” in “IRA” actually stands for). At the conference, he and his team led 100 financial-services pros (and one Fool) through a 430-page manual that described the care and feeding of retirement accounts, as well as several real-life examples of people who made mistakes that cost them thousands of dollars.

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