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In retirement, taking it easy is becoming a lot harder to do.

Take, for example, the most disconcerting finding of Allianz Life Insurance Company’s recently published Generations Apart Study. Nearly half of the 2,000 baby boomers (ages 49 to 67) and Generation Xers (ages 35 to 48) who were surveyed now regard credit cards as an acceptable way to plug a cash-flow hole.

When did the three-legged stool of retirement planning — Social Security + retirement-specific savings (pension, 401(k) and IRAs) + personal savings — become so wobbly?

Well, the economic crash certainly didn’t help. Between investment losses and protracted unemployment, both generations gave up a lot of economic ground. Increasing longevity is also a factor. But for fixed-income earners, at least (boomers, mostly), the problem is exacerbated by interest rates that have been exceptionally low for an extraordinarily long period of time.

Consider the case of retired spouses who collectively receive $2,500 per month in Social Security benefits (the 2011 per person average was $1,181), plus a combined $2,000 per month in pension and/or 401(k) benefits (also based upon per person average account balances with 2% annual distribution) for a total of $4,500 in fixed-income earnings per month, pretax.

Also suppose the couple managed to sock away $500,000 in personal savings over the years. Before the crash, interest on an account of that magnitude could reasonably be counted on to generate an additional $2,000 per month toward the couple’s post-retirement income, which would have raised the total to a not-too-shabby $78,000 per year.

Today, however, that same savings account likely generates less than half of that amount, leaving the couple $10,000 to $15,000 short. Meantime, their cost of living hasn’t declined. If anything, rent, food and utility expenses are higher today than they were seven or eight years ago.

Therein lies the problem.

Our fictitious couple’s three sources of post-retirement income are fixed. If the expense side of their budget is as limited, the only way to balance the equation will be with borrowed money—hence the increasing amounts of mortgage and nonmortgage indebtedness the Allianz study cites.

Simplifying the Budgeting Process

Some time ago, I wrote about the 25% approach to household budgeting for recent college grads. I suggested creating four categories of budgeted expenses and, as a starting point, to limit each to 25% of pretax salary: taxes, including employee contributions for employer-provided benefits; rent or mortgage payments; nonmortgage debt payments, including for credit cards, student and auto loans; and living expenses, including for food, insurance, utilities and, hopefully, a savings stash.

Budgeters would then be able adjust the dollar values of each of the categories (except for taxes, because they are what they are) to suit their personal circumstances. For example, if his or her debt payments total less than 25% of pretax income, the excess can be used to fund additional savings or discretionary expenses. In contrast, debt payments that total more than 25% will require the budgeter to offset that with lower-cost housing or to cut back on his or her living expenses to bridge the gap.

Boomers can take a similar approach.

Start by totaling all your sources of income and estimating the taxes you’ll be obligated to pay on that total (don’t forget to adjust for tax-deductible mortgage interest, if your home is financed, and for other qualifying expenses).

Once you’ve calculated that amount, take what’s left over and divide that by three. The result should represent the maximum you can afford each year for rent or mortgage payments, all your other debt payments and your living expenses. As before, you may shift excess dollars between categories as long as the aggregate dollar value remains constant.

Planning for the Future

The Gen Xer’s approach to this task is a bit more complicated. That’s because their budgets involve forward projections.

Start by reviewing the annual update you should receive from the Social Security Administration. In that you’ll see how much you’ve paid into the system to date and an estimate of the monthly benefits you would receive that are based upon that amount (note that this will vary depending upon the age at which you begin to draw down your account). So, too, should your corporate human resources department be in a position to ballpark the value of the pension benefits you can expect upon retirement.

As for your 401(k), IRAs and personal savings accounts, a Time Value of Money calculator (such as this one) can help you to determine the future values of each.

Enter the amount you’ve accumulated thus far (“present value”); the additional contributions you plan to make annually, quarterly, monthly, biweekly or weekly (“payments”); the term over which you intend to do that (which is expressed in numbers of “periods”), and the rate of return you can reasonably expect to earn over that duration (“interest”). Once done, solve for the “future value.”

At that point, you should have a sense for the extent to which the three legs of your post-retirement wealth will yield enough to fund the future you have in mind. If not, you’ve got some decisions to make.

For example, you may elect to continue working for a few years more. Perhaps you have the means to supplement the contributions you’re currently making to your retirement-specific and other long-term savings accounts. Then again, you may have to rethink the cost of lifestyle you had hoped to enjoy.

Either way, it’s important to view this method of budgeting as a zero-sum game. Otherwise, you’ll be tempted to cover a shortfall in the worst possible way: with equity-diminishing reverse-mortgage loans, high-rate credit card debt or some other form of financing that can end up compromising an already challenged financial condition.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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