How much money does a centenarian need for retirement?

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Q: How much should one have saved when it becomes mandatory to start taking money out of an IRA? What would be a reasonable amount for a comfortable retirement which would include a cruise once a year and account for taxes, home insurance, a car, gasoline, food, and inflation? Would $1 million cover all that? All my relatives are over 100 years old and I need to think in the long term. And staying independent is important.
V.C., Missouri

A: A million dollars might sound like a nice, round - and precise - figure. But before determining how much you need to have saved, Tony Proctor, a certified financial planner from Wellesley, Mass., says that you must calculate how much you plan to spend each year. And you must calculate all of your sources of retirement income, such as Social Security and pensions.

Someone who plans to spend $150,000 per year in retirement, and who only has Social Security to offset their spending, will need much more than $1 million in the bank, Mr. Proctor says. But that amount would be a fortune to someone who only spends $40,000 per year and has Social Security income of $20,000 per year.

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The key to determining a reasonable amount to have saved is knowing your "annual cash flow need," he says. Proctor defines that as the difference between your spending and your sources of income.

With a properly balanced investment portfolio - one divided among stocks, bonds, and cash, at a minimum - most individuals should be able to manage their spending needs and handle inflation with total savings of about 25 times the amount of their annual cash-flow need. he says.

Proctor adds that the older one is, the smaller this multiplier typically becomes. But for someone with your potential longevity, stick to the higher number.

Q: My mother has a few bonds she bought in 1977. What can she put them into to lower her taxes?
D.G., via e-mail

A: The best alternative would be AAA-rated municipal bonds, says Geordie Crossan, a certified financial planner in Westlake Village, Calif. These bonds make interest payments semiannually, and it's free from federal tax.

In addition, if you purchase bonds within your state of residence, the income can be free from state income tax as well. The double tax-free income can be very beneficial for people who are in a high federal and state tax bracket, Mr. Crossan says.

Because of their tax-exempt status, these bonds typically pay lower interest rates than taxable bonds. So make sure your mother is in a high enough bracket to warrant the purchase.

Lastly, based upon the assumption that interest rates will continue to rise over the next year or two, Crossan recommends that you limit the maturities on any bonds that you purchase to five years or less.

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