I am writing this column in a cold sweat, because I have just made one of the most frightening discoveries a retiree can face. I have discovered that unless my wife, Sara, and I change our spending and investing habits, we will use up all of our retirement savings in eight years.

This is extremely distressing because in eight years I will be 80 and Sara will be 78--not terribly old by today's standards. While we can't predict how long we will live, we were hoping our savings would last at least until we were 90.

I don't mean to suggest that if we use up our savings we will be totally broke. Sara and I both receive company pensions--mine comes from The Washington Post, hers from General Electric Co. And we each receive Social Security benefits. Together, those checks pay for most of our basic living expenses.

But it is our savings that allow us to take occasional vacation trips and to otherwise enjoy our retirement. Without any savings to draw upon, our activities would be very limited.

The bad news about our dwindling savings made me wonder how many other retirees already face long-term money problems--or will in the future. With the steady increase in life expectancy, many people who retire at 65 today can look forward to 20 or 25 years of retirement. Making one's money last for that many years is a serious challenge, as I am now finding out.

Figuring out how to remain solvent during retirement is complicated. It involves a number of variables, such as:

How much money you have in your retirement savings, how that money is invested and what it earns.

What you get each month in Social Security and pension payments--or income from post-retirement work.

How much you spend each month for living expenses.

I made my discovery about our savings on the Internet after I connected to the retirement-planning page of the Vanguard mutual funds' World Wide Web site, www.vanguard.com. (The Vanguard program is one of several such programs available from financial service companies.) I clicked on the "planning center" button and the "online planning" button. I then entered my financial information into a program that calculates how long your savings will last. The goal is to make it last until you are 90.

The computer digested my numbers and quickly gave me the bad news: You will use up all your savings by 2007. That is only eight years from now and 10 years short of the goal. Essentially, the computer warned us that we were dipping into our savings too often and not earning enough on our investments. Although I didn't like what the computer told me, I was grateful to be warned in time to do something about it.

Fortunately, the Vanguard program allows you to do "what if" calculations, so I tried several scenarios to see what might make our savings last longer. I lowered our monthly expenses and raised the earnings on our investments. That seemed to help. The revised numbers had the effect of stretching out our savings for a few additional years.

But then I realized I had told the computer I would continue to work as a freelance writer until I was 90. On reflection, that seemed like a bit of a stretch, so I told the computer I would stop earning additional income at age 80. That made the picture worse.

I'm still working on the problem of trying to find the right levels of monthly expenses and investment income. After running my family finances through the program, I talked to Richard W. Stevens, a principal at Vanguard, who supervises the firm's financial-planning operations.

While many retirees spend their time worrying about investment risk, Stevens said, he believes that retirees should focus instead on cash flow. The main question facing retirees, he said, is "Where is the money coming from to help you pay your monthly expenses?"

If there is not enough money coming in, Stevens tells his clients, they've got to do one of two things: cut their expenses or increase their investment income--even if it entails more risk.

In many cases, Stevens said, the question for many retirees is not "How much risk can I afford to take?" The real question is "How much risk do I have to take to make ends meet?"

Stevens said older investors often worry too much about the impact of market crashes on their investments. Unless investors need their money soon and are forced to sell stocks in a falling market, he said, they generally can wait for the markets to recover from a correction. Stevens noted that while there have been many one-year losses in the stock and bond markets--and even some negative two-year periods--there have been very few negative three- or four-year periods.

After working with the Vanguard software, I also began to realize that managing your money when you're retired is a lot different from managing your money while you're still working.

When you're working--and saving for retirement--you pay your bills from your salary or wages. And you do your best to let your savings sit there and grow. But when you retire and your salary disappears, you have to depend on Social Security and pension checks to pay your living expenses.

Unfortunately, some retirees find that their retirement income doesn't match their retirement expenses. So they have to call on their retirement savings to close the gap. The best way to do that is to use the income produced by those savings, but if that isn't enough, retirees will have to dip into principal.

At my request, Stevens analyzed the retirement finances of two hypothetical couples. The studies show how personal spending and investment returns can affect the length of time that one's savings will last.

The first couple, "Walter and Wendy White," retired at 65 with $200,000 that they accumulated in their 401(k) savings plans at work. The Whites do not have pensions, and their only income is $1,000 a month from Social Security.

If the Whites each live to be 90, their savings will have to help support them for 25 years.

As the Whites begin retirement, they face two key financial questions. How much can they spend on living expenses each month? How much investment risk are they willing to take with their $200,000?

What can the Whites earn on their investments? Based on market averages from 1960 to 1998, their earnings can range from 8.1 percent for a low-risk portfolio to 12 percent for an aggressive stock portfolio, according to Vanguard. (The real returns will be lower, assuming a 4.6 percent annual rate of inflation. That is higher than inflation today but in line with historical experience.)

Let's assume the Whites choose a low-risk approach and get an annual 8.1 percent return. Let's also assume they spend $1,350 a month for living expenses and taxes.

Since the Whites get only $1,000 a month from Social Security, they have to take $350 a month out of their savings to cover expenses. If they follow this course for years, the computer shows, they would have $99,528 left by the time they reach the age of 90.

That doesn't sound too bad, except for one thing: The Whites may not be able to live on $1,350 a month. When they add up the cost of housing, food, clothing and transportation, they are likely to need more money. And that would mean dipping even deeper into their savings each month.

What would happen to the Whites' $200,000 if they spent $1,600 a month for 25 years? Answer: They'd be left with $72,609 when they reach 90. And what would happen if they spent $2,000 a month on expenses? Answer: They would be left with $27,496 at the age of 90.

And if they spent $3,000 a month? They would use up all their savings at the age of 74--only nine years into retirement.

What can the Whites do to avoid using up all their savings? First, they can cut their expenses; second, they can attempt to increase the amount of money they earn on their investments.

The Whites, who have a low-risk portfolio earning 8.1 percent a year, could try to earn as much as 12 percent if they move into the aggressive, high-risk stock portfolio. But at that risk level, the Whites might have trouble sleeping nights.

Looking at past market returns on Vanguard's suggested portfolios, I wondered how today's investors could get such long-range returns. After all, most individuals can buy only a handful of stocks or a few mutual funds. So I put the question to Stevens, who said the surest way to achieve market returns over the long haul is by investing in index funds. An index fund gives you about the same return as the sector of the market that the index tracks, he noted. With a mix of index funds, investors also can diversify their investments.

Our second couple, "George and Ginnie Green," also retired recently at 65. But they started out with more savings and retirement benefits than the Whites. The Greens went into retirement with $400,000--twice as much as the Whites. They get $2,300 a month in Social Security and $3,500 a month in pensions.

Thus the Greens can spend almost twice as much on their monthly expenses as the Whites. Like the Whites, however, the more they spend, the less they will have left at age 90.

But even the well-off Greens can't beat the arithmetic of retirement. They remain financially comfortable when they spend $3,000 a month to $4,444 a month. But when the Greens spend $6,000 a month, they exhaust their savings. This will happen to them at 74 if they invest at a low-risk, low-return level, or at 76 if they invest at a high-risk, high-return level.

In the Greens' case, it helped to start with more money than the Whites, but if their spending goes over a certain limit, they, too, run out of money.

So, what can present and future retirees learn from all this?

The simplest lesson--for future retirees--is the most obvious: Save as much as you can for your retirement. If you are fortunate enough to be able to spend 20 or 25 years in retirement, you'll need all the money you can accumulate. Think about the old saying: "I've been rich, and I've been poor. Rich is better."

The harder lesson--for current retirees--is this: First, find out how long your savings will last. You can do this either by using a computer program, as I did, or talking to a financial consultant. If you, too, discover that you face the prospect of using up all your savings prematurely, take a careful look at how your savings are invested.

If you need higher returns and you feel you can take more risk, then look for stocks and funds that have good track records and put your trust in the long-term health of the stock market. Second, earn what you can with part-time work for as long as you can. And finally, cut your expenses back until it appears that your savings will last well into the future.

It's tough medicine, but that's what Sara and I will have to do. I'm sure we're not alone.

How Long Will Your Retirement Savings Last?

If you retire at age 65 with $200,000 in savings and invest your money in these ways . . .

Type of portfolio

Pct. cash/Pct. bonds/Pct. stocks/Avg. annual return

Low-risk 10/80/10/8.1%

Income 0/80/20/8.7%

Conservative growth 0/60/40/9.7%

Balanced growth 0/50/50/10.1%

Moderate growth 0/40/60/10.5%

Growth 0/20/80/11.3%

Aggressive growth 0/0/100/12.0%

. . . this is how much you will have left at age 90 if your living expenses are: (a month)

$1,350/$1,600/$2,000/$3,000 Savings gone at:

Low-risk $99,528/$72,609/$27,496/Age 74

Income $114,611/$86,331/$38,760/Age 75

Conservative growth $137,730/$108,054/$57,739/Age 75

Balanced growth $149,539/$119,296/$67,799/Age 76

Moderate growth $161,284/$130,590/$78,087/Age 76

Growth $183,740/$152,593/$98,768/Age 77

Aggressive growth $203,178/$172,356/$118,426/Age 77

NOTE: Calculations assume a $200,000 401(k) and $1,000 a month income from Social Security. Average annual returns from Nov. 1, 1960, to Dec. 31, 1998; average annual inflation rate was 4.6%.

SOURCE: Vanguard Funds