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Dear Gary, 
I am 53 and my husband is 60. We have managed to have our house nearly paid for, one car free and clear, the other will be paid off in 2 years. We have modest savings and some stocks ($30,000). It is unfortunate that both our careers were in industries that either made no provisions for retirement or went bankrupt leaving behind very small pensions. All the articles I have read are for people wisely planning for retirement early on. Can you give me some pointers for late comers such as myself and my husband? We truly have been unwise and are growing old too fast.
--Patricia

Each year about 4 million people celebrate their 65th birthday. And many of us don't think about how we're going to finance our retirement until a few gray hairs appear in the mirror. And the process of retirement planning has gotten harder. Patricia and her husband might not live into their 90's. But they need to be prepared in case they do.

The basic problem that Patricia faces is obvious. They probably don't have enough income to support a comfortable retirement. The question is: how much do they really need? Finding out will require estimating after-retirement income and expenses.

First, how much will Patricia and her hubby spend after retiring? Traditionally experts figured about 70% of pre-retirement expenses. That estimate will probably get her close but she might want to take a look at her current expenses and calculate work related costs.

One wild card in Patricia's calculation is the cost of health care. AARP estimates that those over 65 pay $480 per year for prescription drugs. But that's not as bad as the $56,000 per year it costs for the average nursing home. Medicare will cover many, but not all, medical expenses.

Patricia shouldn't worry about getting an exact number on expenses. For now she just wants to get a reasonable idea of her after retirement expenses.

Next she'll need to estimate their income. You can find out how much you'll get from Social Security by filling out an online form at www.ssa.gov or by sending a request to: Social Security Administration, Wilkes Barre Data Operations Center, PO Box 7004, Wilkes Barre, PA 18767-7004. For private pension plans the plan administrator or your employer should be able to tell you what you'll get.

Now for the moment of truth. Compare the income and expenses. Patricia will have three options for any shortfall. She can trim expenses, earn extra income or count on income generated from their savings.

Reducing expenses can be hard for retirees. Once you get past travel and entertainment, there isn't much discretionary spending. Housing, food and medical expenses can only be reduced so much.

Earning part of your retirement income is becoming more popular. As more retirees enjoy good health, they happily consider some work as part of their lifestyle. AARP estimated that there are over 30 million workers who have passed their 50th birthday.

But Patricia will need to be careful. If she earns too much she'll begin to lose Social Security benefits. Up to age 65, she'll lose $1 for every $2 earned over a limit of roughly $10,000 per year. Past age 65 the loss is $1 for every $3 earned once she's reached the limit ($17,000 to $25,000 per year depending on when you reached age 65).

Patricia is correct. They don't have enough money saved. If her $30,000 nest egg earns 5% it will only generate $1,500 per year in income.

Their investment plan is important. Although CD's are safe, they won't provide the higher return that Patricia needs. She'll want to find a good stock and a good bond mutual fund. Approximately two thirds of their savings should be in the stock and one third in the bond fund. Either fund could lose money in any given year. But with a 30 year horizon there's time to recover any losses.

Once they retire they'll take income from their savings account. About 7% per year is a reasonable amount that won't deplete the principal.

How much do they need in savings? To calculate that, take the desired income (for instance $3,000 per year) and divide it by the rate of return (say 7%). In this case $3,000 divided by .07 equals $210,000.

Patricia might be overwhelmed by the amount they need. She can't let that keep her from getting started. Better to save half of what you need than to have saved nothing at all. Fortunately, they still have a few years left to aggressively save money for retirement.

And they might need to get aggressive. A move to a smaller home or selling a second car might be in order.

Patricia and her husband do have some things working for them. They don't have a lot of debt. Social Security income will provide for most necessities. There are more job opportunities for people in their 60's and 70's.

Will they live out their golden years traveling the world? Probably not. But, if they take appropriate action now, they probably won't end up among the 10% of retirees who live in poverty.

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