Early retirement is possible for couple

At age 60, with Ava still working part-time, the gap between income and expenses will be roughly $250 per month, which is easily affordable with what they've accumulated for retirement. If Ava is not working at age 60, it becomes much tighter. Early retirement for both of them might still be possible, but they'd need to closely evaluate their assets and expenses before both leaving the work force.

Even if Ava works until age 62, they should strive to postpone Ava's Social Security checks until the full retirement age of 66. Why? The one glaring hole in their retirement planning at this stage is the lack of protection for Ava if Larry should pass away first. There are no survivor benefits on any of Larry's pensions or his disability income that would provide for Ava. This could leave Ava in a very tight spot. She would need to drastically downsize her lifestyle and even then, would heavily rely on their remaining assets to pay the bills each month.

Keys to success   There is no substitute for an adequate emergency savings fund.   Utilize tax-favored retirement accounts such as 401(k) plans and IRAs for retirement savings.   Save early and save often. It's never too soon to start saving for retirement.   Avoid "bad debt" such as credit card borrowing and high interest rate personal loans.   Protect your heirs with appropriate insurance coverage.

How can they protect Ava?

The cost of life insurance as they approach retirement would likely be prohibitive. Instead, they could purchase a deferred annuity now, with the payments being disbursed over Ava's lifetime. This, coupled with her own Social Security, would guarantee her a lifetime monthly income. Another option, if such a circumstance were to arise, would be to use some of the remaining assets to purchase an immediate fixed annuity. A final safety net would be for Ava to take a reverse mortgage or sell the home.

Larry and Ava's IRAs represent an opportunity to shore up their retirement savings. They can do this by funding their IRAs on a regular schedule. Both are eligible to contribute as much as $5,000 this year. This is a maximum, not a minimum, and they can set up automatic monthly transfers from their checking account into the IRAs for whatever they can reasonably contribute. This will serve to boost their retirement nest egg and potentially reduce their tax burden if they deduct the contributions. Larry shouldn't do this at the expense of his retirement plan at work however, and should continue to sock away 10 percent of his income in the Thrift Savings Plan.

Although Larry's TSP is invested very aggressively, with greater than 90 percent of the balance invested in stock funds, the variable annuity is more conservatively invested with just 45 percent of the balance in stocks. The IRAs are invested completely in cash investments. Larry can get to an appropriate allocation of 70 percent stocks and 30 percent bonds by investing his IRA balance in a broad stock market index fund and Ava's IRA balance in a low cost bond index fund. As they add more to the IRA balances in the coming years, they can rebalance their retirement allocation through Larry's TSP, as there are no commissions.

The Andersons should also aim to boost their emergency savings cushion by adding to their liquid savings account. Regularly transferring money from their checking account to their savings account will enable them to avoid having to tap the CDs for unplanned expenses, incurring early withdrawal penalties. They should funnel money into savings every month, even though they have an available HELOC. Larry says they don't itemize their taxes, so any expense put on the HELOC would likely cost around 8 percent based on current interest rates.

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