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Are we on track for retirement?

Dr. Don TaylorDear Dr. Don,
My husband and I have been saving in our respective 401(k)s for the last seven years. We were invested when the stock market faltered and are still recovering. We have $60,000 in retirement savings, $30,000 cash, $450,000 in home equity and no debt other than our mortgage. I quit working three years ago. My husband's annual salary is $58,000. We are 37 years old. Are we on track for a comfortable retirement or do we need to worry about increasing our retirement accounts?
-- Dawn Dilemma

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Dear Dawn,
Well, with a net worth of over half a million dollars, you're the envy of most people your age, but it's a little hard for me to say you're on track for a comfortable retirement. You're certainly not at a point where your husband can stop contributing to his 401(k).

Although you provided me with a lot of information about your current financial situation, there's still a lot to figure out. With no debt, other than your mortgage, it seems pretty clear that you're able to live on your husband's annual salary. After all you've been doing it for the last three years. But how much of that annual salary is being invested in his 401(k) plan every year? Does his employer match all or part of his contributions? If so, he should at least contribute up to the limit of the matching program.

One concern I have is that your home equity is 83 percent of your net worth. You didn't say what your house is worth, or the size of your mortgage, but counting on continued appreciation in housing prices to fund your retirement can be problematic. On the other hand, paying off your existing mortgage and then using the financial slack from not having a mortgage payment to fund retirement investing may be a viable strategy.

Other considerations include: How are you invested in the retirement accounts? What are your financial goals besides retirement? When do you plan to retire? What standard of living do you hope to have in retirement? All these factors play into what the goal should be for your retirement portfolio and net worth at retirement.

Try using Bankrate's interactive retirement worksheets, "How much will I need to retire" and "How do I reach my retirement goal" as a way to measure your progress and what still remains to be done.

-- Posted: May 13, 2005




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