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How to save for retirement

Dear Dr. Don
I am 45. I began saving for retirement in a Roth IRA at age 38. I have $17,000 in the account. I have no benefits at work as a per diem RN. We are using my income to pay off all debt and we will be debt free, including our mortgage, in July. My husband is 39. He has a profit sharing plan at work. His employer puts in 15 percent and we put in the rest to max it out. That account balance is $120,000. The way I figure, even with this, we will never have the $3 million I've read that you need to retire and be able to live off the interest by age 65. Am I missing something? What else can we do?
-- Kathy Conundrum

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Dear Kathy,
I just read an interesting review of a new book written by Lee Eisenberg called "The Number." In the book, Eisenberg looks at different approaches individuals use to size their retirement nest egg, including yours. I plan to read the book, but since I just started reading a copy of "1776" that a friend loaned me last August, it may be a while. You'll have to decide on your own whether to put it on your reading list.

I take the point of view that you should spend some time reflecting on what you want out of life, and look at how money can help you attain it. Spending the next 20 years trying to reach a savings goal of $3 million that you read about somewhere but don't understand isn't realistic retirement planning and will cause you to miss out on a lot of living along the way.

Retirement planning was often referred to in the past as a three-legged stool, where one's financial stability in retirement was based on the three legs: pensions, government benefits and personal savings. With one leg, pensions, cut out from under the retirement stool for many workers, and another, Social Security, looking a little wobbly, there's undeniably a lot of pressure to increase personal savings.

The good news in your situation is that you've already taken steps to create financial flexibility in your monthly budget and will be able to increase your monthly savings after the mortgage is paid off in July. You can ramp up your savings to improve the odds of having a comfortable retirement.

There are a lot of alternatives to living off the investment earnings of a retirement nest egg. They include the use of annuities, reverse mortgages and inflation-indexed investments. Using insurance coverage to serve as financial protection in retirement, specifically long-term care insurance, can reduce the amount of money needed in retirement for that expense.

Meet with a fee-only financial planner to talk through your retirement concerns. The National Association of Personal Financial Advisors, NAPFA, can help you find a fee-only planner in your area. Don't be shy about getting a second opinion if you have concerns about the advice you receive.

Bankrate.com's corrections policy -- Posted: Jan.16, 2006
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