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Is early retirement possible?

Larry Anderson and his wife, Ava, both 52, live in Ohio. Already retired from a military career, Larry has worked the past 12 years as a clerk for a government agency. Ava works part-time as a home health aid. They have lived in their current home for nearly 20 years. They have two children, a teenage daughter who lives at home and an adult son who does not.

Money Makeover: Is early retirement possible?
Profile: Larry Anderson
The challenge: Larry, age 52, wants to know if he is on track to retire at age 60.
The solution: The good news is that Larry is well within striking distance of his goal.
 
The challenge

Larry wonders if his efforts to save for both him and his wife, Ava, are enough to assure a secure retirement and whether early retirement is in the cards. The retirement lifestyle Larry envisions isn't much different than his lifestyle today. He expects to stay in the same house and have fewer bills. He does hope to vacation three weeks each year, frequenting a time share they own in Florida. They also have an RV that will get greater use during the retirement years.

Ava works part-time and doesn't have a retirement plan at work. They each have a traditional IRA, though they haven't funded it in several years and the modest account balances reflect this.

Key issues

Larry is financially well organized and is money-wise. All credit cards are paid in full every month. In addition to the RV, they have two cars. But only one has a car payment and carries an ultralow interest rate of 4 percent.

Larry and Ava are on target to be mortgage-free in retirement. They have a 5.25 percent fixed-rate mortgage and they pay an additional $42 per month toward the principal. They have not itemized their tax deductions in recent years, so the mortgage interest deduction is not applicable. They will own the home outright in six years, which will result in a notable reduction in their expenses once retired.

Larry has been contributing 10 percent of his pay to a Thrift Savings Plan at work since the day he became eligible to participate 12 years ago. He does have an outstanding loan through his Thrift Savings Plan that will take another 3 years to repay.

Although their IRA balances are low, Larry has accumulated six figures between his Thrift Savings Plan and a variable annuity purchased three years ago.

They do not expect to incur any tuition costs for either of their children, as their son and daughter each have a separate trust account that can be accessed for financial needs.

The Andersons' emergency savings cushion is a little low. They have roughly three months' expenses spread between a savings account, CDs and some surplus funds in a checking account. But some of those CDs don't mature until 2008 or 2009, so a large unplanned expense could result in an early withdrawal penalty.

The only life insurance coverage he currently has is provided through his employer, and would provide one to two times his salary in the event of his death. None of his pensions have a death benefit. He has, and can maintain, health insurance through the military due to his previous service.

The solution
This report was prepared by Bankrate Senior Financial Analyst Greg McBride, CFA.
Bankrate.com's corrections policy
-- Posted: Oct. 1, 2007
 
 
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