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In the homestretch


A t 55, retirement is no longer a fuzzy finish line on a distant horizon.

It's nearly tomorrow.

For many of us, 55 marks the beginning of the final sprint to retirement, a period that many anticipate as a comfortable reward for a life of hard work, financial temperance and general good citizenship.

The final 10 years of full-time work are also your last chance to pile up savings and correct minor financial mistakes so that you have enough money to make your expectations a reality. Whether you retire at 65 or wait until you're nearly 70, that's when you reap the payoff, for better or worse, of the decisions you make now.

"At this point, you're looking at getting in the groove of a sustainable lifestyle. You're finally living the kind of life you want to carry into retirement, with more travel, more entertainment, time and money to spend on yourself," said Kay Shirley, a certified financial planner in Atlanta. "The question is, can you afford to continue living this good life with the resources you have now?"

Shirley and other planners who specialize in retirement say most people are pleasantly surprised to discover that they've got what looks like a fairly big heap of money in their 401(k) and other retirement accounts. Putting away a few thousand dollars every year really does add up.

That cache can provide a false sense of security if the nearly retired view it as permission to splurge on trips, new furniture and fancy cars that they figure they deserve while they're still young enough to enjoy them.

But no spending over the speed limit is allowed: You still have to keep both hands on the wheel to steer your finances safely into retirement. If not, you could end up like a majority of the people in a survey by the Million Dollar Roundtable, a group of financial advisers, that found 70 percent of retirees wished they had saved more money.

The worst mistake you can make at that point is to panic and try to make up for losses with an aggressive, risky investment strategy.

You might be right that you need more money for retirement, but the way to get that money is not by gambling a big chunk of your portfolio on a high-risk stock or business venture.

"Don't change your risk tolerance," advises Linda Marcelli, head of Florida Gulf Coast operations at the Merrill Lynch office in the Tampa.

If you don't win the bet, there isn't enough time left to make up the loss. You'll be left with less money than when you started.

If you see a gap between what you need and what you have, redouble your savings by trimming your lifestyle and saving as much as 25 percent of your earnings, taking on a second job if you have to.

Fortunately, Washington realizes that many folks have seen their life's savings eroded by recent stock market losses, and the 401(k) savings guidelines have been changed accordingly. Starting this year, people age 50 and older are allowed to save up to $16,000 a year in tax-deferred 401(k) accounts. Last year, the maximum was $12,000. That makes it easier to catch up for those whose investments were hit hard.

Although you're staying the course with your investments, you've got several years to bring your lifestyle in line with the income you think you'll have in retirement.

The pre-retirement decade is the time to shift to a less expensive house in a high-cost-of-living area or to move away altogether to a less expensive region.

Paying off credit cards so that you're not dragging debt with you into retirement is another must.

Though it's depressing to think about, pre-retirement is also the time to sign up for long-

term-care insurance that covers much of the cost of nursing homes or lengthy rehabilitation treatments. The nature of insurance is that you have to buy it when you're healthy enough to not need it. It's hard or impossible to get after you've retired.

And if you want to keep working past age 65, start looking for that job a few years ahead of time. Volunteering can help you identify organizations that might appreciate some part-

time professional help when you're in a position to work for more appreciation than money.

Joanne Cleaver is a Chicago-area financial writer.

Paying for your lifestyle

When you look at those big numbers on your 401(k) statement, it might look as if you'll have plenty of money to live on until you die. But will you? Let's say that at age 65 you begin retriement with a $75,000-a-year lifestyle and will receive annual Social Security income of $16,800 and pension payments of $25,000.

You have retirement investments of $500,000 that produce income of $25,000 a year with a 5 percent annual return.

That totals $66,800, so you decide to tap your investment principal for the remaining $8,200. But every time you dig into your investment fund, you erode its earning power.

The fund won't be able to deliver the $25,000 in income you are counting on, so you will soon be withdrawing far more than $8,200 from the principal to keep spending $75,000 a year.

The erosion of your account also will be fueled by inflation and the occasional down market, not to mention emergencies. By violating the rule that retired people should not touch their principal, but instead adapt their lifestyles to their income, you could be nearly out of money in 20 years, at age 85, accoriding to Kay R. Shirley, a certified financial planner in Atlanta. Odds are you would out-live your money.

- Joanne Cleaver

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