Ann Baker, Local 1995, Council 75

Local 1995, Council 75

When Ann and Ralph Baker retire, they want to travel in the United States, take some bike trips with friends, maybe buy a small trailer to hitch to their car. They plan to live in their newly remodeled home in Oregon for as long as their health allows. Ann, a 49-year-old assistant speech pathologist making $22,000 a year, says she'd like to go to Las Vegas once in a while, play the slot machines and lie out by the pool.

She and husband Ralph, 55, are lucky. "The things that we like to do don't cost a lot of money," she says.

Ann and Ralph, a respiratory therapist making $28,000 a year, jointly manage assets that include about $3,500 in a stock mutual fund and $22,000 in Ann's 403(b) plan. Once they retire, Ralph's pension from his previous job as a steel worker will pay $495 a month; Ann's pension from the state will pay $974 a month; and their Social Security benefits are worth an estimated $800 a month together. Their retirement income: almost $2,300 a month.

You'd think with all this they'd be doing fine. But financial planner Deborah Thomas of Silver Oak Advisory Group in Portland, Ore., predicts that the Bakers' costs in retirement will be $3,300 a month, the same as now. In fact, for the first decade of retirement, Thomas points out, people enjoy doing things like traveling that are more expensive than their lifestyle while working. It isn't until that second decade of retirement that expenses begin to decline.

Thomas praises the habits that have brought the Bakers this far:

• Taking time to plan. By sitting down with their finances in recent years, Ann and Ralph have been able to get a handle on their spending and increase their savings.
• Not having large debts. Credit card debt, especially, can hurt your retirement planning. Paying off such debt can be a sound initial investment. After all, if a card has an 18 percent interest rate, you'd have to find another investment guaranteeing returns of 19 percent or more to beat it.
• Communicating well. Money can be a huge cause of stress between partners. It's important that you can talk honestly about what you've got now, your goals and what you're willing -- and unwilling -- to sacrifice to achieve those goals.

Ann and Ralph's only danger, says Thomas, is that they started late. After all, their personal savings will need to cover the roughly $1,000 a month in spending that isn't covered by Social Security or pension payments. Here's what they can do to make up for lost time:

• Increase savings level. Because their savings won't have much time to grow, the Bakers will have to make up for time with cash. They believe that by following some of these other suggestions, they can find another $200 a month to save.
• Put savings before the mortgage. The Bakers had planned to pay off their mortgage in 15 years instead of 30, but that money could be better used elsewhere. The value of the house will rise regardless of how much of the mortgage has been paid, but a savings plan earns interest only on money deposited.
• Take advantage of tax shelters. Ralph's retirement plan at work offers a triple bonus: He gets to deduct his contributions from his taxable income, the interest he earns is tax-free until he retires and his employer will match a portion of what he puts in. This is not an opportunity to pass up lightly.
• Diversify investments. Ann and Ralph have much of their money in stocks, which is great during an "up" stock market, but can leave them high and dry if the market goes down. By spreading investments so they're 60 percent in stocks and 40 percent in bonds, a distribution Thomas recommends for any portfolio, the Bakers won't be putting all their investment eggs in one basket.
• Put short-term savings in a short-term account. The Bakers have been using their stock fund to save for family vacations, which means that a chunk of that money could disappear in a "down" market if they can't wait for that market to turn around. Ann and Ralph should put their vacation savings in a credit union account.

Ann agrees that they should have started saving earlier. She plans to take all of Thomas' recommendations and feels good about her future. Even if they had paid the $1,000 or so planning fee themselves, she says, future savings would have more than covered the cost.

What can you learn from all of this? Is there a single secret to retirement success?

There is no golden goose ready to lay your personal nest egg, but when we asked our experts what the best thing someone could do at age 30, age 40 and age 50 to plan for retirement, two gave identical answers: "Save, save, save."

By Alison S. Lebwohl