retirementJack (who asked that we not use his last name) works full-time at an environmental agency for the state of Tennessee, earning $60,000 a year. But the daily grind is wearing on him. In November, he'll be 70.

"Old age is making it harder and harder for me to get up early every day and put in eight hours of work," he says. "But with the poor economy and uncertainty of the future of Social Security and Medicare, I am scared to retire."

Jack emigrated to the U.S. from the Middle East after high school and finished his education here. Unlike the millions of older Americans who have too much debt and too little savings, Jack has no debt at all, and has socked away $300,000 in his 401(k) and Individual Retirement Account, invested mainly in a conservative fund paying 3.75%. Federal rules require Jack to start taking mandatory withdrawals from his IRA in June 2012, and also from his employer plan if he retires by then.

If Jack retired today, he'd also receive $2,500 a month from his state pension and Social Security. He also rents out a condo he owns, clearing about $250 each month after expenses. He finds it stressful to deal with tenants and upkeep, but has no plans to sell, since the unit is worth less than $25,000.

Finances are a sore subject between Jack and his wife. She earns $60,000 a year between a part-time job and investment income, but spends every dime she makes. "She does not believe in saving for retirement and she does not have any savings," Jack says. "It creates a lot of arguments when I talk to her about these things." She pays the utility bills, but otherwise doesn't contribute to household expenses.

Jack started working with what he calls a "conservative" financial adviser, but has been disappointed. "So far he has not produced any gains to my savings, and actually, I have lost a few thousand dollars," he says. The adviser invested $26,500 of Jack's money in four relatively obscure mutual funds and a silver mining company in July 2011, which collectively have fallen 7.5% since then. The adviser also recommended that Jack buy an annuity with a 3% load that offers a 6% return (it's unclear whether that return is guaranteed in full or in part, and if so, for how long).

Jack has never tracked his spending carefully, but estimates his monthly expenses at about $3,000. Beyond that, he's worried about the potential costs of catastrophic health care. "With health care costs spiraling and increased health problems as my wife and I age, we need enough income to cover all these expenses without going broke before we die," he says. Family history suggests he'll need his money to last 15 or 20 years: Jack's mother is 87; his father died at age 84.

The Advantages of a Guaranteed Income Stream

So can Jack afford to retire? The short answer: It depends. First, he needs to get a real picture of his costs by tracking every dollar he lays out over the next six months, and reviewing his checkbook and credit card statements for the last 12 months to capture annual bills, travel and other big-ticket items. That will form the basis for his monthly budget.

Fortunately, Jack's Social Security, pension and rental property provide a steady, guaranteed income stream. He should think of that as his "salary" to cover necessities, and the money from his investment portfolio as his "bonus," which can be used to fund travel, entertainment and other discretionary spending.

That may allow him to take a little more risk with his assets, and achieve potentially higher growth than someone relying solely on an investment portfolio for retirement income. In good years, Jack could withdraw more than the minimum distribution and enjoy an extra vacation or big purchase. (Most advisers recommend a draw-down rate of 4% or less to ensure retirees don't run out of cash before they die; in Jack's case, that translates to $12,000 in extra annual income.)

As for medical expenses, Medicare typically pays up to 80% of costs. Jack could buy a Medigap policy to cover his co-payments, or consider a Medicare Advantage plan. These policies, offered by private insurers reimbursed by Medicare, must provide the same coverage as the federal program, but can offer extra benefits, such as lower deductibles and co-payments for members who use in-network doctors and hospitals.

Spending More Than He Thinks?

I spoke with two financial advisers about Jack's situation, and they disagreed on whether Jack should retire immediately. Charlie Farrell, a principal with Northstar Investment Advisors in Denver, suggests that Jack's monthly expenses are probably higher than he estimates, and that he and his wife need to work out their spending conflict.

"If they agree on common goals, lifestyle and expenses, then they can make it work, even in the face of some health care costs," says Farrell. "If they can't get to a common agreement, they just don't have enough capital to create a meaningful income stream if their real expenses are in the $5,000 to $6,000 per month range, which I expect they would be if they've been living on $120,000 per year."

Farrell also shares Jack's concerns about uninsured medical costs, which he estimates at $5,000 to $10,000 annually, depending on health and prescription drug use. "A few years of either spouse needing long-term care or assistance could wipe them out," he says. "They won't qualify for Medicaid unless they have spent down all their assets, so it's a real problem."

The Path to Retirement

But Jane King, president of Fairfield Financial Advisors in Boston, says Jack is well positioned: "It hardly ever happens that you have two sources of income that are not affected by what's going on in the market."

King advises Jack to put 50% of his $300,000 portfolio into mutual funds invested in blue-chip, dividend-paying stocks. "It would be a slow-growth and diversified value approach using funds that are no-load and have low fees," she says. She suggests fund families with a long-term track record, such as American Funds or Vanguard. Steer clear of the annuity, adds King, particularly one with an upfront commission.

Jack's first five years in retirement will probably be the most active and the most expensive. "He'll travel, play golf, whatever his passion is," says King. "So maybe he's okay taking a little more than the minimum required distribution. But running out of money before he dies is obviously a concern for everyone."

The key is carefully tracking the rate of return on his investment portfolio so it can sustain the withdrawals. Meanwhile, Jack could address his health care concerns by purchasing long-term care insurance with a waiting period of six months to a year, adds King.

Finally, Jack could ask if his employer would allow him to retire, take his pension, and then work part-time on a contract or hourly basis. It may just give him the resources and confidence he needs to leave behind his full-time job.

Struggling with your own personal finance situation? I welcome your questions but it's also about your wisdom, ideas, and experiences that may help other readers. Email me at You can also follow me on Twitter @MoneyHappiness.

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October 12 2011 at 3:23 PM Report abuse rate up rate down Reply
David Michael

What I get from this column on retirement is that Wall Street and the many Advisors out there have scared the heck out of Jack.

I've been living the life of Riley on 30% of my past salary over the past 18 years including trips to Europe, Asia and the Middle East. Our only source of money is from Social Security and modest working once in a while if we dream of something special. Yes! We are poor according to the statistics even though I earned three advanced degrees. I fully expected to be retired on a sum over $10,000 a month. What happened? A divorce wiped out my pension, and my second wife lost her retirement annuity because the largest insurance company in California (Executuve Life) went bankrupt.

This is called life and it's not so much what happens but how one reacts to these events. We feel very prosperous as we have everything we want. We live in a small motorhome and have travelled the USA for the past four years. Every day is exciting, new, and fresh. Now at 75, we plan to bicycle Europe next summer as we did in New Zealand and Ireland a few years ago (and camping).'re stuck! You could die tomorrow! Give up the fear, sell everything you have, maybe get a new wife in the process, and start living! It sounds like you are dying...a little bit each day worrying how to retire. Best the book, "Your Money or Your Life" by Joel Dominguez. Jack...Get a life!!!

September 19 2011 at 1:15 AM Report abuse rate up rate down Reply
1 reply to David Michael's comment

Congratulations to DMichael and his family. But not everyone is as adventurous, resourceful and creative as you are. The key for Jack is finding what it is that makes HIM happy and then developing a strategy to make it work. Fortunately, he hasn't retired yet, which is good. He shouldn't retire until he has done the arithmetic and most importantly decided how he wants to spend the time. Until he does, he should keep working, seek help for his wife, oh and of course, keep saving!

September 20 2011 at 1:10 PM Report abuse rate up rate down Reply

Move to a less expensive area?

September 16 2011 at 11:02 AM Report abuse rate up rate down Reply

Response to Montooth's comment on my original comment. No I do not get a COLA on the modest amount calculated for Jan. 1, 1995. People I have spoken with who get a pension get the same number of dollars they did on retirement (defined benefit). With our idiot economists saying 1 to 2% inflation is good for the economy, obviously if you live long enough the same number of dollars becomes almost worthless. There are ways of delaying the problem--kicking the can down the road--but nobody wants to make the decisions to do even that. A true permanent solution has not been put forth by anyone.

September 15 2011 at 7:53 PM Report abuse +2 rate up rate down Reply

I AM a white male who got an environmental degree in 1990, but since I am not FOREIGN, and the only language unfortunately, I speak fluently is English, no government agency or large company will ever hire me. I had a temp-contract job in Florida Dept. of Environmental Protection, then, but I got laid off because they wanted to hire a lady who graduated from the University of Moscow (Russia), and barely spoke English. Way to go, Tennessee!

And, Way to go, Jack! Come in from the Middle East, take one of our jobs (with a little help from the "voluntary EEO survey" and then hoard all your money instead of spending it and helping our economy. Don't worry about your kids inheritance- they will get a good job as soon as they fill out the application and indicate they are of Middle Eastern "Race or Ethnicity".

September 15 2011 at 6:34 PM Report abuse rate up rate down Reply
1 reply to zollette's comment

This discussion, I think, is not about race. It is more about public policy and personal financial planning for retirement. I am sorry you are having difficulty finding work. But please know that it has nothing to do with your ethnic status as a white male. Your comments make you sound angry, parochial, xenophobic, paranoid and out of touch with the truly international and global nature of this nation's and other developing national economies. While it may be easy to put the blame on race, that is far too simplistic and cannot be the rational, reasoned response of an educated American.

September 15 2011 at 8:49 PM Report abuse +1 rate up rate down Reply

It looks like this guy has tried hard to do the right thing, however, with serious inflation and a spendthrift wife, he is in more trouble than he thinks! I started retirement with close to a mil and am now down to under $700K. All of the loss due to inflation and market drop. He needs to keep working as long as he can and get himself and his wife to financial counciling ASAP. (Preferably NOT the one he has been dealing with.......)

September 15 2011 at 5:08 PM Report abuse rate up rate down Reply

If the pension is a "defined benefit" sum, the same every month, it will be worth less and less every month. I retired at age 68 1/2 with a small defined benefit payment every month. It is worth a lot less now that I am over 85. Fortunately I was able to consult for 10 or 12 years after retirement to have a fair amount in the IRA (at least until recent stock market gyrations lowered the value of investments). Social Security and Medicare payments may be reduced even for us old geezers despite the garbage spewn out by all politicians. Medical developments are increasing the lifespan rapidly. All those thinking about retirement should consider these factors before making any decision.

September 15 2011 at 2:01 PM Report abuse rate up rate down Reply
1 reply to rosenbill858's comment

No question about it, inflation is real. Lately, it has reared its ugly head from Jan '11 @ 1-2% to about 3.77% August '11. Whether this trend will continue is obviously concerning. However, do you get any offsets, e.g., COLA's for your pension and SSA? Also, we know, Medicare premiums are on the rise. All of us retirees and pre-retirees, should budget accordingly. The good news is that there are some wonderful online calculators that help you plug-in various inflation scenarios. I highly recommend Fidelity Investments Retirement Income Planner--if you are a customer, the long version takes about 1 hour, and will step you through all your expenses and then assist you in knowing how far your investments and other income will last. I do not recommend actively managed funds or portfolios for any folks of modest income or means. Active mgmt only eats up your money over time. Go with stable value funds (if you're employed, your employer probably offers them through the defined contribution plan) and index funds. Except for the huge institutional players, and a handfull of managers, trying to exploit the so-called "inefficiencies" of the market, is a loser's game. The academic evidence is increasingly showing what Jack Bogle of Vanguard said all along--the markets are efficient. No one has a crystal ball and given the interconnectedness of the global economy there is no omniscience among any planner, broker, or investment house. Stick with a diversified portfolio of no load, low-cost, index funds (or maybe ETFs) pre-retirement , and then go for income and some growth post-retirement perhaps bonds, stable value, and index funds, but in different percentages. This strategy should provide the hedge against inflation somewhat.

September 15 2011 at 3:48 PM Report abuse -1 rate up rate down Reply

Jack, his wife and many retirees and their planners, have very difficult choices to make. In this scenario, it appears that Jack's wife is the albatross of their retirement planning. If stats hold, she could live longer than her husband and her current disregard for money could foreshadow hard times for her, if she doesn't come to terms with certain financial realities. The advice to get long-term care insurance from one planner is questionable. The guy is 70, and many previously offered policies are being eliminated by insurers or greatly reduced. The premium for him and his wife would most likely eat-up a sizable portion of their guaranteed income. Are there no immediate fixed income annuities that would be appropriate for Jack? He should do some more research on that. At the national policy level (and this may not help Jack right now), I do wish congress would ELIMINATE the dreaded RMD. Given our current economic struggles, it makes no good financial sense (except for Uncle Sam), to force folks to take money from their investments at a time when they should remain invested, especially if they have guaranteed sources of income (like Jack--pension and SSA), and may not need the money for ongoing expenses. Write your congressional reps and tell 'em you want the RMD to be temporarily and perhaps permanently eliminated. Uncle Sam will get his cut in taxes, when it makes sense for the individual investor to make the withdrawal.

September 15 2011 at 1:13 PM Report abuse rate up rate down Reply

If Jack was a single man with no wife and/or no kids/grandkids, I'd say he's in great shape to "retire" but only if he wants to.

But let's not forget that "retirement" is a relatively modern invention in the history of man (as is "marriage", but let's not go there right now) and I for one will never do "nothing", and "retirement" might consists of part-time work, or writing novels, or doing volunteer work. I'll contribute to society for as long as I am able in some fashion.

September 15 2011 at 12:07 PM Report abuse rate up rate down Reply

I would request that everyone over 65 ask your congreeman/woman to introduce a bill in Congress to have your deductions from your IRA taken out tax free for 3-5 years up to 35K for 3-5 years. Our portfolios are down anywhere from 15-30% and would take more years than we have to get back what we lost. Having that extra cash we could get it back into the economy or help defray incresing health care costs. Please have your children contact their lawmakers, also. The more people going to bat for the seniors the more they will listen.
I read recently that the US Government can't account fo $30 or more billion dollars spent in Iraq and Afganistan. There are other handouts that benefit no one because there is no accountabilty for the money spent. Don't you think that you deserve a break. This time the money won't go down a "black hole".
I bessech anyone who reads this and is a senior or the child of one notify Congessmen and women to introduce that bill!!!!!!!!!

September 15 2011 at 11:57 AM Report abuse +1 rate up rate down Reply
1 reply to rayharveym's comment

I couldn't agree more. The RMD, is a scourge in these times for the very reasons you cite and Jack is gonna get hit at a time when he should probably be more conservative. With his pension and SSA benefit coming, he may not NEED the required minimum distribution from his investments...on the contrary, because of health/medical concerns, the longer his investments have time to grow, the better positioned he'll be to take care of his and his wife's unfunded medical, tax, inflationary and discretionary needs. I do hope for Jack and his wife's sake that his wife will WAKE-UP. She is the albatross around this couple's retirement planning and is being very foolish. If statistics hold true, she may even live longer than her husband and if she has no appreciation and regard for money now, what will she do with her husband's stash, when he's gone? Scary, very scary. If I were Jack, I'd give her a taste of this scenario now, by leaving her to her devices--a little separation might drive home the point.

September 15 2011 at 1:00 PM Report abuse rate up rate down Reply