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A cozy life after retirement
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September 20, 2000: 11:37 a.m. ET
Financial pro Gary Schatsky explains saving versus spending
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NEW YORK (CNNfn) - You're 60-something with a cozy home and no debt. And like many people, you may be wondering what it will take to keep that comfortable lifestyle after you retire.
Gary Schatsky, a fee-only financial adviser and attorney, said you should start by looking at your spending habits.
Schatsky appeared on CNNfn's Your Money recently and answered some e-mail questions for CNNfn.com.
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Gary Schatsky, a fee-only financial advisor from ObjectiveAdvice.com, takes questions on Your Money's viewer mail segment.
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Question: I'm 61, married, with no debt. I have a mortgage-free home, two country cottages, two cars, and a portfolio of mutual funds and bonds with a market value of $500,000. I have no pension, and my monthly income after tax is $5,000. What should I be doing at this stage of life?
Answer: While the answer you probably would love to hear is "enjoy yourself," the real answer is "it depends."
I don't know what your current spending habits are, nor do I know how much longer you expect to work. It is possible that in retirement you may have enough money live on when you add your Social Security, or if you are spending most of what you are currently receiving after tax, you do not have enough to retire.
The first step is to take a close look at your current spending and what you expect to spend in retirement.
The second step is to increase tax-sheltered savings.
Now is a wonderful time to be an aggressive saver in a tax-sheltered account such as a 401(k) or profit-sharing plan. The tax savings you will now enjoy will be at a much higher tax bracket than the tax you will eventually pay when you retire.
While you are at it consider contributing to a Roth IRA, which, while non-deductible, accumulates earnings tax free.
Sorry I can't give you a definitive answer, but this is a start for you!
E-mail our experts your retirement planning questions
Question: In 1998 I took a $10,000 distribution from my regular IRA. I had what I thought was a short-term cash need. Since then I have taken the penalty on my taxes, etc. I now have the money and want to put it back in my regular IRA with the intention of converting to Roth IRA. How is the best way to go about this? Can I put this money back in my regular IRA? I know there may be a limit to what is tax deductible and that I can't do anything about the penalty. My main interest it to get the money into the account and working for me. I am married filing jointly with gross income of ca. $70,000 a year.
Answer: The bad news is that once you have taken money out of an IRA and the period for rolling it over has expired (usually 60 days) you can't put it back except with regular annual contributions. In fact, the long-term loss of tax-deferred growth, often decades, is almost as tragic as the tax and tax penalty you incurred.
Now for the good news. Consider contributing directly to a Roth IRA for and your spouse in the amount of $2,000 per year. Even if you are contributing to a retirement plan at work, both of you are eligible for a Roth given that your income is less than $150,000 per year.
Hopefully, you will make up the $10,000 in short order and will exceed it as time goes on.
Question: With about $40,000 in a GNMA fund set up for systematic distribution of about $1,800 annually, how does one decide if there is a better vehicle for a larger annual return and what would it be? I'm 74 and my spouse is 67.
Answer: Most GNMA (government national mortgage) portfolios should be earning more than the 4.5 percent that you are distributing annually. At a minimum consider shifting to the very low cost Vanguard GNMA Fund, which currently is yielding 6.8 percent, or over 50 percent more than your current payout.
GNMA funds do fluctuate with interest rate changes as they are usually considered intermediate term bond funds. You may also consider putting some of the money into a high yielding, highly rated short-term corporate fund such as Vanguard's short-term corporate bond fund currently yielding 7.3 percent.
Vanguard is known for exceptionally low operating expenses and top quality no-load (no commission) funds. Often due to their low expense ratio their returns are superior to many competing funds.
Finally, are you opposed to using any of the principal? You could significantly increase your payoff if you are willing to spend some of the principal over your lifetime.
* Disclaimer 
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