Starting to gear up for retirement

Question: I will be 60 in August. I am single and financially independent. I have been teaching for over 20 years in a graduate-level program, fortunately with tenure and a TIAA-Cref retirement plan. When I do the retirement calculators on my plan's website, I find out that I need to save another 16K per year to get me to 80% of my income, if that's my goal. The only debt I have is a mortgage (just refinanced for a lower rate, with cost of a home-equity loan to fix myriad house problems rolled in, and not to be paid off till I'm 75) and a car payment - I finally succeeded in paying off all credit card debt a few months ago. In the 6 years ahead, I need to figure out how to put myself in the strongest possible position. Should I pay down my mortgage, add money to my retirement account, or put money into some other kind of savings to maximize what I can put aside before I retire? Melanie, Branford, CT

Answer: We all have to start somewhere when it comes to retirement planning, which is why rules-of-thumb are useful. The 80% of pre-retirement income guideline is based on the assumption that you'll drop into a lower tax bracket, you won't have any work-related expenses (such as a weekly dry cleaning bill), and you'll have the time to shop for deals, cook at home, and so on.

However, at most this rule of thumb is a starting point for a much deeper look into your life and goals.

For instance, some retirees live just as well on even less than 80% because their idea of a good time is hiking, canoeing, an occasional weekend driving trip, and hanging out with family and friends. Other folks end up spending more in retirement than before because they're in a rush to run through their bucket list before their health deteriorates.

It matters a lot if you plan on continuing to earn an income well in retirement, too, even if it's part-time. I imagine it's an option for you as a tenured professor. In that case, your work-related expenses might not go down as much and your tax bracket could stay the same. But you won't have to draw on savings as much and, best of all, you'll have the option of delaying filing for Social Security. The benefit goes up by 8% a year for every year you wait until age 70.

The good news is that at age 59 you have a pretty good sense of what you want to do in when you retire at age 66 or so. You also have a grasp of your annual expenses and your overall financial resources. I'd start playing with what you want to do--what gives you meaning--and then match up your financial resources to those goals.

All your ideas about what to do with your additional savings over the next few years are good. However, I lean toward putting the bulk of the additional savings into safe taxable accounts. You won't earn much interest, of course. But the savings will give you maximum flexibility of when to start drawing on your tax-sheltered retirement savings. You can always decide to take a chunk of it and put it toward paying down mortgage principal. Savings gives you more options.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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