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Saving for the Future

What do the financial planners say Ginsberg can do to retire comfortably? Would private accounts help her?

Mary A. Malgoire of the Family Firm in Bethesda and Stuart Ritter of T. Rowe Price in Baltimore came up with general advice. Alexandra Armstrong and associates at Armstrong, MacIntyre & Severns in the District ran detailed projections based on three different scenarios.

The daughter of a Washington area butcher, Pamela Ginsberg broke her first side of beef at age 7 while standing on a milk crate. She has been in the food business ever since. (Nikki Kahn -- The Washington Post)

Ask the Experts Financial planners Stuart Ritter of T. Rowe Price, Alexandra Armstrong of Armstrong, MacIntyre & Severns and Mary Malgoire of the Family Firm offer their advice.
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Karen Preysnar of Armstrong, MacIntyre & Severns Inc. ran several detailed projections based on the assumption that Pamela Ginsberg put $4,000 each year into a Roth IRA that saw an 8.4 percent return -- higher than the 3 percent some economists said is more realistic. Preysnar calculated that Ginsberg's annual expenses add up to $22,500 per year and assumed an inflation rate of 4 percent.

• In the first scenario, Ginsberg receives 100 percent of her Social Security benefits and the money she made in her Roth IRA. She amasses assets of $291,677 at age 65, but that money runs out at age 77.

• In the second scenario, Ginsberg receives 89 percent of her promised Social Security benefits. (After 2041, Social Security may not be able to pay full benefits, according to current projections by the system's trustees.) Her money runs out at age 76.

• In the final scenario, Ginsberg receives 77 percent of promised Social Security benefits, which are reduced under President Bush's plan if she signs up for a private account. But she earns an 8.4 percent return on both a private account funded with part of her Social Security taxes and on the Roth IRA. She amasses $378,582. Still, her savings run out by age 78.

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All three agreed Ginsberg has to make changes now if she wants to maintain her standard of living in retirement. Though they estimated she has only $7,000 in disposable income each year, after taxes, rent and utilities, they said she needed to begin saving and investing in the stock market.

She is free of debt and can eat many of her meals at work, so they advised her to tuck away at least a few thousand dollars a year -- at least 10 percent of her income. Malgoire suggested she immediately put $6,000 of her savings into a high-growth equity mutual fund.

A $200 monthly cell phone bill, and splurging on good food at local restaurants are her only indulgences, Ginsberg said. Her utilities range from $100 to $250 a month, depending on the season. She says she spends about $100 a month on miscellaneous items such as cleaning supplies and clothes. Her typical uniform at work consists of a baseball cap, T-shirt and baggy chef pants over black sneakers. When she is feeling fancy, she throws on a monogrammed chef's jacket.

She vacations once a year at most, and only if she has the cash.

"It's clear money is tight for her, but somehow she needs to figure out a way to start saving more," Ritter said.

They disagreed, though only slightly, on whether a private Social Security account would make much difference. Bush has proposed allowing people to invest part of their Social Security payroll tax in stocks and bonds.

Ritter said there are too many variables to say for sure whether that would make a difference to someone in Ginsberg's situation, while Malgoire and Armstrong said it's unlikely to help much, if at all.

"Social Security, as inadequate as it may be, may be the only sure income stream for Pam at her retirement, and I would not recommend that it be subject to the risks of the market," Malgoire said in an e-mail. "It is just not true that every 20-year period in the markets has been a positive experience for investors. Perhaps the government would like to offer a guaranteed 4 to 5 percent return on these accounts. Then I could consider this option for Pam."

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