Color of Money Live

This month's selection for the Color of Money Book Club is "The Retirement Catch-Up Guide: 54 Real-Life Lessons to Boost Your Future Resources Now!" by Ellen Hoffman (Newmarket Press). Michelle writes that she again chose a retirement book to discuss because retirement saving is one of the most critical financial issues facing people today.

Hoffman joined Michelle online on Thursday, April 28, at noon ET to answer questions about dealing with retirement issues. A transcript follows.

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Michelle Singletary: Good afternoon everyone. You guys got my guest working hard already. So many questions. But that's good. That's why we are here. So let's get started.

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Fort Washington, Md.: I am now rethinking my retirement date. I had planned to retire at 60 in less than 20 years. Now with Social Security being debated, I am trying to get to the mindset of working until 65 (gasp)!!! I could then max out my 401K and Roth IRA, plus, this would also boost my pension benefit. Will those five years make a big difference and how much of a difference?

Ellen Hoffman: You are doing the right thing by paying attention nearly 20 years in advance to funding your retiorement. Working several more years will do three things to help you financially in retirement: You will probably get a higher Social Security benefit because chances are that your last 5 working years will be your highest-paid. (However, this difference is not relevant if you earn more than the annual Social Security wage base which this year is $90,000.) Second, you will have more time both to save money for retirement and allow it to grow; and third, you will have fewer years of retirement to finance. But the only way you can eventually answer this question for yourself is to develop a vision of the retirement lifestyle you want and estimating the budget you'll need to finance it. If you do this now but readjust,say, age 50 or 55, you may find that you have enough retirement resources and will not need to work the extra years.

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Eugene, Oregon: What's the best mix of funds and cash for a Roth IRA right now? I'm seeing that we're entering a time where it's important to preserve capital. What's your sense?

Ellen Hoffman: I do not give specific investment advice, but I will make one observation. The cash in your account will earn virtually nothing and it will lose value to inflation. So if you're nervous about the economy, at least consider putting it into something conservative like CD's. This is especially true if you have a long time until retirement. That cash will just keep declining in value, year after year.

Michelle Singletary: I would also add a caution to Ellen's point of just keeping money in a simple savings account. When you ask about our "sense" you really ought to be looking inside. What's your sense of what you will need in retirement. Have you done any calculations of how much you will need. If not do it. With such knowledge you can decide if you want to play it completely safe or take some risk with your money and be more aggressive in the market. The point is don't just go on yours or anybody else's "sense." Get the facts.

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Richmond, VA: Ms. Singletary:

Your advice has transformed my finances...for the better! I thank you.

Let me ask for a "score" (A, B, C, D, F?) on where I am with my retirement savings.

I have about 90,000 in "company money" that will have to converted to an annuity. Plus I have about $30,000 in person 401K and ROTH. I am 38.

Thanks!

Ellen Hoffman: Sounds like an "A" to me. You have already saved more than most Americans who are 20 years older have saved!

Michelle Singletary: I would definitely give you an A+. Keep up the great work and I'm happy if I had even a tiny hand in it all. Did I mention I like chocolate :)

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Silver Spring, MD: I do not have any pension save up b/c of extensive professional schooling, self-employment, and switching jobs. I have two properties with large of amounts of equity. I also have three daughters, one in college, one on her way, and the last one will be in college in 7 years. What do you recommend? I am 50, single, good health.

Ellen Hoffman: Assuming that you are still self-employed, you should be putting savings into a SEP (See IRS Publication 590 or search www.irs.gov for more details.), which is a retirement account for the self-employed. The equity on your properties could be helpful. If you are receiving rental income from at least one of these, you might try to commit a certain percent of that to retirement savings every month. You may also want to look into the implications of selling one of these, assuming it is not your home. The profit you generate might be dedicated to retirement or to investing in other real estate that would provide even more income. The other thing to consider, if you are notin a regular job now, is to find a job that would offer retirement benefits.

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Powhatan, VA: What is the future of ROTHS? I heard they could be repealed in a few years. True? What are their advantages? Disadvantages?

Ellen Hoffman: The Roth IRA, like any other federal tax provision or program--could repealed any time Congress passes a bill and the White House signs it. There really is no such thing as a "permanent" tax law. However, Roth IRA's are popular and I would not worry about a repeal. The primary advantage of a RoOth is reaped when you retire: Because you have paid income tax on the money you contribute up front, there is no tax on the money when you withdraw it. With other IRA's, you get income tax deferral on the contribution, but then owe tax when you take money out.

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Arlington, VA: My husband is a teacher and therefore is eligible to enroll in a 403(b) plan. His school recommends SEVEN different administrators for the plan! How do we go about figuring which one to choose? Thanks.

Ellen Hoffman: Ideally, your human resources department should have information to help you make the choice. I would start by asking someone there to discuss the pros and cons of the funds with you. I'm wondering if the choice you're being offered is among funds or among administrators. In either case you should compare the fees that would be charged to your account. Also talk with them about the types of funds that are appropriate for your age group and retirement horizon. If you are choosing a family of funds, make sure that the options are diversified among different industries or sectors. If you are saving and investing money outside your retirement account, make sure that you do not end up with duplicative investments--for example, all large-cap funds investing in the Fortune 100. If there is no one in your workplace who is really knowledgeable about these finer points, it might be worth it to invest in a consultation with a financial planner who can set you on the right track. (For this consultation, you would be charged a flat fee or hourly rate.) You can search for a fee-only planner who does not make money by selling financial products at www.napfa.org, the National Association of Personal Financial Advisors.

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Olney, MD: How many people cash in their house profits and head for another country (say Central or South America) to live cheaply after retirement?

Ellen Hoffman: This is an issue I have written about and researched extensively. There simply are no data on how many people are retiring outside the US. From recent interviews for a magazine article, I can tell you that there is a lot of anecdotal evidence that more and more people are leaving. This does not mean they are all using money from a house sale, although many may be doing that. You can collect Social Security overseas and if you pick a country with a lower cost of living, the quality of your lifestyle could be much better than you can afford here. Factors to consider in doing this are: family ties and how important it is to be near family,; how comfortable you would be in another culture, and the realities of daily life and expenses. Experts suggest that before taking the leap, you do lots of research here in the U.S., then make one or more visits and preferably, rent for sefveral months to get a realistic view of your potential new lifestyle.

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Clueless in Fairfax, Va.: When it comes to finances/saving for retirement - I am totally clueless about things. I'm in my 30's and a teacher so I do have a state and county retirement plan that is automatically contributed to out of my paycheck. I recently got married last year and am wondering should I be doing more to save than just what is automatically taken out. Please keep in mind I do not understand anything at all about 401K, mutual funds, stocks, etc.... Do I need a financial advisor - I don't make a lot of $ as it is???

Thanks!!!

Ellen Hoffman: It sounds as if you do need help. If you don't want to pay a financial planner, here are some other ways to get it: Read some basic books about retirement planning issues. Take advantage of any workshops or briefings on this topic that your employer offers. Sign up for an "investing 101" or "retirement 101" course offered by a local community college. (Beware that courses and seminars offered by financial services companies do not provide objective advice. Their goal is really to sell you financial products.) In my book, I talk about the benefits of starting or joining an investment club. This can be an excellent learning experience, with little risk to your money. The National Association of Investors Corp., at www.better-investing.org (if I remember correctly) provides a structure for creating clubs, and materials you can use to learn how to study stocks, funds, etc. Through NAIC you can locate clubs in your area if you'd rather join than start one.

Michelle Singletary: Um and read my column the "Color of Money" each week :)

Sign up for the weekly newsletter I write each week.

Subscribe to a personal finance magazine. Read the biz section.

Seriously, the only way to stop being clueless is to read as much as you can when you can about personal finance. It never ceases to amaze me how folks who have to handle money (paying mortgage, buying lunch, buying gas, putting money in a retirment account, save, invest, spend) don't spend even 20 minutes a week reading about money. I may be bias but the business section of your local newspaper is the most important section in the paper. It is news you can really use. It's got news about stuff you can take action on.

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Denver Colorado: 40% of our retirement income will come from the Colorado state system. 40% will come from the military. 20% will come from Social Security. We'll receive a total of about $115,000 annually. We'll have a couple 100k in savings. We both plan to work at least part time after we retire. With both of us working our current income is about 140k. We're 58 years old. Are we in good/safe shape for retirement?

Ellen Hoffman: As long as you can count on that $115,000 annually, you should be in very good shape. The only reason you would not be, is if you want to continue to spend at your current rate, which is based on current income of $140,000. One big cluster of expenses to look at in this context centers on your housing--whether you will be paying a mortgage, how much it is, costs of upkeep on your home, and property taxes, which can be a nasty surprise when you retire.

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Washington, DC: My employer is thinking of getting rid of retiree medical coverage. If I retire at 65, how much will I need to cover medical expenses? I know I need to factor this into my planning but have no idea how much to estimate.

Ellen Hoffman: Because medical costs keep rising and are so volatile, there is not definitive answer to this question. But you can start by studying the Medicare website and publications (www.medicare.gov) to get an idea of expenses NOT covered by Medicare, that you would have to pay. Also, you might want to buy a "supplemental" Medicare policy, and you can also get information on those at the Medicare site. Beyond that, the issue is whether you do or might have serious, chronic problems that would require a lot of cash outlay. This is really one of the toughest retirement planning questions that we all face right now.

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Tampa, FL: I have an IRA account with Merrill Lynch, via a program that allows them to manage my portfolio using a profile I filled out with the help of my advisor. However, with this program, they get 2% of my profits. Since I am clueless when it comes to picking where to invest my money, is this a good deal, or are they ripping me off?

Ellen Hoffman: Is this 2% of your profits, or 2% of your portfolio? How is your portfolio doing? Are you happy with the results? THe best thing to do is to have a good, thorough conversation with your broker so that you understand what is behind his or her investment decisions. If you're not satisfied, consider searching for someone in whom you have more confidence.

Michelle Singletary: The questions Ellen asked are very important. There is a big difference between being charged 2 percent of profit vs.2 percent of your portfolio.

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Silver Spring, MD: My wife and I have a running argument, er, discussion about paying off the mortgage before we retire. She wants to pay it off thereby "freeing up" $1108/month. I say we're better off not giving the bank a bundle of cash and using the money for others purposes, including investments. She doesn't like debt but I think we can live with it in old age.

Ellen Hoffman: Many people want the comfort of knowing they won't have to pay a mortgage after retiring, but paying it off in advance is not always the best financial move. One reason is that you will lose the mortgage interest deduction on your income taxes--usually a big help. If you do plan to stay in your house throughout retirement, and you've attained a significant amount of equity in it, at age 62 you'd qualify for a reverse mortgage, which could produce an income stream to supplement other retirement income. Before paying off the mortgage, I would think very carefully about how you plan to spend the money--maybe adding it to your retirement accounts--and only do it if you are sure that it won't just disappear into short-term expenses like vacations or a new car.

Michelle Singletary: And might I add you are right to point out to your wife that if you pay off the mortgage you are giving your money to the bank. And if you get in a jam and need that money how are you going to get your hands on it? Two ways -- either sell or borrow. My plan is to be mortgage-free in retirement but while I'm in my 40s (yikes can't believe I'm in my 40s already -- anyway. Now that I'm in my 40s with three kids to put thu college we aren't worrying about paying OFF our mortgage. That extra money we would use to do that is going into the kid's college fund, extra retirment investments, emergency fund, etc.

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Laurel, Md.: Caveat: Michelle didn't pull the slip with my name out of her hat, so I haven't read the book. So maybe you answer this:

A lot of people intend to work part-time in their retirement. I'm in a field requiring good general technical skills and specific background expertise in our subject matter. Of course, there's always a bunch of kids coming into our office with more modern technical skills than mine.

Obviously, I'd prefer to do something in my field instead of working as a greeter at Wal-Mart. How far in advance do I need to be lining up my post-career employment, so my retirement job isn't unskilled minimum wage work?

Ellen Hoffman: More and more people are planning to work in "retirement," meaning at a minimum, that they will phase work time down over the years, or will work part-time as long as they are able. But age discrimination is a problem, and you are correct to be concerned. Without knowing how far you are from retirement, it's difficult to say when you'll need to "line up" a post-retirement job. But the best way to protect yourself is to make a concerted effort to stay current in your field. If your current employer will help you do this by sending you to training courses or offering tuition assistance, be sure to take advantage of the opportunity. Even if your employer does not have a specific program for doing this, you might ask for it, pointing out how beneficial your updated skills will be. If your employer won't pay the bills, make an effort to continue your education on your own by taking a night class or occasional workshop. In the longer run, if you do like your current employer, keep in mind that you might be able to continue working for the company, but in a more flexible, reduced-time position. When you start to make specific plans for post-retirement work, be sure to check into how the income will affect your Social Security and your taxes.

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Mitchellville, MD: What are your thoughts on the President's proposal with respect to Social Security? As someone who will be effected by these changes, should we be concerned, especially given the returns of the stock market over the past 5 years.

Ellen Hoffman: Although the President has discussed the concepts that he would like to see in Social Security legislation, he has not offered any specific legislative proposal and is leaving that up to Congress. (Hearings started this week in the Senate.) The stock market data you often hear (for example, "on average, the stock market returns 10 percent a year.") are based on a very long-term perspective of the returns. If you have all your retirement money in the market and happen to retire at a time when the market has not been doing well, you could face a serious financial problem. In addition, not everyone can get the average stock market return over several decades of working. If you do not invest wisely (a tremendous challenge), you could be one of those receiving a lower-than-average return. That's why I believe it is crucial to make sure that Social Security continues to serve as a basic safety net.

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Washington, D.C.: I am self-employed and, while it has been a struggle, I have a well-funded retirement account. Due to recent medical problems and huge bills I have to pay out-of-pocket, I find myself having to chose between funding my Roth IRA or my I-401K. I have chosen my Roth Ira figuring that interest rates will probably be higher when I retire than they are now. What do you think of this decision?

Ellen Hoffman: Not sure why you are funding a 401(k) if you are self-employed. But the issue between funding a Roth and a 401(k)-type plan (or a SEP, for self-employed people) is whether when you retire, you want to withdraw the money tax-free or have to pay income tax on it. The answer to this may depend on what other income you would have as a retired person. If, for example, you are lucky enough to have a pension, as well as funds from your 401(k), the Roth may be a better choice because it would tend to keep your taxes down.

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Washington, DC: With today's declining market, it's very disheartening to keep contributing the maximum to a 401K and watch declining values. Does it make sense to keep putting money into the market now ?

Ellen Hoffman: You need to study carefully the investment options in your 401(k), and make sure that you have chosen one(s)that are best for you at this time. That means options that are both performing well currently and have a good track record. As long as you have the opportunity to contribute to a 401(k) --and hopefully to get a match--you cannot afford NOT to do it. At the very least, your savings need to keep up with inflation in the years between now and your retirement.

Michelle Singletary: And remember if you are getting a match that's free money and an automatic return (with no risk) on your money!

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Washington, DC: I reviewed the first edition of this informative book. If there ever is a "registry" for pre-retirement gifts similar to those for new babies and weddings, this guide must be included!

I have given my 50-plus, pre-retirement Baby Boomer friends The Retirement Catch-Up Guide as a birthday present as a gift that keeps on giving. It will help people plan for and enjoy what can be the more rewarding life stage.

Don

Ellen Hoffman: I just want chatters to know that this message is not a plant. Thank you!

Michelle Singletary: Nope, not a plant. It's a good book with some good basic information.

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Fort Washington, Maryland: Good Afternoon,

I am getting married and my fiance and I have talked continually about retirement. While we both have our deferred comp. plan (offered by the municipality where we work), as well as the state retirement and our individual savings account, I cannot help but feel that we are not doing enough. Would it be better to contribute less to a savings account and put that money elsewhere? If so, could you suggest some options? Thanks for the advice. WE appreciate it.

Ellen Hoffman: If you are really contributing to a savings account on a regular basis,and you have an emergency fund, I'd recommend putting more into your retirement accounts.The savings account gives you virtually no return and will decline in value with inflation.

Michelle Singletary: Just a caveat. Don't forget to save at least 3 to 6 months of living expenses and that money should not be invested. That's your safety money, which means you will have to live with a puny interest rate. But all other funds you could take more risk with. In addition, if you think you might want kids don't forget to start saving for their needs/college right away.

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Alexandria, VA: Is there anything else I should be doing? I am 35, married with a 3 year old child. We make a total of about $100,000 per year. I have $60,000 in a 401K which I max out every year and invest pretty aggressively; $30,000 in I bonds; $30,000 in IRA's (husband and I max out every year); $20,000 in the bank (the "just in case" funds); and $60,000 in a taxable investment account to which I contribute $500 per month. We also have $15,000 in the college fund for the kid to which $5000 (thanks to my parents) is contributed every year. Looking at this, it looks like I'm doing pretty well, but I always have this sinking feeling that I could do more. Can I do more?

Ellen Hoffman: You are making substantial contributions as it is. If you don't own a house and you do have extra disposable income, you should consider buying one, both for the tax benefit and the potential appreciation.

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Washington, Dc: Thanks for chatting, there have been recent books that indicated that the old chestnut of having $2 million in the bank when you retire is not needed and is a pipedream, since a large majority leave with only $25000 in assets excluding real estate. How do you come down on this? How much do you need in the bank before you leave a job?

Ellen Hoffman: You are the only person who knows how much money you want and need to live on in retirement. The first step to figuring this out is making the most complete estimate you can of what your retiremnet expenses will be. In my book, there are sections on how to "create a retirement vision" and then create a budget that will pay for it. Key steps are making lists of your current expenses, and then predicting how those might change when you retire. For example, commuting or other work-related expenses may disappear, but you may want to travel more or have a second home. Once you've done this exercise, you'll be in a much better position to estimate how much is necessary to fund your retirement, and then commit to some savings and investment strategies that will get you to your goal.

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Del Ray, Va.: Much of the appeal of IRAs, TSP, and other similar pre- tax savings instruments is based on the assumption that you will be paying taxes at a lower rate at the time of withdrawal. In light of the ever ballooning deficit and the distinct possibility of increased future funding needs, how valid is that assumption?

Ellen Hoffman: Unfortunately, it's really not possible to predict tax changes over decades because they are determined by a constantly changing political environment. However, I do think that unless you plan to continue part-time work at a pretty high salary, chances are that both your income and your income taxes will be lower when you officially retire from your main careeer or job.

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Memphis, TN: I was 60 years old on Saturday and was fired without cause from my job as a Senior VP at an international corporation; am in negotiations re my settlement. My retirement plan included 3 more years of 401k and IRA savings; needless to say, my chances of employment at this level again are slim. Please address situations like mine where we need to start drawing on a 401k in advance of when planned. Seems to me all the talk re the new retirement....working during retirement, working longer before retirement, etc....does not address the very real fact that many people are not allowed to work as long as they like at their primary jobs.

Ellen Hoffman: Although finding a new job at your age can be difficult, you should not assume that it's impossible--especially if you need the income and need to save more for retirement. Take a look at www.careeronestop.org for some information that may be helpful in job-hunting. The good news about drawing on your 401(k) at this age is that you're beyond the penalty cut-off of 59 1/2, so you will not have to pay a 10 percent penalty. The bad news, of course, is that the money will have to last longer than you'd assumed. If you have not done it, this is the time to get some good professional advice about how make your savings last throughout the retirement years you anticipate. This should include assumptions about future yields on your investments, the amount of money you will withdraw on a regular basis to pay living expenses, and some informed guesses (based on family history, health status, etc.) about your longevity.

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Washington, D.C.: I am 27 years old and my parents are 53 and 55. I am very concerned that they really have not saved anything for their retirement. there has been strong evidence that i have seen of this. even though they do not discuss the details with me. because after all i am still the kid to them. but in the next 10-15 years the kid may have to financially support them. do you have any solid advise for the boomers children. they plan on working until they are 65-70 or more but I am thinking what if they can not work this long.

Ellen Hoffman: I've talked with a number of people in your age bracket who express similar worries. Assuming that you are working and saving for your own retirement, that could be an entree to a conversation. You could talk about what you are doing and why, and segue into some questions about how their own plans are going.

Michelle Singletary: I would really encourage you to be up front with your parents and share your concerns. Maybe they will talk to you about it all. Maybe not. But right now you don't know for sure. So talk. And read. I wrote a column on March 18, 2004 on this topic: "Prepare Now to Help Mom and Dad With Finances." Check it out.

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Bowie, md: I am 56 yrs old, and a retired Federal employee (old CSRS Retirement System), receiving $4300/mo in retirement annuity, have $80 in an annuity that was rolled over from my Thrift Savings Plan, and will also draw military retirement at age 60 and have eligible social security quarters, and lastly have $40k in an IRA. Should I be planning any other options for my retirement financially?

Ellen Hoffman: It sounds as if you have a nice monthly cushion to count on for your retirement. The only issue is whether you want a retiremnet lifestyle that will cost you more. I am writing a series of three columns on retirement planning for my Business Week Online column. If you go to www.businessweek.com and type my name into the search box, you'll find the last two columns address the issue of estimating the costs of your retirement, and creating a plan to assure that you can pay these costs.

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Silver Spring, MD: Hello, we are a 55 year old couple. We participate in a 401K for self employed and we are lucky enough to be able to also take advantage of the "catch-up" contribution.

We have been funding an S and P Index fund but as things keep getting more worrisome we wonder if we should start to put the money elsewhere. We hope to retire in 5 years and live well within our means but still will look for both safety and appreciation in our retirement funds. what do you think? thank you

Ellen Hoffman: I hope that you do not have all your money in one fund. You should always diversify your investments. I'm not an investment advisor, but you should consider either enrolling in some basic investment classes--you could probably find some at a local community college--or seeing a financial professional who can offer guidance on a range of options that will meet your needs.

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Montgomery Co, MD: My husband I are among those people who aren't doing a lot extra for retirement. Do you think we should? He is a federal employee, so does the federal retirement program plus the Thrift Savings Plan. I have several 403b's from various jobs. We have no credit card debt, only a car payment and mortgage (which adds up to plenty!) and some day will have to put 3 kids through college. We just don't have extra $$ for retirement (IRA etc.) right now, and don't you think it makes best financial sense to save for college or pay off our car before doing extra for retirement?

Ellen Hoffman: You didn't say if you are actually putting savings into college funds. I would put some money toward the car pay-off, because you will probably end up needing to buy another car in a few years, and some toward retirement. You need the benefits of long-term compounding for your retirement and most financial experts will say that there are other ways to get support for the children's college expenses.

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Falls Church, VA: RE: paying off mortgage

As for the "tax advantage" of having a mortgage, remember that only the interest is deductible, and that most of the payments for the first 10-15 years go to interest, not principle. So the longer you keep the mortgage, the less tax break you get.

Michelle Singletary: Good point.

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Durham, NC: My husband and I are 45, with two children (11 and 6). A financial planner recently advised us to concentrate on boosting our retirement savings, but NOT to contribute to college savings accounts for the kids. The reasoning was that there are many ways to finance a college education, but no one else is going to contribute to our retirement. One other detail -- because of my husband's university job, we will have 75 per cent of the tuition covered (a perk of his package). Thoughts?

Ellen Hoffman: I think you received good advice. Financial planners tell me over and over that one of the biggest mistakes people make is putting all of their savings into college funds and none into retirement. With 75% of tuition for your kids already covered, this sounds like especially apt advice for you.

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Washington, DC: Dear Michelle and Ellen:

I am a 30-year old single person looking to purchase a home in the next 2-3 years. I currently max out my 401K; however, I do not contribute to an IRA. My rationale is that because my income is too high to qualify for a Roth IRA, a traditional IRA just isn't worth the fees, the risk, or the hassle for money I'll want to use in the short-term. Am I missing out on something here? I'd love to have your expert opinion. Thanks so much.

Ellen Hoffman: If your question is whether to save the money to buy a home, or put the additional funds into an IRA now, my recommendation would be to save to buy the home. The real estate will offer immediate tax benefits (mortgage interest deduction) and will, in effect, be a diversification of your assets. If you choose well, the house will appreciate and help you stay in the housing market, or take the profit at some point. While you are saving up for a down payment, though, put that money into something that is liquid and will provide a better return than a savings account--perhaps short-term CD's.

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Manassas, VA: In retirement is it better to leave your money in TSP or take a lump sum Roll over to an IRA? My financial advisor claims he could do much better than the TSP in terms of growth. I know the TSP has some of the lowest management fees when compared to typical mutual funds. I don't need the money right away and would be happy with a 6% yield. Your thoughts?

Ellen Hoffman: Generally, rolling a lump sum into an IRA gives you much more flexibility in managing and investing the money. However, with baby boomers on the verge of retiring, the financial services industry is doing heavy marketing to convince people to turn all their retirement savings over to a professional. If you are comfortable and feel experienced enough to do it, you can roll the money into an IRA and manage it yourself, for exampe, using a discount broker. Using a professional advisor can potentially add another layer of fees to your expenses, so mke sure that you are very satisified with the one you have, and that ou are aware of all the fees and commissions that would be charged by your financial advisor. Would the advisor be managing the money for you and charging a percentage of your assets? Or charging commissions for buying and selling? If it's the latter, "churning" or buying and selling your investments could create big bills for you.

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Oakton, VA: I'm submitting early as I can't be hear for the live discussion. I hope you will answer this question:

I am married and stay at home with my son. My husband has three retirement resources, his pension, a Roth IRA and a mutual fund. I have a 401k from a previous job that I haven't done anything with since I quit that job two years ago. Its worth about 10k right now. I have a credit card with a $6k balance and I'd really like to get it paid off. Most of it is from before we were married. My husband wants me to use my 401k money to pay it off. Am I allowed to draw from my 401k for this? If so, what are the taxes and penalties for doing this?

Since we're on one income this is a monkey on our backs that we'd like to get rid of.

Thanks!

Ellen Hoffman: If you take money out of your 401(k) for this purpose, you will have to pay a 10% penalty plus income tax on it. Even worse, you'll lose the benefits of having that money compound from now until you retire. A better alternative would be to budget payments on that credit card debt from your monthly family income. If the finance charge is a very high rate, try to transfer it to a card with a better rate.

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Fairfax VA: I've become a bit paranoid about how much I need to have saved in order to retire comfortably. I'm 50, it's just my husband and myself (no kids). He's already retired and collecting a Federal pension of about $40,000/yr plus health care coverage. Collectively, we have about $800,000 in savings (invested in balanced portfolios), about $160,000 in mortgage expense and two investment properties (no mortgages). No credit card expense, and for now, no car payments. I spend between $1200 and $1500 per month on entertainment, which I want to continue doing when I retire. I'd like to retire in 2 years, and will consider working part time to support my "entertainment habit". Do you think it's "doable"?

Ellen Hoffman: Answers to these questions are very personal, and they depend on the type of retirement lifestyle you want, how much it costs, and your best estimate of how many years you will be living in retirement. You've got a good start by knowing the figures in your query. Now you need to figure out what the COSTS of your retirement will be and compare them with your potential income and assets.

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NY, NY: Lesson Learned -- Don't think that you'll have income from your employer's pension plan until you are vested in the plan. My employer recently sold my business unit and after four years, ten months and two weeks of service, I have no pension benefit to show for that time. I regret that I didn't save more over the past four years; I had no idea the company could do this to me.

Ellen Hoffman: I'm sorry you had to learn this the hard way. The lesson here is that whenever you take a job, you should make sure you fully understand all of the benefits and what you need to do to qualify for them. It is easy to assume that employer benefits are sacred, but the law allows for situations such as this. In general, the terms for employee retirement and health plans are spelled out in documents your employer is required to give you when you start your job. For other chat participants: If you don't have these any more, or don't understand the jargon, ask someone in human resources to explain the terms to you.

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University Park, Maryland: What do you do to minimize your tax burden, once you've retired, your house is paid off, you don't have anymore dependants to claim because your children are adults, and you're collecting your retirement benefits which you're required to pay taxes on (some)?

Ellen Hoffman: If you have or want to have any type of home-based business--consulting or turning your needlework or sculpture into a business--this could produce quite a lot of deductions. Charitable donations are another option, but you should be sure that the money is being used well by the groups you support this way. (There are Internet sources on how various charities use their money.) If you have a considerable amount of income and are not spending it every month, the answer may be to put some of it into tax-favored investments. If you're not familiar with these, consult an investment advisor.

Michelle Singletary: You might also consider consulting a tax expert.

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Washington, DC: I retired from the federal government under early retirement (not a buy-out) with 26 yrs of service, and now receive a reduced annuity (the penalty for being many years under age 55). Should I seek re-instatement with the federal government or continue working for a non-profit organization for a second retirement? Which probably best considering earned annuity and now earning social security for the first time in my life? I am 50 years old.

Ellen Hoffman: Assuming that you definitely want to work,the big question is what type of job and work environment you want to have. Then look for a post that will also offer you the best retirement benefits. Not sure why you are receiving Social Security. Unless you have a special situation, you wouldn't be eligible until 62.

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Michelle Singletary: Well people that's it for today. Thanks to all who submitted questions. And I'm so sorry if we didn't get to your question. Nonetheless thanks for joining me today and come back in two weeks!

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