Q: I'm a 46-year-old single woman earning $34,000 a year. Sometimes I feel so anxious about having enough to retire on that it takes away from my enjoyment of life. I have $30,000 in mutual funds and IRAs (but no pension), and no debt apart from my mortgage, which will be paid off in about eight years. I've been unemployed twice due to layoffs, so I'd like to have access to my money. Assuming I can work for quite some time, roughly how much do I need to save? I live simply but don't want to end up eating cat food.
A: While I understand your concern, I have to say that you're doing an impressive job considering your relatively modest salary. Many women making twice as much as you are saddled with debt and a huge mortgage they'll be paying down well into retirement. Give yourself credit for being so good with your money.
The best news here is that you'll finish off your mortgage in your early 50s. That means you don't need to save nearly as much as someone who anticipates having to keep making mortgage payments after she stops working. In Making Retirement a Reality , I give advice on how to save enough money to live comfortably as you get older.
Once you pay off the house, I want you to keep making monthly payments—to yourself. Invest that same amount in a Roth IRA. If you follow a few simple rules, you'll be able to withdraw all the money in retirement without paying a penny of tax. When you reach the annual maximum contribution for the Roth, build up an emergency cash reserve. The more you put away, the better.
Because you've been so house smart, once you turn 62 you will be eligible for a reverse mortgage: If you find your own retirement savings aren't enough, a reverse mortgage allows a lender to pay you income (in a lump sum, a monthly advance, a line of credit, or a combination of all three) based on the value of your home. There's no risk of losing the property. I hope that hearing all this will help you enjoy your life more fully today.