One boomer finds her retirement outlook isn't gloomy after all

Retirement was a scary concept for Linda Finn . Over the years, she says, news stories had made it clear that people don't save enough for retirement, that Social Security is expected to go broke, and that some baby boomers may never be able to afford to stop working.

With every new headline, Finn worried that she might be one of those retirees destined to outlive their resources. Fearful that she could end up penniless and homeless, Finn, 47, applied for a Boston Globe Money Makeover, saying she needed professional help to get her retirement savings on track.

"I don't even know how to approach it," she said. "I don't know what to look at."

So she was both surprised and delighted when fee-only financial adviser Barbara C. Nevils of Nevils Financial LLC , Lynnfield, told her that she had not only done a good job of saving, but that she was headed toward a comfortable retirement.

"I'm so relieved," Finn told Nevils when the adviser delivered the news and then outlined a half-dozen strategies for improving Finn's retirement outlook.

Like many people, Finn had a string of retirement plans from past employers, making it hard to come up with a coordinated investment strategy. Finn, who trains technicians to run radiation-therapy devices, didn't know how to figure out how long her nest egg might last or what options she had for boosting her retirement savings. Simply consolidating her old retirement plans into a single rollover IRA had proved daunting. "They say it's easy, but it isn't," she said, citing paperwork problems that developed when she tackled the task online.

So Nevils walked her through the basics. Yes, Nevils said, Finn should consolidate all her old 401(k) plans, taking her most recent statements to an investment company like Fidelity or Vanguard so that they can help with the paperwork.

"Consolidating will help you keep better track of your investments and will help reduce or eliminate fees," Nevils told her.

Once the accounts are consolidated, she said, Finn should craft an investment portfolio designed for her needs. Currently about 37 percent of Finn's $185,000 retirement portfolio is invested in a targeted lifecycle fund designed for someone retiring in the year 2020.

"Lifecycle funds are wonderful for small accounts of $25,000 to $40,000," said Nevils. But since Finn now has enough money to create her own asset mix, she should take a more active role, the adviser said.

Nevils recommended using low-cost investments -- either index mutual funds or exchange-traded funds -- to create a portfolio with 40 percent in fixed-income investments such as bonds, cash, and CDs, and 60 percent in equities spread across diverse market sectors such as large cap growth and value, small cap, international, emerging markets, and real estate.

"With a little wealth comes a little responsibility," she said. "You set up an allocation, and let the markets work for you."

While looking for ways to boost retirement savings, Nevils's review of Finn's taxes produced some interesting results. She found that a few basic tax changes would actually allow Finn to double her current 401(k) contributions.

The Salem resident has been paying about $12,600 in taxes annually but has been withholding about $17,000. That means she's been getting more than $4,000 back from Uncle Sam in the form of a tax refund. By simply increasing her deductions to five, Finn could free up enough cash to boost her 401(k) contributions to 10 percent of her salary and still increase her weekly take-home pay.

"That's startling," Finn said after Nevils laid out the numbers.

Even more surprising, Finn said, were the retirement projections designed to find out if she would run out of money in her lifetime. Once she maximized her 401(k) contributions, the resulting numbers showed that even if Social Security benefits are cut in half, she'd have $1.6 million in assets at the age of 97.

The projections assume a 3.5 percent annual rate of inflation and an annual 7 percent return on investments. "And I thought I didn't have enough money," a smiling Finn said.

The projections don't include Finn's $390,000 Salem home. "People need to live somewhere," Nevils said, noting that this asset could provide an additional cushion in future years.

Because Finn has only about $4,000 of cash in the bank, Nevils recommended building an emergency fund to cover problems like a broken oil burner or unexpected car repairs. That fund, she said, should have enough cash to cover three to six months of living expenses.

"You could jump start it with your 2006 tax refund," Nevils suggested, estimating that the fund should eventually have $15,000 to $30,000 of readily available cash.

Even before she met with Nevils, Finn had cleaned up $25,000 of credit card debt. By taking out a second mortgage on her Salem home, she traded 18 percent credit card debt for a tax-deductible 6.5 percent.

Nevils suggested that Finn use her annual bonuses to pay down that mortgage as quickly as possible. Finn, who says the credit card debt resulted from a string of "stupid" purchases, plans to take a closer look at her expenses so that she has a better understanding of how she spends her money. "After all," she asked, "how many pairs of black shoes do you need?"