Autumn finances.

People close retirement need more sophisticated planning

WHEN NEW CLIENTS COME TO SEE DWAYNE GRADY, a financial planner with American Express Financial Advisors in Wilmington, Delaware, many of them expect him to start by soliciting detailed data about their assets, liabilities and investment history.

Instead, Grady often asks them to write their own obituaries. Only in this case, the obituary is something akin to a financial autobiography.

"I tell them to think about how they want things to end up," Grady says. "When they do that, they kind of get a feel for what they really want to accomplish in life."

One man wanted his obituary to say, "I left a legacy for my grandchildren." Others have written: "I traveled extensively," or "I volunteered to help others." Whatever the obit proclaims, however, the process of writing out such a document inevitably helps the client focus on achieving certain financial objectives, Grady says.

Among Americans of all ages, perhaps no other group of people is more concerned with reaching its financial goals than people in their 50s.

Unlike people in their 30s and 40s, who can--and often do--put off serious retirement planning, the writing is on the wall for those 50 and older, as they are just on the cusp of retirement. Fortunately, more and more people in this age bracket are realizing their peril.

It seems like almost every other day we hear about how Americans aren't saving enough, how medical advances are helping people live longer in retirement than any previous generation and how most individuals aren't counting on Social Security to provide a safety net during their golden years.

Then there's the Wall Street boom that has created a new breed of millionaires and helped a whole generation of Americans retire early because they've cashed in their stock options. Many in the 50-plus age category would love to say good-bye to corporate America before the age of 65.

HAVING THE OPTION TO RETIRE EARLY

Barbara Cassel is an early retiree of sorts. Instead of taking advantage of the latest Internet IPO, she checked out of the workforce early the old fashioned way: in addition to putting in more than 25 years at the University of Pennsylvania, located in Philadelphia, she also invested for the long term.

When she officially retired from Penn on December 1,1998, Cassel, 57, was associate vice provost for university life and was earning close to a six-figure salary. She then stayed on as a consultant until June 30.

The job was extremely demanding. She managed several departments and oversaw the university's crisis-response efforts, answering the needs of the campus and the community whenever there was a major incident, such as an assault or the death of a student. As a result, she was "on call 24 hours a day, seven days a week," she says.

Now Cassel lives in Pompano Beach, Florida, and enjoys things she only dreamed about while she was working: biking and playing tennis, reading and spending time with her husband, who retired recently from his job as a federal court employee.

"Retirement is wonderful," says Cassel. "It's great to be able to relax and not have to jump every time the phone rings."

Cassel, who also relishes her five-mile walks each morning, didn't retire early by accident. She decided in her mid-40s to invest specifically for that goal. And she sought out advice from people who could help her achieve that dream. Nonetheless, Cassel plans to return to work part time perhaps as a parent or student counselor in the Broward County, Florida, school district or the local community college system.

"I don't consider myself fully retired," she says, "because I still feel I have a lot to give."

WORKING PAST AGE 65

Unfortunately not everyone will have Cassel's option of choosing whether to work. In fact, for a growing number of Americans, retirement will seem a lot like their working days.

Why? Because experts say an increasing percentage of Americans will be doing exactly that: working past age 65 in order to supplement their incomes.

"A lot of times that's somewhat heartbreaking for people," says Grady, noting that as a financial planner, "the worst thing you can do is crush someone's dreams," about how their retirement will turn out. "But the best thing a planner can do is give a client a reality check," he adds.

Lucille Darrell, 55, is one such individual who plans to work part time to bring in extra income during retirement.

Darrell earns a modest salary as a bookkeeper for the ASPCA (American Society for the Prevention of Cruelty to Animals) in Los Angeles. She only began saving for retirement at the beginning of 1998 and has since amassed about $6,000, including contributions from her employer.

Every pay period she puts $92.31 into her 401(k) plan and her employer throws in another $56.94. At this rate, she knows she won't have nearly enough money on which to retire comfortably. And with just a decade to go before she turns 65, Darrell also knows she'll have to remain in the workforce beyond the typical age of retirement. "I plan to work as long as I can," she says. "If I can work until 70, I will--God willing."

One of Darrell's biggest concerns is being saddled with high medical bills in retirement. While she does have life insurance, she'd like to be able to purchase long-term healthcare insurance. But she simply can't afford the rates she's been quoted, which adds to her worries about possibly being ill later in life. "Right now, I'm in good health. But you never know," she says.

Because she's in such a precarious financial position, Darrell says she doesn't even like to think about retirement. "I'm not stick-hag my head in the sand," she says. "But all I can do is put money away and look for openings in the stock market so I can buy some shares in something."

That's a risky strategy, most experts agree. Instead, the pros say investors are much better off owning mutual funds--even aggressive growth stock funds, which offer more diversification than individual stocks.

On the flip side, however, many financial planners say one of the hardest things about advising clients in their 50s is getting them to take on more risk to achieve their financial goals. "The biggest risk is running out of money," Grady, the American Express financial planner, says, "because inflation and taxes are the biggest killers of our assets."

Darrell knows a single bet on one stock would be highly risky. But she can't help but feel the need to play some serious catch-up. "I wish I would've started saving earlier," she admits. "But I guess it's better late than never."

When it comes to investing in stocks, financial planners say that people in their 50s and 60s should stick with well-known, blue-chips like General Electric (NYSE: GE), AT&T (NYSE: T), and IBM (NYSE: IBM). Experts also suggest people in their 50s buy bonds. You can purchase bond mutual funds to spread around your risk, funds like Montgomery Short-Duration Bond (Nasdaq: MNSGX), Strong Short-Term Municipal Bond (Nasdaq: STSMX), and Dupree Intermediate Government Bond (Nasdaq: DPIGX). Some financial gurus recommend tax-exempt funds, for example (see "In This Corner," this issue).

ADVICE FOR THOSE OVER 50

Vernon Lee, a financial planner and principal at Lee Investment Consulting in Raleigh, North Carolina, says it's actually not uncommon for people in their 50s who are contemplating retirement to still be struggling with making ends meet.

"Most of our clients are at the stage where they're having some cash-flow concerns," he says. Lee counsels individuals on everything from cash-flow management to estate and tax planning. According to Lee, one pitfall is that people often deceive themselves into thinking they're in a better financial position than they really are.

"They may have $500,000 of assets, but what's more important is the composition of those assets--90% may be tied up in their home," Lee says. It's important for pre-retirees to have a fairly balanced amount of liquid assets, the planner says. An emergency fund is a must-have, he says. It should contain anywhere from three to six months' worth of living expenses. "I recommend a tax-exempt money market mutual fund," he says.

When looking at a person's risk-management profile, Lee also likes to make sure that 50-somethings are properly insured. He says those who are single with no dependents, or two-wage-earner couples with no kids, don't necessarily need life insurance.

But the one product people tend to forget, he says, is disability insurance. "Even if you have an investment portfolio, if you're disabled, that can wipe out your savings pretty quickly," Lee says. He adds that entrepreneurs, small business owners and independent contractors, in particular, need to have disability insurance, a realm he calls "one of the more neglected areas" of financial planning.

Because individuals in their 50s have a relatively short time before retirement, now is definitely the time, if you haven't already done so, to map out a detailed retirement plan.

Lee says you should have a good idea of what kind of lifestyle you'd like to enjoy in retirement. Will you take numerous vacations? Will you stay in your present home, or trade down to a smaller property?

People age 50 and older also need to consider how their expenses will change. You can expect work-related expenses--commuting, professional clothes, etc.--to drop. However, travel and entertainment expenses will rise considerably, as will healthcare costs.

The general rule of thumb is that retirees need about 80% of their pre-retirement income to live at a level to which they've grown accustomed.

Finally, people in their 50s should also be certain to have a durable power of attorney and a living will. It's important to review your will annually, both to check for mistakes that may have been made in any codicil, or change, and to make sure that it remains up to date in terms of beneficiaries listed and other matters that express your final wishes.

With some smart planning you can retire in comfort and with peace of mind. So don't leave it to chance and just hope that everything will work out. Establish firm financial goals, then work to achieve them. "I've never met anyone who was on track to meet their goals if they haven't done some kind of financial planning," Grady asserts. Saving money for retirement, or any other goal, "is just like taking a vacation: you don't just jump in the car and start driving south. But with saving, most people don't have an end in mind," Grady adds.

Cassel, the early retiree in Florida, agrees that it's crucial to set your goals--and the sooner, the better. "Young people don't think of retirement," she says. "But it's never too early and you're never too young to start planning."

to-do-list

Prepare for retirement by moving some of your assets into less risky investments

Review your financial plan and determine if you have enough money for retirement

Make sure you have adequate insurance, such as disability and medical

asset allocation -- 50s & 60s

Female * married * 57 * early retiree * former provost * lived in Philadelphia * now retired in Pompano Beach, Florida

She is still relatively young. At her age she could spend more years in retirement than she worked. She still needs a significant growth component in her portfolio. An investment of 60% bonds would also provide supplemental income if it is desired. Forty percent should be strategically invested in stocks. Large cap stocks like GE, AT&T and IBM are worth investing in.

SOURCE: MARK SPRADLEY, LEGG MASON WOOD WALKER

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