Enjoy a low-cost retirement

By U.S. News & World Report

Having spent much of his career helping others with their finances, Don Peterson knew the importance of saving as much as possible before retiring. But when the stockbroker left the work force in 1988, he realized that retirement wasn't just about money.

In his case, Peterson, now 82, retired a bit sooner than he had planned -- and with less money in the bank.

But that was partly due to bad timing. Shortly after a few of his investments went bad in the 1987 market crash, his wife, Bobbie, decided it was time to retire from her career as a hospital laboratory administrator. Soon after that, one of the couple's daughters asked them to move from Eau Claire, Wis., to Nashville, Tenn., to be closer to her and the grandchildren.

So even though the Petersons had less than $100,000 in their accounts and just one pension between them -- hers, which paid out only around $500 a month -- they quit their 9-to-5 lives and shuffled off to Music City.

Their challenge was one that millions of older Americans are faced with every day: finding a way to lead a comfortable and, yes, happy retirement with only a modest nest egg.

For the vast majority of today's older workers, this is the reality of retiring in America. While financial planners and retirement experts debate how many millions of dollars families should save -- and how to invest that money to make it last -- most households are retiring on meager sums. Nearly two-thirds of workers 55 and older have less than $100,000 saved for their golden years, according to a recent study by the Employee Benefit Research Institute. And 56% of those workers who are already retired have less than $50,000 to last them for the rest of their lives.

Learning to cut back

Yet somehow, "people often find a way to get by," says Gayle Oboy, a financial planner in Marion, Ohio, who works with many middle- and working-class clients. "They adjust. They find ways to cut back but still be content."

In fact, studies show that more than 60% of seniors find retirement "very satisfying." Most say retirement is more satisfying than their working careers were.

Sometimes, it does take a bit of creativity. The Petersons, for instance, leveraged two assets they had -- time and a love of animals -- and started a pet-sitting business after "retiring" to Nashville. It wasn't a glamorous job -- "my wife jokingly says I have a Ph.D. in cat litter," Don Peterson says.

But the modest income they derived from dog- and cat-sitting "made all the difference in the world," he says. "It helped pay for the groceries and helped cover property taxes." It also gave the couple the freedom to retire on their own terms.

Those who don't want to or can't work during retirement are starting to take advantage of another asset: their homes. Thanks to the run-up in home values during this decade, some retirees are starting to downsize to cheaper digs and using the remainder of their home equity to finance retirement, says Jean Setzfand, the director of financial security for AARP, the nation's largest advocacy group for older Americans.

Others are choosing to relocate to less expensive parts of the country, which is what the Petersons did. "It's an insurance policy of sorts," Setzfand says.

What's more, a small but growing number of seniors are opting to supplement their retirement income through so-called reverse mortgages. By taking out this type of loan, you can receive a certain amount of your home equity in a lump sum, a line of credit or monthly annuity payments for life -- while still living in your home. And you don't have to repay the loan so long as you live in that house.

The catch is, when you die or move, the proceeds of the home sale will be used to repay the mortgage. And you have to be at least 62 and own a single-family residence to qualify for a government-insured reverse mortgage.

Because this involves the eventual sale of your home, Setzfand says, this strategy shouldn't be taken lightly. And keep in mind that like an annuity, the terms of the reverse mortgage will improve the longer you wait to take one out.

Of course, the simplest solution for some retirees is to find ways to limit spending --without sacrificing their retirement experience.

Take Gary Hutson. After retiring in 2001 following two decades as a railroad union leader, the 65-year-old now spends his time in far less stressful circumstances. Hutson and his wife, Kathy, are both artists in Spokane, Wash., and they use their free time -- and the serene backdrop of eastern Washington -- to paint wildlife scenes, carve wooden and metal sculptures, and do beadwork.

When the Hutsons aren't creating artwork, they find plenty of other low-cost activities. For example, "we love garage sale-ing," says Kathy. And they also take frequent trips to a cabin they inherited on a lake 45 miles away.

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