Dear Mr. Berko:

We just finished putting our third child through college, and we were able to pay all their costs. Two of them still live at home, because they can’t find the right jobs, and our third is in the Peace Corps overseas. We had to take out a new mortgage on our home, got help from our parents, borrowed 70 percent of our 401(k) and got a loan from the credit union to do it.

I’m 52, earn about $90,000 a year and now can save about $15,000 a year for retirement. Including my future Social Security payments, I think we need about $90,000 a year when we retire at age 67 in 2022. Would you please advise me how I can invest $20,000 a year so I can retire without too much worry?

H.B., Springfield, Ill.

Dear H.B.:

I am profoundly disappointed in you and your children.

Gary Selnow, professor of business analysis at San Francisco State University, tells us that 70 percent of American workers “have not even calculated their financial needs for retirement, half have made only negligible contributions to their retirement funds and fully 20 percent have saved nothing for their later years.” Lovely! Americans don’t care enough until it’s too late, then they blame “the system” for their financial failures.

David Darst, head of Morgan Stanley’s Individual Investment Group, writes that most American workers are ill-prepared to retire in the coming 20 to 30 years. “Forget the stock market,” he says. “After 20 years of better-than-average returns, we are now facing mediocre to mundane returns.” Christine Fahlund, market analyst at T. Rowe Price, believes that savings accounts and certificates of deposit are a safer and better choice than the stock market.

Some 50 percent of today’s Baby Boomers have less than $25,000 in retirement savings, 70 percent have less than $100,000 and only 10 percent have more than $250,000 in assets. The majority of Boomers will be making monthly mortgage payments into their 70s and 80s. When they fail in retirement, the burden of their failures will be the responsibility of those who have saved for a rainy day.

We can see some of the fallout now. Medicare costs for some Americans will increase fivefold by 2011. Congress is considering a means test to qualify for Social Security, plus a 12.4 percent Social Security tax on dividends, interest, pension and annuity income, and a 2.9 percent Medicare tax on the same unearned income.

Many workers who are in their 20s, 30s and 40s today might never receive a farthing or pfennig of their Social Security contributions. Did you know that Congress distributes 41 percent of our current Social Security taxes to undocumented immigrants, maternal and child welfare programs, disability benefits, employment services, transportation grants, job training and hundreds of other programs that don’t have diddly to do with retirement income benefits? The U.S. Department of Health and Human Services has adopted Social Security as the bank of choice for welfare programs.

I’m sorry to tell you that unless you win the lottery or get elected to Congress, you can’t accumulate enough money to retire. You’ve gotta save about $75,000 a year (after taxes) invested at 5 percent for 15 years to accumulate $1.5 million, which would generate about $90,000 in retirement income when you’re 67. It just ain’t going to happen, and Social Security isn’t going to give you much help.

My advice: Expect to work until you are in your mid-70s and get yourself a second job right now. Bank every penny you receive from your second job. Insist that your spouse find full-time employment and bank everything she makes.

Kick your kids out of your home and demand that they return some of their college costs to you. Invest all of this money, including the $15,000 annually from your present employment, evenly among four no-load mutual funds I’ve frequently recommended: Bruce Fund, Muhlenkamp Fund, Stratton Small-Cap Value Fund and Third Avenue Fund. Buy 10 lottery tickets every week and find a small fishing village in Patagonia where you can retire if you don’t win the lottery in the next 20 years.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

© Copley News Service