Thank you all for your wonderful responses. I took a weeks vacation and then was off week with the ice storm ( I had some vacation to burn) and found myself having trouble staying focused on anything that I started. I guess that scared me because I am usually goal orientated. I would catch myself starting something and then go into another room and start something else without even giving any thought as to what I had been doing. Yikes! what an awful feeling! DH keeps saying, it well take awhile too adjust to not having a deadline on finishing what you started (he had to retire do to health issues some 10years ago). I just feel so anxious for some reason. I am in good health as far as I know and maybe when spring arrives and everything starts popping up in the flower gardens I will feel better about all this. Right now I feel kinda at loose ends, and I haven't even retired yet!! Still have one more week and two days to go. Thanks all of you for listening to me whine and I will give all your suggestions a good deal of thought !! Love you guys. Ellen

I agree with everyone so far - ramp up your savings, lower your spending, and do extra payments on the mortgage debt. Please don't take money out of your IRA to pay your mortgage off. At your tax rate, that's really robbing Peter to pay Paul. You have a good start on your investment account. Think of it as you've got half and your spouse has half. You mention your pension, what does your spouse have? We don't need to know, you just need to think about this. Half a million $$ on a 4% draw-down - which is generous, most advisors nowadays advise 3% - is $20K per spouse, before taxes. With tax hikes almost certain to come in the future, what are you estimating as your future tax rate? Have you looked into Roth conversions? Instead of throwing all your bonuses and extra funds into the mortgage, you might get a better return by splitting the money and using some of it to pay the taxes on the conversions each year before retirement. Also, your spouse needs to roll over those 401k's into one IRA. Trust me, if anything happens to her, it's a paperwork headache for the survivor to get that done. It takes time and energy, and when somebody's grieving, it's the last thing one wants to do. But it's a necessity if you don't want the IRS to get involved. I'm going to offer some questions for you to think about because you are at the perfect point to start doing serious retirement planning. The reason you need to figure out if your assumptions are correct for future savings and the best return on spending, is that if those assumptions are wrong or plain bad luck intervenes, you still have time to adjust and make corrections. Have you and your wife sat down to talk specifically about what both of you envision retirement to be? What's your 'bucket list'? What's hers? What do you want to do in retirement? How much will it cost to do those things? For example: I retired 2 yrs before DH did. Our expenses did NOT go down and our income stayed static because we were contributing as much as we could to DH's 401k. But when he did retire, our expenses jumped overall. We have retirement health benefits, so there was no extra cost there. But we wanted to travel locally, and even that required several hundred $$ of clothing and travel accessories. We were able to donate an entire carload of work clothes to charity, which was great for deserving poor folks, but no one was going to pay us for them. That first year we spent almost four months out of twelve traveling through Northern CA and the PNW, mostly car trips but a few airline trips, at a cost of almost $25K post-tax. We do what I consider to be mid-level travel: not budget or RV travel, but not luxury high-end places either. If I were in your situation I would find a certified or registered financial advisor to run some numbers. What will happen if one of you dies? What happens if one of you gets disabled and needs care? What happens to the surviving spouse if death or disability happens BEFORE retirement? Are you adequately insured to mitigate the bigger risks in your life (and it takes some analysis to figure out what those risks are, that might prevent you from achieving your goals)? Do you have enough $$ coming in for a sufficient 'cushion', especially if you intend to maintain two houses in retirement? Do you know what medical insurance will cost for a pre-Medicare senior? What if a serious medical condition happens and one spouse becomes uninsurable, or at least rateable? Can the budget afford the insurance and any needed medications or extra co-pays? How do you plan to handle long term care costs for one of you? For both of you? These kinds of questions are just as important, perhaps even more so, than the simple question of "should I pay off my mortgage with IRA money." HTH, and good luck going forward.

A diversified portfolio is one that is allocated in different segments of the market, as others have pointed out. The percentages are pretty much up to you -- if you do not tolerate high risk, then a balanced portfolio in equal percentages spread amongst 4-5 different asset classes (NOT different funds in the same asset class!) will give you, overall, a decent return in a good year, and less loss in a bad year. Should your current or any new employer offer a lifecycle option, you could use that to simplify your investment options. One thing you MUST remember is that over time, your portfolio will become 'unbalanced' due to one or more asset classes doing better than the others. You need to rebalance your EXISTING portfolio back to the original percentages, every 1-2 years. Many people forget to do this. This is your money, so treat it with the attention it deserves! We are very aggressive investors, so it doesn't bother us to be 80% invested in equities as we take the long-term view. Yes, it was nerve-wracking to lose 26% of the portfolio's value from 2000 - 2002. It was also great to have tripled the portfolio from YE 2002 through YE 2006. I'm not sure where qdognj gets his figures -- I'm guessing he seems to be a fairly conservative investor, based on his postings -- but in 2006 some of the PERS (largest pension fund in the world, the California state employees fund) results were: Large Cap US Equity (Dodge & Cox) - 18.55% International Equity (Templeton Foreign Equity) - 20.64% Real Estate Securities Option (DWS Fund) - 30.59% You can compare this to some of the common "benchmarks" 2006 performances: S&P Index: 15.80% Wilshire 5000 Index: 21.12% Wilshire 4500 Index: 16.07% MSCI EAFE (International) Index: 26.86% Russell 2000 Index: 18.35% Balanced Index (60% S&P 500, 40% Lehman Aggregate [bonds]): 11.12% You can do well enough with regular contributions and moderate compounding; you are still young enough to have enough time to "ride out" the hills and valleys of investment management. You are doing, frankly, much better than we did at your age, and are to be congratulated!

Jim: I thought as you do - Roth my retirement funds now and forget about future taxes. And I did do that for several years. Then I did a spreadsheet to play with how much I would be ahead. I was shocked to find that it was better NOT to Roth now. For example: Assume you have $5,000 per year to invest in some way Assume any investment realizes 12% gain each year Assume your current tax rate is 15% Assume at the end of 30 years you pay taxes on all tax deferred funds Assume your tax rate after 30 years is 35% For simplicity, IÂve applied calculations to year end totals only Tax-deferred account: If you put $5,000 at the end of each year into a tax deferred account for 30 years, at the end of 30 years youÂll have $1,206,663 (remember, at the end of year one you had just put $5,000 into the fund, so you didnÂt have any cap gains for that year). After 30 years, when you pay taxes of 35%, you have a net of $784,331. Roth account: With the same $5,000 to invest each year, $4250 of that money actually goes into the Roth account, and the $750 difference pays the taxes. At the end of 30 years, your Roth balance, which is tax free, is $666,682. Net: You have a larger nest egg ($117,650 more) after taxes are paid, by having put your funds in a tax deferred account. IÂve played with various annual contributions and tax rates. The net results always favor making yearly contributions to a tax deferred account and paying taxes "later", even if the tax rates then are higher. ItÂs the power of compounding. Google "retirement calculators" and youÂll find many sites that let you play "what-if". DonÂt forget to consider that when you make a Roth contribution, you essentially pay income tax on that money now. The capital gains and compound growth you might otherwise realize on those dollars paid in taxes is a "cost" to you. June