Q. I'm not as wealthy as many of your readers, but I try to do my best to prepare for my future. I am 63 years old, divorced, have two grown children and one 5-year-old grandson. I was married for 12 years and have been single for 23 years. I am only responsible for myself now. I work as an administrative assistant and plan to retire in 5 years at age 68.

  • I currently have about $150,000 in my retirement portfolio - stocks, stable value Fund, company stock, a Transamerica annuity, and a Roth account invested in Fidelity Contrafund and Fidelity Balanced Fund.
  • I would like to increase that to $250,000 or $300,000 before I retire.
  • I will have a small pension at retirement. It should be just enough to take care of my supplemental insurance premiums.
  • My Social Security should be about $2,000 a month.
  • I have zero debt, except for my home, which is worth about $150,000.
  • I owe $16,000 on my home at 6 percent interest.
  • I have $16,000 in severance (from a previous job) that I have had for about 6 months. It is in my 4 percent interest-bearing checking account.
  • I make $40,000 a year. Without a house payment, my income would go up $427 a month. Plus, currently, I have a small part-time job.
  • I think I would like to increase my 401(k) payroll deductions to 25 percent.
  • All of my utility bills equal about $300 a month; gasoline, $80 a month; food, $120 a month; and charitable contributions, $250 a month.
  • Combining all of my annual taxes, the amount is about $2,000 - paid in full in December.
  • All of my insurance bills--- home, car, long-term-care and termite--- total $3,200 a year, which I pay in full each year when the invoices come in.

Here is my question. My current automobile is 16 years old - an Acura with 192,000 miles. It gets about 30 miles a gallon and my mechanic says it is still in great condition. Yet, I know that someday I will need to replace it. I would like to buy a very low mileage, gently used Lexus 350 SUV (2007). My $16,000 severance is about $10,000 short of paying in full for the used Lexus.

That $16,000 could also pay off my home mortgage. What would you do?

PS - Before I use that $16,000, I will build up an emergency fund (about $5,000) and make sure I have enough for my taxes in December ($2,000). I currently have $2,000 of the $5,000 saved. I expect that by December I will have $4,000 in my emergency fund plus have all my taxes paid. In January, February, and March I will begin saving for my insurance bills. After that I can begin putting $500 a month aside for a new car. But how long it will take before I have a large chunk to put down on a new car is a big question. ---A. R., by email


A. Congratulations on being a careful planner! With a market recovery I think you would have a reasonable shot at increasing your $150,000 to $250,000 or $300,000 over the next 5 years, if you save as aggressively as you mention. That, in turn, should bring your monthly income to about $3,000 when you retire.

Basically, you’re doing very well at making sure you don’t have a major decline in your standard of living when you no longer work. Millions of people who look down their noses at careful planning won’t be nearly as well prepared as you will be.

It would be entirely reasonable to take that $16,000 of severance and pay off the home mortgage. You might also enjoy a “mortgage burning party” as much as you would enjoy a change in cars.

You’re not earning anything like the 6 percent cost of your mortgage. I also think you should check on the amount your checking account is earning because 4 percent sounds really, really high.

Paying off the mortgage will liberate $427 a month. That monthly amount could be used, when needed, to support a 5-year car loan for about $22,000--- perhaps enough to buy that Lexus RX. While your Acura may have 192,000 miles on it, many of the luxury Japanese brands have gone farther without gigantic repair bills. Equally important, its market value is nominal, so you should squeeze as many more months out of it as possible.