Q.   My wife and I are in serious trouble.   Here are the facts:

---We earn $138K yearly and are both 58.

---We owe $30K in credit card debt.

---We make mostly minimum payments.   We are never late on payments.

---We owe $30K in college loans.   Two of our three sons are out of college now.

---We owe about $90,000 on our mortgage with 7 years left to pay ($1780 mo.)   The   house appraises about $175,000.

---My wife is saving the max with matching.   It comes to about 3% of our gross.

---I pay most of the big bills and I'm currently not saving any funds.

---We only have about $55K in 401's and IRA's

So with all this debt, combined with our inability to control spending, it seems that when we have an unexpected cost bigger than $200 we are forced to charge it.   I hit the panic button over the last year. I realize we're on track for a dismal retirement life unless we do something drastic.   I know that many debt counselors are really debt collectors and I think we need some detailed advice.

---R.S., by e-mail from Plano, TX


A. You're right. It's not a pretty picture. Your current household income puts you close to the top 5 percent of all households in America. But your spending is unsustainable.

What you can do is work on getting to a sustainable spending level as soon as possible.  

Your future income will come from two sources, Social Security and investments. The greatest single impact you can make on your future standard of living is to pay off your debts because they absorb a portion of your income. Your Social Security income will depend on when you retire but it will likely range around $39,000 in current purchasing power. Many would like to have that much income.

The good news is that you have both the time and income to create a small additional income from other sources.

The source of your problem is not overwhelming debt. You would not make good candidate for credit counseling because your debt is manageable. Your $150,000 of debt could be paid off in 5 years at a total monthly cost of about $3,000. That's about 26 percent of your current income. Trust me, there are plenty of lenders out there who would like to lend you more money rather than see you pay off your current debt.

To put this is some perspective, you could make payments of $3,000 a month and your remaining income would still put you in the top 10 percent of all households in America. That tells me your problem is spending.

Your choice is very simple. You can voluntarily moderate your spending now or you can have it forcefully reduced later, when you will have to service debt from your Social Security benefits.

Figuring out how much you should cut your spending can be done with the next generation of financial planning software which uses dynamic programming to optimize your lifetime consumption. To get a ballpark figure I called Professor Laurence J. Kotlikoff in Boston, which whom I coauthored "The Coming Generational Storm" (MIT Press, 2004). Professor Kotlikoff is an expert in lifecycle finance and one of the creators of Economic Security Planner, the first of the new breed of planning programs. We are working on a new book about the use and implications of this software. (You can learn more about this program in the October issue of Consumer Reports or at www.esplanner.com.)

His finding using the program: You have a lifetime sustainable consumption of about $6,000 a year over your expected Social Security benefits. You can achieve this by paying off your consumer and mortgage debt in about 5 years and saving as much as possible after that. The important thing is to reduce your consumption spending to about $50,000 a year and devote the remainder of your after tax income to debt reduction and saving.

The reward will be a lifetime standard of living close to the top 25 percent of all households.