5 Keys to Retiring Within 5 Years

Budget for healthcare expenses. Even though Medicare kicks in at age 65, it may not be enough to meet retirees' healthcare needs. A 65-year-old couple retiring in 2009 with Medicare insurance coverage will need approximately $240,000 to cover medical expenses throughout their retirement, up 6.7 percent from 2008, according to a Fidelity Investments estimate that includes deductibles, coinsurance costs, likely out-of-pocket expenses, and some services excluded by Medicare. The figure does not include over-the-counter medications, most dental services, and most long-term care expenses—which could easily cause the costs to rise further. Violet Lewis, 66, of San Marcos, Texas, has had Medicare insurance since she was laid off from her job in a call center in November 2008. Her medications for diabetes cost about $340 a month out of pocket. "I'm really good at calling the doctor and saying, 'Hey, I need some samples.' You can save a month or two of having to buy some prescriptions that way," she says. Lewis also bought some medications in bulk to take advantage of discounts, and she tries to space out her doctor's visits to avoid too many copays in the same month. She's frugal in other ways, too. She uses Freecycle, a website where people exchange unneeded goods free of charge, and she started a patio garden where she grows her own vegetables. "You can grow so much in 4 square feet, and you get a pretty good meal for your effort," Lewis says. "I bought a little freezer so I could take advantage of the sales and cook and freeze and put away."

[See 6 Ways to Maximize Your Social Security Payout.]

Become frugal. Although he wasn't planning to retire for seven more years, Milton Beach, 55, a former public affairs manager for Delphi in Kokomo, Ind., was forced into retirement in March. "It wasn't my choice to retire," he says. "I would have worked until I was 62." The next month, Delphi eliminated his retiree health and life insurance coverage. Now, Beach pays about $720 per month for medical, vision, life, and dental insurance—and he's still 10 years away from qualifying for Medicare. Beach says he's now "recalibrating" his retirement while looking for work. To cut costs, he's switched from name-brand products to generics, and he's given up vacations. "There is no such thing as the golden years where you kick back and relax," Beach says. "If you want to retire, you have to be very conservative and very judicious in terms of paying off bills."

Jeanne Huff, 66, a retired registered nurse, and her husband, Marlin, a retired electronic technician, have been living below their means throughout their lives. The couple owns their West Point, Utah, home, which Marlin insulated to save on heating and cooling costs, and they wear sweaters so they can keep the thermostat low. The Huffs drive an economical and reliable car (a Toyota Corolla), which they paid for in cash, and Marlin changes the oil and performs general maintenance himself. Jeanne grows vegetables in her garden and trades with family and friends. "We just don't choose to do a lot of expensive things," she says. "I think everyone will have to tighten up so people can have a good standard of living in retirement." This probably doesn't resemble the high life many Americans imagined they'd have in retirement, but such frugality may be what it takes to get cash-strapped baby boomers back on track.

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