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Published Jul. 28, 2007

Mike Reilly is a man in distress. When he retired from the St. Petersburg Fire Department three years ago, he thought he was set financially. Now he is looking for another job.

"Between my house insurance, my health insurance, auto insurance and real estate taxes, I am being consumed," he said.

Reilly, 54, has a $43,000 pension from his 31 years as a firefighter. But the family health care plan that cost him $211 a month when he was working jumped to $497 a month when he retired and is now up to $625, or $7,500 a year. His insurance company just dropped him, his daughter is in college and, to top it off, his son just moved back home.

"In 15 years, my pension will be worth zip," he said.

While that's an exaggeration, Reilly makes an important point. It takes $1.48 today to buy what $1 could buy 15 years ago. Even if you have a generous pension - which most of us don't - if your income stays the same, your purchasing power will decline.

Reilly thinks the city should give retired firefighters a raise (more on that later) and he might be right, but in this day of government budget cutting, he had better have a Plan B.

We all should. For a couple, both age 55, there's a 45 percent chance that at least one spouse will live to be 95.

Here are some of the options we have to counteract the corrosive effects of inflation:

- Keep working. The fewer years that have to be financed from your savings, the better. Even a part-time job can pay big benefits.

- Delay tapping Social Security. Each year you delay up to age 70 means a higher benefit. For example, if you were born in 1960 or later, your benefits will be 30 percent higher if you wait until 67 (full retirement age) instead of starting at age 62.

- Own stocks, including mutual funds. A portfolio that's 60 percent stocks and 40 percent bonds will give you a chance to maintain your purchasing power. Stashing all your savings in CDs won't.

- Keep your withdrawals small. Many financial advisers suggest withdrawing 4 percent of the value of your portfolio then increasing the dollar amount each year by the rate of inflation. However, if you're a 55-year-old retiree, even 4 percent may be too much to start and if you're 70, you can afford to withdraw more. A financial adviser can help with a more personalized plan.

Most people don't have a traditional pension, but if you're lucky enough to be one who does and you can talk your employer into giving you a raise, that works, too. However, it may not be realistic.

In St. Petersburg, retired firefighters only get a raise when the city decides to give them one, which has happened three times since 1988.

Lt. Ray Landes, who serves on the firefighters' pension board, said firefighters are forced to retire young because of the physical demands of the job. But he said many have health problems that prevent them from getting other jobs.

Unfortunately for them - and the city - the plan's assets come up $65-million short in covering benefits already promised. The city's required contribution to the plan is $11.2-million this year, a whopping 68 percent of payroll. Firefighters and the state will each contribute about 7 percent.

"We're faced with a difficult time of balancing the tax reform initiative brought forward by the state government while trying to appease retirees, pensioners and active employees," said Mike Connors, city internal services administrator.

Q. When I retired in 1990, I invested all my savings in mutual funds. At that time, I paid federal taxes on the lump sum invested and I pay taxes on the interest and dividends on these funds. Now I withdraw $600 a month from principal. Should I have to pay taxes on these withdrawals?

A. Probably. When you sell shares of a mutual fund, you have a capital gain or loss, depending on whether selling price is more less than your purchase price. If you have all your records, a tax preparer can help you calculate your gain.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, write or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731. Read more questions and answers at