A Suze Orman exclusive

Instead of panicking about the income you need to build up in the next 15 or 20 years, your best investment move is to concentrate on getting your costs down. If you will need less to live on in retirement, then you won't need to risk desperate accumulation strategies now. Right? That's a pretty basic point that everyone seems to miss.

I want you to make cost reduction Plan A in your Late-Start Retirement Strategy. And the single biggest cost you can eliminate is your mortgage. If you live in a home you intend to stay in, your best move right now is to get your loan paid off ASAP.

I know, I know. You're thinking, "Suze, are you crazy? My house is my only tax break!" I'm not crazy, but you might be. Here we are with the lowest tax brackets in history, and so for many of you that means you are getting just 25 to 30 cents back for every dollar you pay in interest. Feel free to double-check my math, but I believe that still leaves 70 to 75 cents coming out of your pocket. This is not really saving money; all you are doing is reducing your current monetary outflow. At the same time, you aren't making much progress paying off your loan. You do realize, don't you, that on a 30-year mortgage you will have paid off just 25 percent or less of the principal after 15 years? You've been making payments for 15 years and most of it was interest.

Stop drinking the mortgage-interest-deduction Kool-Aid. If you are getting a late start on your retirement investing, getting that mortgage paid off ASAP is going to give you the best, safest return for your money, not to mention great peace of mind.

Let's say you were born in 1960, so in 2005 you will be 45. You have a 30-year fixed rate mortgage that in 2005 will have 25 years left on it. The $200,000 mortgage carries a 6 percent interest rate, which brings your basic mortgage costs (not including property tax and insurance) to $1,200. You're going to be on the hook for that $1,200 a month until you are 70. Chances are, you don't want to keep working at 70 (or even if you did, you might find it hard to keep a high-paying job); so that $1,200 is going to be a big ticket to have to punch when you're no longer pulling in a strong monthly paycheck.

Now let's play my favorite game, called What If.

What if you can't keep working past 60? You figured you would work at least until 65, but at 60 you get laid off and can't land a job at similar pay. Look, you already made a big mistake waiting to save for your retirement years. I don't want you to make another big mistake by entertaining some rosy picture that you can just make up for it by working like a dog at a high salary until you are 65 or even 70. Maybe that pans out. But you are so behind the eight ball on this, you need to think through the What If and make sure you will be okay however it plays out.

So we need to go a little deeper into this particular What If scenario, where you are 60 and out of work. There's no pension because fewer and fewer companies give them out these days. All you've got is your 401(k) assets. And don't be counting on the option of taking early Social Security benefits at 62. Because you were born in 1960, you aren't eligible for full benefits until you are 67 (that's true of anyone born in 1960 or later); if you take benefits starting at 62, your payout will be just 70 percent of what you would get at 67. If you want to see when you are eligible for full benefits, check out the U.S. Social Security Administration website.

All these glum facts mean that for a few more years you'll need to rely on your 401(k) to do the heavy lifting of supporting you, including paying that $1,200 monthly mortgage. Let's see what you were able to amass between your epiphany at 45 that you needed to get cranking, and being laid off at 60. Between your contribution and your employer match, you have $15,000 going into your account. (The maximum employee contribution for 2005 is $14,000; for 2006, it is $16,000; and for 2007, it's $18,000.) To keep things simple, let's just assume your annual contributions (including your employer match) stay at $15,000 a year for the next 15 years, and that you will earn an average annual return of 7 percent. At that rate, you will have about $390,000 saved up by the time you are 60. And just so you know, I am being generous here. The way employers are behaving these days, there's no guarantee that they will continue to match your contributions - but hey, let's remain optimistic.