DALLAS – Delores Jones is worried her money will run out.
“I’m either too old or too fancy,” she told Dr. Phil after her divorce in 1983.
But living well isn’t Jones’ weakness. Living too long is what the former ad copywriter from Wichita Falls, Texas, needs to worry about.
She’s still going strong at 71, and longevity runs in her family.
“I wanted to be certain that I wouldn’t outlive what I have to live on,” she said.
If Jones doesn’t act quickly, she will outlive her money, said Lynn Lawrance, a certified financial planner at Financial Network Investment Corp. who came up with an action plan for Jones.
Jones has a nice nest egg, but her investment portfolio needs tweaking. She doesn’t have debt, and her monthly spending is under control. But she needs to look closely at her two home businesses, because one of them is losing money, Lawrance said.
Jones does personal-services work and sells jewelry. The jewelry business is her passion, but it isn’t adding any luster to her finances.
“You need to generate another source of consistent and reliable income ASAP,” Lawrance told Jones. “At this point, you are at serious risk of running out of money.” Jones, who’s single, lives in Richardson, Texas, with her 93-year-old mother in a house owned by her brother. She pays $500 a month in rent. Her main sources of income consist of $653 a month from Social Security, $750 in alimony and a small amount of income from her businesses.
Her monthly income totals $1,403, but her monthly expenses average $2,352, leaving her almost $950 a month in the hole.
The difference has to come out of her nest egg, at a withdrawal rate that’s higher than financial planners advise for retirees.
Worse, Lawrance said, Jones is spending more money on her jewelry sales than the income it’s generating.
“You indicated that your jewelry sales are projected to be approximately $6,000 for 2006,” Lawrance said. “This is before expenses. Your jewelry business is not going to meet your need for additional monthly income.
“You’re following a love and a passion, but you’re at a Jones’ situation is common among retirees and pre-retirees.
“There’s a tendency for people to grossly underestimate what it’ll cost in retirement,” Lawrance said.
With people living longer, thanks to medical advances, a person who retires at 65 could very well live an additional 20 or 30 years – the equivalent of a second career. What’s more, with traditional pensions disappearing, the difference between a comfortable retirement and living hand-to-mouth increasingly hangs on a person’s individual savings.
A major source for sustaining Jones’ retirement will be her investment portfolio, which Lawrance said is out of whack with her investment objectives and the conservative investor she is.
“Your portfolio has a transaction-oriented, growthy, pre-correction look to it,” Lawrance said. “Based on the dates of acquisition, it appears that there have been very few changes to your equity allocations over the years as your circumstances have changed.” Financial experts say investors need to monitor their investments and adjust their allocations as their circumstances evolve.
Like most people her age, Jones should choose investments that would provide a small but steady return.
“You really need a more moderate portfolio designed for someone in the distribution phase of their life,” Lawrence said. “This type of portfolio should provide you with less volatility and better downside protection in the event of a market correction.” To get there, Jones needs to sell some of her stocks to diversify her portfolio. She’s got added incentive to do so, in the form of a tax break.
Although she’s not an extravagant spender, Jones still needs to watch her expenses. “During the first 11 months of 2006, you have spent $1,672 on your pets – six cats (which she rescued) and a dog,” Lawrance said. “This is double what you spent on your own health care.” While Lawrance isn’t advising Jones to get rid of her pets, she said the rising expenses add to her need for more income.
“You need to be very mindful and deliberate about your spending,” Lawrance said. “Where possible, cut back on spending, especially until you have another source of consistent monthly income. Looking forward, you need to pay attention to any way you can either increase your income or reduce your expenses.”
To get back on track, Jones said she plans to hold a going-out-of-business sale of her jewelry inventory and beef up her personal-services business.
“I knew I had to continue working before we began our meetings,” she said. “I did not know how much I was taking, with daily living, from my savings. After thinking about it, for me to earn $1,000 a month is laughable. The only way to earn near that amount is to build my personal-service business, which I think is possible.” But she admits being apprehensive about the future.
“I’m scared,” Jones said. “I don’t want to repeat my mistakes, but I don’t know how not to. It’s amazing how much one spends without knowing. I can see I must make changes. I can’t afford myself.”
