When is the — financially, emotionally, physically — especially after a recession that hasn’t been kind to individual investors?
This week, we look at a couple hoping to retire and have some fun.
The situation
Dennis and Laurie will both turn 60 this year and hope to retire at age 70. Dennis used to work in the telecom business, but the couple lost all of his 401(k) and outside investments when his publicly traded telecom employer went under. After rebounding from the hit, they started a small technology company in Boulder, but were forced to sell when they could no longer compete.
Their small-business loan was paid off in the acquisition. The buyer still owes them an additional $200,000 for the second mortgage they took out to finance the business.
They currently receive $1,000 per month from the buyers of the business. They also hope to receive an additional $200,000 lump sum from the sale in November 2017.
Laurie currently works as a restaurant inspector for the state. Dennis, though, has struggled to find full-time employment and has recently started working part-time with no benefits. Their collective income is $82,000.
Dennis and Laurie have , both with a balance owed of approximately $160,000. Their home is valued at $750,000. Laurie has $22,000 at TIAA-Cref; $31,000 in a Roth IRA at TIAA-Cref, and $21,000 in PERA funds. Dennis has $15,000 in a Rollover IRA and $37,000 in a Roth IRA. The couple does not plan to begin until age 70.
Dennis and Laurie’s biggest concerns are these: First, do they have enough saved to retire at age 70? And what should they be doing with the extra $1,000 they have each month after expenses?
Laurie is afraid their finances are a mess, especially after their investments took such substantial losses over the past several years.
Recommendations
Dennis and Laurie’s finances are not a mess! They are actually more on track than they think. The couple is similar to many in their generation in terms of the financial setbacks they’ve had to weather.
I recommend the couple begin investing their extra money into their Roth accounts — $500 per month in Dennis’ and $500 per month in Laurie’s. This will create a backup plan in the event the company that bought their small business stops the $1,000 payments toward their second mortgage. It also allows them to continue saving for retirement.
During the interview, the couple said they’ll need $3,500 per month to live on in retirement. If they keep to their 10-year time frame, their house will be paid off, and they will be able to maximize their Social Security benefit. At age 70, Dennis will collect $2,640 and Laurie $1,716. This provides the couple $3,484 per month after tax. Laurie will also be able to collect approximately $415.00 per month from her PERA pension. Between the couple’s Social Security, Laurie’s PERA, and their savings they will have more than enough monthly income needed for retirement.
If Dennis and Laurie need to retire earlier than age 70 they can visit SSA.gov to determine their Social Security benefit at different ages.
I also recommended that the couple Their current documents are over 10 years old and were created before HIPAA — the federal Health Insurance Privacy and Accountability Act — was enacted in 1996. Under the new HIPAA laws, their current documents may not be compliant.
Despite their setbacks and frustrations, the couple is in a great place. If things go well they may be able to retire in six years — and they are definitely on target for retirement in 10 years. They should continue to stay within their budget and enjoy the future they have created for themselves.
Pam Dumonceau has 21 years of experience in the financial planning industry. What’s the Plan is not a substitute for financial planning or dedicated professional advice.
What’s your plan?
Ask Pam what you should do — e-mail whatstheplan@consistentvalues.com to get advice in the “What’s the Plan?” column. There’s no cost, and names and identifying information are changed to protect confidentiality.
