Retirement is a time of excitement and nervousness when trying to predict your financial future. This week we look at a couple eager to retire but hesitant to jump in without some answers.
The situation
Tim, 59, and Joyce, 69, are hopeful that retirement is in the very near future for both of them. Joyce has always prided herself in making smart decisions with their money, but retirement is a whole new arena. The couple wrote in to What’s The Plan with hopes of getting their questions answered and assuring themselves they are ready.
Joyce’s biggest concern is being financially prepared for long-term care in the event it is needed. She experienced this with her mother and neighbor and saw firsthand how a person’s life savings can be drained by assisted-living expenses. The couple also wanted to assess where their money is currently being held and if their accounts have enough variety.
The couple has $247,699 in cash, $90,538 in a non-qualified annuity, and $580,106 in joint accounts. Joyce has $520,436 in individual accounts: $394,002 in Traditional IRAs and $67,822 in Roth accounts. Tim has $65,983 in a Roth account, $239,013 in a Traditional IRA and $84,801 in his 401(k).
Joyce explained her saving strategy to Pam: “I care as much about one dollar as I do one million dollars and I would rather buy dented cans from the supermarket for a discount than the perfect ones at full price. I spend more time with the weekly sales papers than I do the market or watching our investments!” Joyce thinks they could get by on $36,000 per year. But $60,000 to $80,000 would be luxurious.
Recommendations
Joyce and Tim have done exceptionally well when it comes to saving and preparing for retirement.
Long-term-care insurance is painful to pay for, but the larger pain will be paying out of pocket for care. Joyce and Tim are losing sleep at night worried about the what-ifs. I recommend they purchase a hybrid insurance plan where they can still access their money but it is available for long-term care should they need it. If the need never arises they can get most or all of the funds back.
After examining their portfolio, Joyce and Tim need more diversification in their plan. In today’s volatile world, “setting it and forgetting it” is not the best strategy. At this point in their lives, this is irreplaceable capital.
Identifying their risk level involves calculating the amount of money needed to achieve their goals and still be financially stable. A small mistake on a small amount of money is a small mistake. A small mistake on $2.5 million would be a big mistake. Their current portfolio is 70 percent stock, 14 percent fixed income, and 16 percent cash. They could reduce risk without sacrificing return or lifestyle by moving to a 60/40 stock/bonds mixture.
Our retirement projections show they can begin to spend approximately $12,500 per month after federal and state taxes until Joyce’s age 95. Twice what they hoped for! This amount is a combination of their savings, Joyce’s Social Security beginning at age 70 and Tim’s Social Security beginning at age 62.
The couple would like to leave money to their children if there is any left. With their frugal ways it is likely there will be money left over. It is very important they get their powers of attorney and wills updated to ensure their money is distributed in the manner they would like it done.
Joyce and Tim were married 39 years ago and have a 10-year age gap. They should use this time to make great memories so when the time comes for Joyce to slow down they will both be ready and have no regrets.
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. Names and identifying information are changed to protect confidentiality.
