Carl has worked for the same telecommunications company for more than 20 years. His company has gone through several changes over the last few years, and the environment is forcing him to resign before he is ready emotionally.
He finds himself nervous and anxious with this change because he had planned to continue working for a few more years. At 67, he views the prospect of finding a new employer after so many years exhausting and unnerving. While this has been a difficult transition for Carl, he remains optimistic and is looking forward to his future and what retirement has in store.
Carl wrote in to What’s the Plan to get a handle on his finances and to get ready for the next chapter of his life. He hopes to get guidance from Pam and her team on any areas he may have overlooked.
Carl has $210,899 in his employer’s plans invested in a conservative stock and bond mix, $28,715 in a tax-free municipal bond fund and an individual stock inherited from his mother worth $9,764. His home is worth $200,000, with a mortgage of $101,162, and he has $39,234 in debt.
Carl also has a pension from this employer that was frozen more than 19 years ago. At that time, he could choose between rolling the money to an IRA or leaving it in the plan to continue to grow. Carl decided to keep the pension in the plan, rather than roll it over into an IRA. This wise decision provided the opportunity for him to get lifetime income from the pension plan.
When Carl met with What’s The Plan, he brought in a yellowed paper statement from 1996 that said he could expect $452 per month at age 65. We helped him send a signature-guaranteed letter and received a very happy update. We were pleasantly surprised to find out that he can expect to receive $1,206 per month from the pension for life!
Recommendations
Carl’s situation is not unique. Many workers just keep saving for retirement because they can’t visualize being retired and don’t think they have enough money. When they are first presented with change forced upon them from outside their control, they panic. When we slowed down and gathered the facts, we forged a secure plan with Carl.
We recommend that Carl pay off his consumer debt first. This is a priority so that he will not have the additional expense of interest and fees. Additionally, this will allow Carl to enter retirement with the peace of mind that he will have lower expenses in retirement. To accomplish this now, he can liquidate his individual stock and part of his municipal bond fund. Carl should keep the remainder of the assets invested in the municipal bond fund for emergencies.
We also recommend that Carl refinance his home now while he is still employed. Carl has been diligently paying down the balance of the mortgage and has paid down much of the principle. Refinancing now will result in a smaller monthly payment in retirement. It will be best if Carl can apply for this loan while he is still working as it is generally easier to qualify for a loan with a recent paystub.
Pam Dumonceau has 22 years of experience and is the principal of Consistent Values, a Registered Investment Advisory firm in Greenwood Village. 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 at whatstheplan@consistent . Names and identifying information are changed to protect confidentiality.
