You should never need courage when making an investment decision. This week we look at a couple given conflicting financial advice from several different avenues and seeking clarity.
The situation
Art, 69, and Diane, 61, live in Parker and have raised three children and are blessed with four grandchildren. Diane’s main job is to care for the grandchildren, ranging in age from 6 months to 6 years old, while their parents work full time. Art has been employed with the same company for 33 years and is looking forward to retiring in January.
The couple have done a great job with managing debt and live very frugally. Their house and cars are paid off and they have no outstanding debt. Art currently earns $90,000 per year and has $431,564 in his 401(k) and the couple have $23,320 in savings. Diane worked for a few years prior to her grandchildren being born and has $28,405 in her retirement accounts.
Art wrote in to What’s the Plan because with retirement in the foreseeable future, he is getting anxious. He sought advice from several different sources, and the answers left him more perplexed than when he started.
His first question for Pam was, “Is it true that you must have a million dollars for retirement?” One of the advisers they consulted before talking to Pam advised them to “park their money in a bank savings account until they had the courage to invest in the market.” The couple are also concerned with the recent changes to Social Security and how this will impact them moving forward.
The couple would like to be able to travel domestically one or two times per year, but have done all the international travel they would like to do. They are eager to spend retirement together in Colorado gardening, snowshoeing, and enjoying their time with children and grandchildren.
Recommendations
The couple do not need $1 million to retire comfortably and enjoy their time with each other and their family! They should not need courage, but sound investment strategy to achieve their personal goals. We urge them to move forward only on programs that feel right. If it doesn’t feel right, don’t do it!
Our recommendations are for the couple to invest their money in two accounts to meet their retirement goals. First, they should invest $80,000 of their IRAs in a money market or savings account. They will draw upon this money in the first years of retirement prior to Diane claiming Social Security, and maintain what’s left to insulate them from future market changes.
Second, they should invest $380,000 of their IRAs in a diversified conservative investment account. This will provide the couple with the potential for long-term investment growth, to allow the spending power of their portfolio to keep up with inflation.
Art and Diane had quite a few questions concerning how the new Social Security law changes affect them. The Budget Deal signed on Nov. 2 changed some Social Security rules. One of the biggest changes is to the “restricted-benefit” rule.
The restricted-benefit rule allows anyone who is at their full retirement age to collect any benefits they are eligible for, and claim more later if another benefit is more. Anyone who was born after 1953, like Diane, will no longer be able to file on their spouse’s record, and collect more on their own earnings record when they turn 70.
In their case, it makes sense for Diane to claim one-half of Art’s Social Security benefit when she reaches her full retirement age of 66.
Our retirement projections show that the couple can spend approximately $4,075 per month after taxes, rising with inflation. Congratulations to them: That is plenty for gardening and grandchildren!
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?
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.
What’s The Plan By Pam Dumonceau
