Experiencing several major changes all at once can make your life seem chaotic. This week we look at a woman who recently divorced, retired, moved across the country and started a business, all in a short window of time.
The Situation
Vicki, 62, recently moved to Colorado to be closer to her grown son and his family after finalizing her divorce in Texas. She chose to retire from her profession as an internal auditor. She rolled over close to $1 million into an IRA allocated into a very conservative 30 percent stock, 70 percent bond allocation.
Fortunately for Vicki, she has no mortgage or debt to her name. She keeps a monthly budget and prides herself on adhering to it. Vicki is currently paying herself $65,000 per year from her retirement funds and is concerned this money will not last if she is drawing at this rate every year. She also invests $50 per month each into 529 plans for her two grandsons.
Vicki’s biggest concern is that she’s drawing 6.5 percent (more than the 3 to 4 percent usually recommended) per year of her retirement assets and she’s afraid of becoming “a bag lady.” A few months ago she began an auditing consulting firm, but is currently spending more to get the business started than it is bringing in.
Vicki has always been good with numbers and keeping track of her clientap millions, with every penny in its place. She currently pays a fee to a national financial firm to manage her investments but instead of asking them, she decided to write into Whatap The Plan for a second opinion because she thought it “would be more fun!” Vicki would like to be able to be semi-retired and very much wants to leave something to her son when she dies.
The Recommendations
It is OK for Vicki to pull the $65,000 now while she allows her Social Security to grow — so long as she’s clear that when she turns 70, she must turn down what she is drawing from her reservoir of assets and use the Social Security to supplement the difference. We recommend Vicki wait until age 70 to start collecting Social Security to receive the maximum benefit of $2,937 per month.
Vicki’s assets will not sustain her lifestyle without reallocating to a more moderate 50 percent stock, 50 percent bond portfolio. She is too young to be too conservative and she will need these assets to continue to grow. We recommend that she contact her investment firm to realign her investment plan with her life plan.
Vicki has spent $10,000 to launch her consulting business, which she loves. She agreed to take an objective look at her business income after one full year of operation. She can spend her money on anything she likes, but itap smart to honestly reevaluate if this is a growing business or a just a hobby that is costing her money.
Now that Vicki lives in Colorado, we recommend she contribute to Colorado 529 plans for her grandsons, so she can benefit from the state tax deduction. We commend her for updating her will and powers of attorney shortly after her move to ensure they comply with Colorado laws.
Vicki can do the consulting she loves for fun and a little extra spending money, but she doesn’t need to worry that she will be a bag lady. Her retirement is “in the bag.” In fact, a designer bag if she so chooses!
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 is not a substitute for dedicated financial planning.
