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Monday, Aug. 10, 1998
Retired couple wants extra spending money
Financial options are plenty because their children are financially secure
By JEFFREY TOMICH
Staff WriterEdward and Ann Foreman are debt-free, their children are financially set and they want a little extra spending money to enjoy their Golden Years.
The Foremans (not their real names) are both 67, retired and live in Corpus Christi. They make frequent trips to visit their grandchildren, who live out of state. Edward, who retired from his job last year, is in good health, but Ann is disabled and generally not in good health.
Including Social Security payments, a 401(k) disbursement and annuities, the Foremans' annual income is almost $37,000. They spend almost that much each year, $36,000, led by insurance costs, travel and medical expenses.
The Foremans' car and home are paid for. They have assets of almost $375,000, including $103,000 in certificates of deposit, $81,500 in a 401(k) plan and about $36,000 divided between mutual funds and IRAs.
The couple wants to know how to grow their investments with minimum risk and tax liability and stretch their retirement savings.
W. Joe Wilson, a certified financial planner, chartered financial consultant and chartered life underwriter for Corpus Christi Financial Group, analyzed their case.
He said the Foremans have more options to meet their goal because their children are financially secure and they don't need to worry about leaving an estate.
Wilson projects that the Foremans can maintain their current standard of living beyond age 90 given the following: an inflation rate below 4 percent; cost-of-living increases of at least 2 percent on Social Security and government pensions; and a 9 percent return on investments.
But, he warns, a conservative financial plan for retirement should ``consider the living-to-age-100 scenario.''
In financial planning terms, inflation is still a big risk - even for someone who is 67 years old, Wilson said.
``Retirees of past generations did not see inflation as a big threat after retirement. But now it is not uncommon to live 25 and 30 years beyond retirement age.
``Just think back to the cost of a new car, medical bills or travel expenses 20 years ago. Don't forget that when the Social Security system was established based on a normal retirement age of 65, that a man's life expectancy was about 65 and a woman's 67.''
The Foremans also need to address the risk of Edward's premature death and potential costs of long-term care as part of his financial plan, Wilson said.
``Everyone, including the Foremans, should have a valid will, durable power of attorney and a power of attorney for health care. These are documents that communicate your wishes and give your survivors the mechanisms to carry them out.''
Ann's income would decline about 32 percent at Edward's death due to a loss of Social Security income and a 50 percent reduction on their pension, Wilson said.
With their financial assets and Edward's $25,000 in life insurance, she may be OK financially during her lifetime, he said. However, a further analysis shows Edward may want to consider buying more life insurance. If he is a nonsmoker in good health, his current premium outlay of $950 per year should buy him more than $25,000 of insurance.
Wilson said the Foremans should also consider long-term care insurance, which pays for home care, assisted living or nursing home care that Medicare and other types of insurance don't. Long-term care insurance also protects assets and offers a dignified level of care if care is required.
With regard to their investment portfolio and spending needs, Wilson said the Foremans need to keep some basic concepts in mind.
For inflation protection, they should keep 50 percent of their assets in equity-type investments such as stock mutual funds, global and foreign funds and a real estate fund for diversification, he said.
Another option is equity-indexed annuities, which offer the potential for stock market-type returns with the protection of a minimum guaranteed return, usually ranging from 3 percent to 4 percent. ``These are unique financial instruments that utilize a complex mix of government securities and index futures,'' Wilson said.
For the other half of their investment portfolio, Wilson suggests that the Foremans explore the use of immediate annuities - a concept that authors Steve Pollan and Mark Levine write about in their best-selling book, ``Die Broke.''
At older ages, Wilson explains, individuals can buy a guaranteed life income stream from an insurance company that functions ``just like having your own private pension plan that you cannot outlive.''
For example, if Edward put up $50,000, he would get a guaranteed monthly income of $370 as long as he lived (8.9 percent a year guaranteed). When he dies, the $50,000 is gone and the income stops, Wilson said.
``So it might work out for him to spend $100 per month for a $50,000 life insurance policy to protect Ann and have $270 per month to spend,'' he said. ``And if Ann were to pass away first, he could decide to cancel the life policy or keep it in force to fund the grandchildren's education.''
Wilson said there are many forms of immediate annuities and the Foremans should consider all the options before making a choice.
The Caller-Times is seeking people to share their financial situation with the newspaper's readers. Your name will not be used in a story and the financial planner's advice is free. Call Caller-Times business writer Jeffrey Tomich at 886-4316, e-mail him at tomichj@scripps.com or write him at P.O. Box 9136, Corpus Christi, Texas 78469.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web