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Monday, Sep. 14, 1998
Retirees wish to maximize income
Couple must review pension survivor options, then plan accordingly
By JEFFREY TOMICH
Staff WriterBen and Marjorie Neff want to stretch their retirement income to the fullest.
The Neffs (not their real name) have lived on the same street in Corpus Christi since 1960.
Ben, 77, is retired and suffered a stroke a few years ago that has left him partially impaired. He served in the Navy until 1960 and worked another two decades for a Corpus Christi industrial plant.
Marjorie, 72, is in good health and works two days a week. She also volunteers once a week at a local hospital.
Collectively, the Neffs earn just more than $34,000 a year from Ben's two pensions, Marjorie's part-time job and their investments. With no debt, their annual expenses run about $17,600, led by income taxes, utilities and dining out.
Their financial goal is to maximize their retirement income. Specifically, they want to know if they should re-allocate their investments, if they should buy long-term care insurance and if it makes financial sense for Marjorie to keep her part-time job.
Jim Mailhes of Corpus Christi Financial Group analyzed the Neffs' case. He is a chartered life underwriter, chartered financial consultant and certified financial planner.
He projects that the couple's current income and investments are enough to provide an inflation-adjusted income of $2,000 per month until Marjorie reaches age 107.
That projection depends on several assumptions: that Marjorie will work to age 75, a 4 percent inflation rate, a 2.5-percent annual adjustment for Social Security and an annual 6.72 percent return on the couple's assets.
If Ben died before Marjorie, the amount of Social Security payments would decrease and Ben's pension income would be cut in half, Mailhes said. In that case, the Neffs' income would last until Marjorie is 94.
``It's important to review the survivor income options for both (of Ben's) pensions and plan accordingly,'' he said. ``If they are less, it could have a substantial effect on future income.''
All of the Neffs' assets are invested in municipal and corporate bond mutual funds.
Because of their marginal, 15 percent tax bracket, the couple would be better off switching their municipal bonds to taxable bond funds that would yield a higher return, even after taxes, Mailhes said. This should be verified by doing a taxable-equivalent yield calculation using their current portfolio.
Marjorie is curious if it is worthwhile for her to continue working since the income from her part-time job affected the amount of their Social Security income last year.
``(The Neffs) must calculate what is referred to as `provisional income' to determine the taxability of their Social Security income,'' Mailhes said. ``This figure is calculated by totaling adjusted gross income, municipal bond income and one-half of Social Security income for the year.''
If that figure exceeds $32,000 for a joint-return filer ($25,000 for a single filer), then up to half of their Social Security income is taxable, he said. The percentage increases to 85 percent if provisional income exceeds $44,000 for joint filers ($34,000 single).
There are ways to reduce adjusted gross income by using tax-deferred investments like annuities or switching to growth investments that pay little or no annual income, Mailhes said. Also, the Neffs shouldn't withdraw retirement plan money that becomes taxable unless it is needed for expenses. Instead, they should continue to allow retirement funds to grow tax-deferred.
Marjorie could also reduce her working income. But if she enjoys her job, taxes should not stop her, Mailhes said.
Based on medical information provided by the Neffs, it's doubtful that Ben could qualify for long-term care insurance, Mailhes said. Marjorie, however, should be able to buy a policy, which pays for costs associated with providing care to people who can no longer perform certain activities of daily living.
Because of advances in medical science, people are living longer today. That means many people will spend some period in their life needing long-term care, Mailhes said.
A comprehensive long-term care policy provides care either in-house, in an assisted living facility or in a nursing home. In Corpus Christi, nursing home costs now run about $30,000 a year for a semi-private room, he said.
Today, many people are using personal wealth for these expenses rather than depending on family or charities, Mailhes said.
``When selecting a policy, you must consider that this is coverage that you won't need for 10 to 20 years, so it must come from a strong company and it must have some sort of inflation factor built in,'' he said.
Because health is a major factor in determining eligibility for long-term care insurance, buying it at a younger age should be strongly considered. Family history should also be noted in determining the need for long-term care insurance, Mailhes said.
In the Neffs' case, Marjorie could help provide some of the care for Ben, but it's unlikely she would have someone to help her care for her husband later in life, he said.
Mailhes said long-term care insurance is sometimes referred to as ``dignity insurance'' because they provide peace of mind for policyholders who don't want to become dependent on children to provide for them financially in old age, Mailhes said.
Finally, if the Neffs aren't earning 5 percent on their $13,000 in savings, a money market mutual fund could provide this while offering safety and check-writing privileges, Mailhes said.
It's also important that both Ben and Marjorie have up-to-date wills, durable power of attorney documents that include health care elections, and living will documents that deal with issues involving catastrophic life-saving measures.
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