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Monday, Sep. 21, 1998
Couple hopes money will serve retirement plan
Their goal: Accumulate enough funds to travel, build home on Padre Island
By JEFFREY TOMICH
Staff WriterDale and Lillian Jackson have their retirement mapped out. They want to spend several months a year traveling, build a home on Padre Island and maintain their standard of living.
The Jacksons (not their real name) live in Corpus Christi. They have been married four years and have six grown children between them from previous marriages. Dale, 51, retired from the military five years ago. Lillian, 53, plans to retire from her civil service job next year.
Collectively, the Jacksons earn more than $86,000 a year from Dale's pension and Lillian's income. Their expenses run about $63,000 a year, led by house payments, income taxes and alimony.
Their only debt is a $104,000 mortgage. They have assets of about $315,000 including $100,000 in savings, a waterfront lot where they plan to build their home and $26,000 of equity in their current house.
The Jacksons have several questions about how to meet their financial goals. How do they pay for their new home? Can they shake up their investment portfolio to improve returns? Should they sell poor-performing stocks? Do they have enough life insurance?
Sylvia Ramsey, a certified financial planner with American Express Financial Advisors, analyzed their case.
``It is sometimes overwhelming to take care of all of the things that you need to do prior to retirement,'' she said. ``I suggest that the first thing that they do is prioritize.''
The fact that the couple has no credit card debt or personal loans is a plus, Ramsey said. What they need to do, however, is determine what their income need will be in retirement and whether their travel plans will require more money.
Their expected annual income after Lillian retires will be $61,000. Based on that amount and current annual expenses of $62,500, maintaining their standard of living would result in an annual budget deficit of $1,500, Ramsey said.
That might be offset somewhat if the Jacksons' expenses decrease when Lillian retires, Ramsey said.
The projection also doesn't include Dale's Social Security payments, which he can begin to draw in 11 years. Ramsey estimates payments of $13,500 per year if he begins drawing Social Security at age 62 or $16,800 if he waits until age 65.
The Jacksons now contribute $100 a month to a growth and income mutual fund and $166 a month to a Roth IRA for a total annual savings of $3,192. They won't be able to contribute to the Roth IRA when Lillian quits work due to the loss of earned income.
The couple's investment portfolio is conservative. About 90 percent of their investment money is in fixed accounts, such as money market and savings accounts. The other 10 percent is invested in variable accounts such as mutual funds and stocks.
``They may want to be a little more aggressive and go with a moderately conservative portfolio to potentially increase their rate of return,'' Ramsey said.
``(Dale and Lillian) will need to increase the return on their investments in order to meet their current expenses, keep up with the rate of inflation and have some extra money to travel.''
Ramsey said a moderately conservative portfolio for the next seven to 11 years would consist of: 40 percent income investments or bonds; 25 percent growth and income investments; and 35 percent growth investments.
``This balance of investments have had an annualized historic rate of return of 10.8 percent,'' she said. ``Of course, past performance doesn't guarantee future results.''
The Jacksons are unhappy with their current stock investments. The $5,000 they invested in stocks is down approximately 66 percent. Yet, their mutual fund investments with another financial institution have done well.
Ramsey said the couple should consult a financial adviser to decide whether the stocks are meeting their goals and discuss their risk tolerance and the possible consolidation of investments.
If the Jacksons plan to sell some of their stock, they also need to consider the potential tax liability, she said.
As for the home the Jacksons plan to build, Ramsey suggests they check with a mortgage company to determine the best type of loan and whether to use the equity in their lot to make their down payment.
If mortgage rates stay low, they may be able to lock in a low rate and not invest all of their available cash into their mortgage. Also, Ramsey said the couple should maintain some cash for emergencies and for their investments.
The Jacksons wonder if they have the right amount of life insurance. Dale has a $250,000 death benefit on himself with Lillian as the beneficiary and a $100,000 death benefit on Lillian with himself as the beneficiary.
Ramsey said it's important for Lillian to know what Dale's military retirement provides in case of his death. She said Lillian will need further financial assistance calculating an appropriate amount of insurance to provide her with survivor income.
The Jacksons didn't mention whether they have a will - something many people overlook.
``(The Jacksons) need to spend some time and get with an attorney to have their will prepared along with durable power of attorney documents with health care provisions and living will documents to make arrangements involving life-saving measures,'' Ramsey said.
She also recommends that the Jacksons check with their insurance agent about increasing the deductible on their auto insurance to save money on their premiums and review their coverage to see if they have adequate liability insurance.
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