Ready to reap rewards of 30 years of saving
George and Virginia Filart have seen their share of financial ups and downs since they emigrated from the Philippines more than 30 years ago with just a few hundred dollars in their pockets.
Back then, George landed a job as a design engineer and Virginia found work as a nurse. But George’s career has had some rough spots -- he was laid off four times during construction downturns, and each time, the couple exhausted their savings, then rebuilt their financial safety net.
Now, with George’s retirement perhaps five years away, the Filarts wonder whether they can ride out another rough market and reap the rewards of a lifetime habit of saving -- aided by their knack for living below their means.
“We know we can go over the hurdles of hard times,” George said. “But I’m nervous because of the stock market.”
The huge Wall Street plunge this year has battered their retirement accounts, which they now realize weren’t arranged well in the first place.
“When it comes to stocks, I’m just throwing darts,” George admitted.
Through the rough patches, the Chino Hills couple held on to real estate as a long-term investment, and they’ve done quite well with those holdings. George, 62, and Virginia, 57, own two homes for themselves and rent out two former residences.
“They’ve been a bit lucky they haven’t gone off the deep end with their stock investments. It’s really the real estate that’s saved them,” said Dirk Huybrechts, a certified financial planner with HFM Advisors in Brentwood.
During this downturn, the couple have more than just experience to rely on. The Filarts now earn nearly $228,000 in combined annual salaries and $27,000 in rental income. They also have amassed nearly $1.8 million worth of real estate and $536,000 in savings.
Their debts -- car loans, credit card balances and two mortgages -- amount to $685,000.
“We came from families that know how to value money. Even when we didn’t have much money, we wanted to make what we had grow,” George said.
Huybrechts noted: “It’s really the old story that if you start young and save consistently through thick and thin you can survive the downturns.”
The couple are used to buckling down during hard times. When George endured a year of unemployment, he became an expert coupon clipper and hand-delivered his resume to random companies in nearby business parks.
After another layoff, he took a job in another state for two years while Virginia doubled her shifts at the hospital to help keep the family afloat.
All along, they held on to their real estate.
The Filarts still own the first home they bought in West Covina in 1977 for $67,000, as well as a second home in Pomona that they moved into several years later when their family swelled with three children. The couple have paid off the mortgages on those properties and rent them out. They also own, besides their Chino Hills home, a vacation home in Las Vegas, where they hope to retire.
The pair have stashed $496,000 in retirement accounts and an additional $40,000 in checking, savings and investments.
But the market routs on Wall Street combined with their investment strategies are sabotaging them.
Their retirement holdings are out of whack with more than 70% invested in stocks. That’s a risky allocation as they near retirement and one that’s given them less shelter from the stock market tumult, Huybrechts said. He estimates the Filarts’ retirement accounts have lost at least 20% just in the last five months.
George also has made bad bets with other investments. He sank $10,000 in stock of Washington Mutual, which was seized by regulators in September and sold immediately to JPMorgan Chase & Co. The stock now is nearly worthless. An additional $25,000 languished for years in a brokerage account, where losses have reduced the value to $11,000.
After years of scrupulous saving, the Filarts rewarded themselves recently with new purchases that piled on the debt. The couple treated themselves to a BMW 328i and a Lexus 430, creating $81,000 in car loans. They also splurged on a player piano and luxury watch from Tourneau, adding roughly $13,000 in credit card debt.
George said he had already paid off $9,000 of the credit card debt and the remaining balance carries 0% interest for two years.
Huybrechts figures the couple can handle their car loans, though they’ll be saddled with that debt in retirement. Given their income, Huybrechts said their other obligations were manageable as well. They have fixed-rate mortgages on their Chino Hills and Las Vegas homes, paying roughly $2,700 and $1,200 a month, respectively.
With a fluctuating construction industry and the devastated economy, Huybrechts said, the Filarts should temper their spending. They also need to get a better handle on their household finances: Neither George nor Virginia track their expenses, and they save by touch and feel rather than in any measured way.
Huybrechts wants the couple to deposit as much as 10% of their income into one- to three-month certificates of deposit so they can create a dedicated emergency fund and have more liquidity.
The Filarts also need to reallocate their retirement savings and be more conservative about investing. George, for example, spontaneously dumped money into the brokerage account after getting a cold call from a salesman several years ago. And he invested in Washington Mutual because he had been a longtime banking customer.
Huybrechts recommends that they continue to contribute the maximum to their retirement accounts. And he wants George to consolidate his three retirement accounts into one. The couple should start now, he said, to reallocate their retirement money into a diversified mix of stocks, bonds and cash. He recommended putting 28% in large company stocks; 27% in small, international and emerging market stocks; 39% in bonds and 6% in cash.
He advised the Filarts to sell their Washington Mutual stock for whatever it is worth and take the loss on their income tax return. They also should pull their money from the brokerage account and invest it in a mutual fund company with lower fees, allocating about 60% of the money to bonds and 40% to stocks.
As for ongoing retirement income, the Filarts will have plenty to bank on. And with three adult children on their own, their financial obligations won’t extend beyond themselves. George plans to retire when he turns 67 but said he might work longer if he was still enjoying it.
After Virginia turns 66, they should receive close to $53,000 annually in Social Security, about $31,000 in inflation-adjusted rental income, a $7,500 annual pension for George and $36,000 for Virginia. That should give the Filarts at least $127,500 in yearly income.
Because they’ll have substantial cash flow, Huybrechts recommends that they wait to draw on their retirement accounts until they reach 70 1/2 years of age and then take 4% annually.
“They’re pretty bulletproof because in a worst-case scenario, they could always sell their real estate,” Huybrechts said.
With that much money, the Filarts would like to travel while they’re healthy, returning several times a year to visit relatives in the Philippines.
Virginia said she would like to give more of their money to charity. She has donated more than $10,000 to her church over the years, and five years ago, she began financially helping a 9-year-old girl in the Philippines through a Christian relief organization, and is helping another girl who is attending nursing school there.
“I want to give back and share the blessings we’ve received,” Virginia said.
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This week’s makeover
Who: George and Virginia Filart of Chino Hills.
Income: $255,000 in salaries and rental income.
Goals: Make sure the couple’s retirement accounts are properly invested and that they are on track for retirement in five years.
Assets: Real estate valued at nearly $1.8 million, consisting of a Chino Hills residence at $745,000, Las Vegas vacation/retirement home at $250,000 and two rental properties, a Pomona home at $411,000 and a West Covina home at $376,000. Retirement accounts totaling $496,000, and savings, checking and investments totaling $40,000.
Debts: $685,000 in car loans, credit card balances and two mortgages.
Recommendations: Reallocate retirement funds to balance them more and make them less vulnerable to market declines; start tracking spending and savings; dedicate 10% of income to short-term savings for emergencies and continue to contribute the maximum to retirement accounts.
About the planner: Dirk Huybrechts is a certified financial planner with HFM Advisors in Brentwood.
