PERSONAL FINANCE : FIRST STEPS : HOW 3 INVEST : Inflation Puts His Retirement Plan to the Test
James Doell never gave much thought to his retirement. He never dreamed of what he would do with all his free time, and he never figured out a financial plan to make sure he could afford it.
So when the time came in January for Doell to retire from Lockheed, he didn’t exactly grab the gold watch and run for the nearest exit.
“Everyone was saying how wonderful retirement was so I thought I would give it a whack,” says Doell, 66, of Woodland Hills. “But I made it clear I wouldn’t mind coming back on a part-time basis.”
Only months before his scheduled retirement, Doell met with Mark Pash, a Toluca Lake financial planner, during a Lockheed seminar for employees. Pash didn’t mince words: Unless Doell had a retirement plan drawn up quickly, working part-time wouldn’t be a choice--it would be a necessity.
Doell receives $2,100 a month from pensions with Rockwell and Lockheed along with $800 a month from Social Security. His wife, Lillian, 65, receives another $300 a month from Social Security.
“He had a substantial portion of his net worth in his pension and Social Security income,” Pash says. “Pensions and Social Security are deflationary. They don’t keep up in rigorous inflation.”
Pash advised Doell that 60% of his portfolio should be placed in inflation-hedged investments such as real estate and oil and gas limited partnerships, 20% in deflation-hedged vehicles such as his pensions and the rest in savings and other investments that would protect his principal in case of emergency.
Doell had $149,000 invested in Lockheed and Rockwell retirement plans, which Pash rolled over into a self-directed individual retirement account, the type an investor can actively manage.
Those IRA funds went into inflation-hedged investments that pay income, Pash says. Some $90,000 went into no- or low-debt real estate partnerships including Associated Planners Realty Fund (invests in West Coast commercial properties; current return 8%), American Retirement Villas Properties (retirement hotels; current return 4.5%) and Pacific Real Estate Investment Trust (Northern California shopping centers; current return 6.6%).
“The average investment is around $6,000 per partnership,” Pash says. “Diversity lowers the risk.”
Another $15,000 went into three oil and gas partnerships: Enex 88-89 Income and Retirement Fund (current return 11%), REO Production Income I-D (new fund, no return yet) and Swift Energy Income Partners 1986-D (current return 12.1%).
“I liked them because one of the biggest inflationary factors is the price of oil and gas,” Pash explains. “There is no debt or mortgage on the properties so income should average between 10% and 15% almost immediately and should go up when the price of oil and gas goes up.”
The remaining $10,000 was split evenly into a business partnership, Technology Funding Secured Investors II, and a leasing partnership, Equitec Venture Leasing Fund 10 (new fund, no current return).
Technology Funding is a fund of venture capital loans to neophyte companies and warrants from them. “We get a nice income and if they go public and do well, we get a nice bonus,” Pash says.
Still within his IRA, this to preserve principal, Doell has about $39,000 in Integrated Cash Fund, a money market account (current yield 6.32%).
Outside his IRA, Doell has kept $22,000 in certificates of deposit. And Pash had Doell invest $25,000 in a single-premium whole life insurance policy with Beneficial Standard Life Insurance Co. (current return 8%).
Noticeably absent from Doell’s portfolio are stocks. “I don’t believe a retired person should be in the stock market,” Pash says.
“It is a high risk scenario retirees don’t belong in.”
Doell’s monthly income from the portfolio is now $1,300, all of which is automatically reinvested since he continues to work part time.
