Couple’s Retirement : Not Impossible Dream, Despite Change in Jobs
After working for Sears, Roebuck & Co. for 28 years, William Stanton figured his retirement plans were set. His pension would support him and his wife, Bridget, comfortably when added to income from three rental properties.
But Sears laid off Stanton, a catalogue warehouse manager, five years ago during a company restructuring. Stanton, now 57, said he was fortunate to find another job right away, but he was left with only a small retirement fund.
“I don’t see the possibility of retiring with $372 a month from Sears,” Stanton said. “Even if I sold my properties, the government would take 40% in capital-gains tax, so I can’t stop. I don’t see a way out of having to work.”
Stanton is now a warehouse manager for a pharmaceuticals company in Vernon. The job provides no retirement benefits.
Diane Wood, a certified financial planner with Diane Wood Investment Advisors in Los Alamitos, studied the Stantons’ financial situation and is optimistic about the couple’s financial future. By finding investment strategies now that will provide income later, the Placentia couple should be able to retire soon and live comfortably, Wood said.
She also suggested that the couple protect their assets with more insurance. The Stantons are “seriously underinsured” and risk draining their nest egg should one of them become disabled or require long-term nursing care, Wood said.
Wood asked Stanton during a review of his finances whether his wife would be financially secure should she outlive him.
“Not really,” Stanton replied. “I do have $100,000 in life insurance.”
The $100,000 “would bury you in high style,” Wood said, but would not be adequate income for his wife.
Wood suggested that Stanton not only increase his life insurance but add earthquake coverage on his properties, disability insurance to replace part of his income should he become unable to work and a long-term care policy for his wife, who is 61 and, according to actuarial tables, is likely to outlive him by several years and could need at-home or nursing-home care.
Ranjit Rai, owner of Rai’s Insurance Service in Anaheim, seconded Wood’s advice that more insurance is needed.
“That $100,000 is not going to do anything for his family,” Rai said of Stanton. A life insurance policy should be sufficient to pay off a family’s major liabilities, like the $325,000 owed on the rental properties, as well as provide an amount of money that could be invested to provide a comfortable income for survivors, Rai said.
Buying disability coverage would also be wise, Rai said, because state and federal programs would not provide enough income for the family. Once Stanton retires, he should also seriously consider buying a long-term care policy for his wife, he advised.
Counting their home, rental properties, savings and stocks, the couple have a net worth of about $824,000, Wood noted. Stanton said he was surprised that the total is so large.
“Don’t let my kids see that,” he joked.
The potential problem, Wood said, is that nearly all of those assets are tied to real estate, and property cannot always be sold easily when cash is needed.
On the other hand, the rental income plus Stanton’s monthly income of $3,300 put the couple in the enviable position of having cash on hand at the end of the month, Wood said. Right now, that money goes into a credit union savings account.
Socking away investment income in a savings account is not the wisest strategy, Wood said. The money is on hand now, when it is not needed, she said, rather than set up to produce income later, when it may be needed.
She recommended that the couple use their $50,000 in savings to start an investment portfolio that would provide a higher rate of return, then add each month’s surplus cash to that account.
If the couple decide later to sell one of the rental units, Wood said, they might consider giving the property to a charitable trust. Such a trust could sell the property tax-free, and proceeds from the sale could then be invested to ensure the couple an income during their retirement years, she said.
“It is a way to take income now that Bill and Bridget don’t need and turn it into income in the future when they will need it,” Wood said.
The advantage of setting up a charitable trust would be that all of the money from the home sale, rather than just the after-tax proceeds, could be invested to generate retirement income, she said. The disadvantage would be that the Stantons would lose the actual money from the home and could draw only from the investment earnings.
Another possibility would be to sell the rental properties outright and invest the after-tax proceeds to create a retirement fund, she said.
Stanton said that the experts’ advice breathed some optimism into planning for his financial future--a task he said he had been putting off.
“It made me feel more confident because before I wasn’t looking at the future,” Stanton said. “Frankly, after having lost my job after 28 years, I was only worried about holding onto my current job and keeping what I already had.”
Profile: Household Income Over $40,000; Nearing Retirement
The Subject
Name: William Stanton, 57; Bridget Stanton, 61
Occupation: He, warehouse manager; she, homemaker
Assets: Home valued at $270,000; 1991 Chevrolet Lumina valued at $15,000; $55,000 in savings; investments totaling $47,000; pension funds valued at $50,000; rental properties valued at $730,000. Total: $1,167,000 Liabilities: $6,000 owed on a home mortgage; $12,000 owed on a car loan; $325,000 owed on rental property mortgages. Total: $343,000
Financial goals: Develop an investment strategy that will allow comfortable retirement.
Advisers to Stanton Family
Name: Diane Wood, 49
Title: Certified financial planner
Company: Diane Wood Investment Advisors
Background: Certified financial planner since 1982; registered investment adviser since 1983. President of the Los Angeles Society of the Institute of Certified Financial Planners
Name: Ranjit Rai, 32
Title: Insurance agent and broker.
Company: Rai’s Insurance Service, Anaheim
Background: Insurance broker since 1982.
Researched by TOM McQUEENEY / For The Times
