Money Make-Overs : Did you...
After working for Sears, Roebuck & Co. for 28 years, William Stanton figured his retirement plans were set. His pension would support Stanton and his wife, Bridget, comfortably when added to their income from three rental properties.
But during a company restructuring five years ago, Sears laid off Stanton from his job as a catalogue warehouse manager. He was fortunate to find another job right away, but was left with only a small retirement fund.
Stanton’s current post as warehouse manager for a pharmaceuticals company in Vernon, meanwhile, provides no retirement benefits.
“I don’t see the possibility of retiring with $372 a month from Sears,” said Stanton, 57. “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.”
The good news is that his view may be excessively bleak.
When certified financial planner Diane Wood studied the Stantons’ financial situation, she was 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, said Wood, whose investment advisory firm is quartered in Los Alamitos.
She also suggested that the couple find better ways to protect their assets. The Stantons are “seriously underinsured,” Wood said, and risk draining their nest egg should one of them become disabled or require long-term nursing care.
During a review of his finances, Wood asked Stanton whether his wife would be financially secure if she outlived 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 provide an adequate income for his wife.
Besides more life insurance, Wood recommended that Stanton add earthquake coverage for his properties, disability insurance to replace part of his income should he become unable to work and a long-term care policy for Bridget Stanton, 61. According to actuarial tables, Wood noted, she 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 the family needs more insurance.
“That $100,000 is not going to do anything for his family,” Rai said. A life insurance policy should be sufficient to pay off a family’s major liabilities--the $325,000 owed on the rental properties, for example--as well as provide a sum that could be invested to provide a comfortable income for survivors, Rai said.
Counting their home, rental properties, savings and stocks, the couple has a net worth of about $824,000, Wood noted.
Stanton said he was surprised that the total was 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.
That isn’t the wisest strategy, Wood said: The money is on hand now, when it isn’t needed, rather than being set up to produce income later, when it may be needed.
She recommended that the Stantons sink their $50,000 in savings into an investment portfolio that would provide a higher rate of return, then add each month’s surplus cash to that account.
If the couple decides later to sell one of the rental units, Wood said, they might consider putting the property in a charitable trust. Such a trust could sell the property tax-free; 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 could draw only from the investment earnings; the principal from the sale would go to their designated charity after their deaths.
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 the experts’ advice breathed some optimism into his financial planning.
“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.”
The Stanton Family
Profile: Household Income Over $40,000; Nearing Retirement
Names: William Stanton, 57; Bridget Stanton, 61
Occupations: 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.
