A New Equation
Benny Wasserman may not be an Einstein, but he plays one on TV.
Wasserman, 64 and retired, makes $7,000 or so a year acting the part of the fuzzy-haired genius in commercials (Store of Knowledge), print ads (Toshiba, Harley-Davidson) and movies (“Leave It to Beaver” and an Imax production now playing at Disney World).
That’s just pocket money, of course, from a sideline Benny started pursuing a few years ago as a lark. The main sources of income for him and wife Fern, 60, are the $1,716 she makes monthly as a sales clerk at a floor-covering distributor, his $1,650 pension and his $1,000 Social Security check.
The La Palma couple had thought that with $174,000 so far in their retirement accounts and almost $140,000 equity in their home, they would be pretty well fixed as senior citizens--perhaps so well fixed that it would be feasible for Fern to stop working before her 62nd birthday. They’ve envisioned days spent with Fern puttering in the garden as Benny combs through library materials researching his book on the adolescences of U.S. presidents.
And it might really work that way if neither ever becomes seriously ill, if their home never needs a major repair and if they’re able to reduce their standard of living significantly as inflation erodes the buying power of Benny’s fixed pension over the next two or three decades.
Unfortunately, reality has a nasty habit of catching up with even the most unshakable optimists. The fact is, said fee-only financial planner Jill Hollander, the Wassermans have simply not saved enough for retirement.
Saving, Spending
For their part, the Wassermans, both of whom come from modest circumstances, have trouble with the idea that their six-figure nest egg, complemented by Social Security, Benny’s pension and the fact that his former company provides lifetime health benefits, will not be enough.
Fern’s father was a grocer and Benny’s was a baker. Benny began working at the age of 10, sweeping floors at a printing company. He served in the military after high school, then went to trade school on the GI Bill, working nights sorting checks at a bank.
Benny and Fern, who were fixed up on a blind date, almost didn’t meet. He called her mother to cancel because he couldn’t afford to take her to dinner. Fern’s mother insisted he come over for cake. Eleven days later, he proposed.
Under the GI Bill, Benny studied radio and TV repair, eventually taking jobs involving electronics. Also thanks to Uncle Sam, the couple were able to buy a home. Two years after they were married, they got a $16,300 house with FHA financing requiring just $500 down.
In the mid-’60s, though, the Wassermans liquidated their assets--for the first and, unfortunately, not the last time--and spent the proceeds. They were acting on questionable financial advice--for the first and, unfortunately, not the last time.
“Benny was never happy with what he did for a living,” Fern said. They sold the house to raise money so Benny could go back to school to become a sociologist. It never happened.
“A friend convinced him to invest the money in real estate and become independently wealthy, so we bought six duplexes in L.A.,” Fern said. The deal went south, and the Wassermans went broke.
Then in 1967, Benny went to work as a technician at TRW, making his way up to product manager and topping out at $65,000 a year before retiring with a golden handshake at 58. Fern returned to the work force in the late 1970s.
In the meantime, Uncle Sam helped them buy a new house--their current one in La Palma--courtesy of a Veterans Administration program that helps veterans secure home loans with no money down. And the couple helped put all three of their sons through undergraduate and graduate school, producing one doctor and two lawyers.
How? “By not saving anything for ourselves,” Benny said. “We’re the typical parents who didn’t have a lot of education and wanted our kids to do better and see that things didn’t get in their way.”
The couple never lived on a budget. “If the money was there, one way or another, we’d spend it,” Benny said. “If the kids needed it, that’s where it went.”
Need for Discipline
Benny would have money taken from his pay every month with the intention of saving it in the firm’s retirement-saving plan, but by the end of each year, he’d withdraw the sum and he and Fern would use it for tuition and vacations.
Finally, the plan rules were tightened, making it harder to withdraw retirement savings imposing heavy penalties if you did. That got Benny’s attention.
Their retirement savings began to accumulate, and Benny began bringing home more money as he worked his way up to product manager.
Shortly after Benny retired, the couple were at it again. They took out a $110,000 mortgage on their La Palma home, which was nearly paid for then, to raise cash.
“The money’s gone,” said Benny. It paid for an addition to their house and a Ford Crown Victoria and paid off credit card debt. A chunk of it went to youngest son Mark, who was studying law.
Now what to do?
None of us wants to work into our dotage, depend on our kids or government programs to carry us through our later years. But if fate is not kind to the Wassermans, it could very well come down to that.
“I never want to depend on our sons financially,” Benny said. “I hate to see young people saddled with debts.”
The couple can’t undo the past, Hollander said, but they can put themselves in a better position if they stop spending every dollar they get their hands on and impose the financial self-discipline they’ve lacked so far.
First, they should establish an emergency fund.
“You don’t want to use your nest egg as a bank,” said Hollander. Which is what the Wassermans have already done, when they needed to pay off a $5,000 loan.
Investment Education
They should use the money from Benny’s Einstein gigs to build an emergency fund equivalent to at least three months’ living expenses. Hollander suggested that they keep this cash in a money market account, which would pay higher interest than a regular savings account yet be readily available if needed. That’s need, as in broken water heater, not want, as in tour of western Canada.
Next, they should attend to Benny’s problematic individual retirement account, which contains about $132,000.
For starters, it’s in an annuity. One of an annuity’s chief advantages is that it is a tax-deferred savings vehicle--but an IRA is already tax-deferred. Second, annuity salespeople often make much of the fact that there is a death benefit. But an IRA already has a “death benefit”--when one spouse dies, the money rolls over to the surviving spouse.
The Wassermans are by no means alone in having made this mistake. “An annuity is an insurance product, so people make commissions selling them,” Hollander pointed out. She suggested that the Wassermans start educating themselves about investments, that they be more critical in accepting financial advice from friends and that before putting their faith in any investment professional they interview several, making sure the people have solid references and proven track records.
Oddly, even though Benny told his financial advisor--another friend--that he was risk-averse, the annuity is invested in Templeton Pacific Growth I (five-year average annual return: -9.2%), an international fund with most of its assets in Asia.
“Have you read the news about Asia lately?” Hollander asked. “I don’t consider an Asian sector fund to be a conservative investment.”
Then there’s the matter of expenses. The fund is a load fund, and the annuity levies an extra 1.5% in annual expenses on top of that. Since there would be no surrender fee for Benny to exit the annuity, Hollander recommended that he roll it over into a regular IRA and start from scratch, investing it in a mix of no-load mutual funds with an eye toward growth, and that he reinvest the dividends.
Going for Growth
Growth funds for people in their 60s? That’s right. The Wassermans may not be able to reverse all the damage from 40 years of mistakes, but they can make an effort to keep ahead of inflation without taking undue risks, so they’ll have as much as possible for their later retirement.
Hollander chose several funds that the couple could obtain through Charles Schwab, which Hollander suggested because it is a discount brokerage and its mutual fund “supermarket” would make having a varied fund portfolio simpler for the couple--they’d just be receiving one statement.
Hollander laid out a suggested portfolio emphasizing growth but that also would include less risky funds to help the portfolio survive a market downturn. Through the funds, the couple would be invested in different-sized U.S. companies, overseas firms and bonds.
The IRA would be invested like so: $30,000 would be split between two bond funds: Vanguard Fixed-Income Short-Term U.S. Treasury (five-year average annual return: 5.5%) and Vanguard Fixed-Income GNMA (five-year average annual return: 7%), which invests in Ginnie Mae mortgage-backed securities. Two funds invest in a conservative combination of stocks and bonds: $18,750 would go into UAM FPA Crescent Institutional (five-year average annual return: 17.31%), which individuals can invest in, and $12,500 into T. Rowe Price Capital Appreciation (five-year average annual return: 13.6%). Ten thousand dollars would go into Selected American Shares (five-year average annual return: 20.5%), an equity-income fund that emphasizes large value stocks. Two mid-cap growth funds would get $12,500 each: Tweedy Browne American Value (less than five years old) and Oak Value (five-year average annual return: 22.4%).
For more diversity, Hollander suggested the Wassermans put $10,000 into Artisan International, a relatively new foreign stock fund. This portfolio is managed by Mark Yockey, who built a strong long-term record with a previous fund. To help protect the couple from a downturn in the stock market, Hollander suggested they put $18,750 into Gateway Fund (five-year average annual return: 9.8%), a hedged index fund that invests in the Standard & Poor’s 100 stocks and uses puts and calls to manage risk. The remainder could stay in a money market fund to be readily available should they need to draw on it quickly.
Vital Decisions
Another project is remedying the fact that the Wassermans lack the basic documents that couples should have, such as a will, a living will and financial and medical durable powers of attorney so their sons can make vital decisions for them should Benny and Fern become incapacitated.
“You should have a family meeting to tell your children where your assets are located and to express your wishes to them,” Hollander said. “It’s so much easier on your children if they have this information.”
Hollander urged Fern to consider working until she is at least 62. Working longer would delay the hit their income will take when she trades in her salary for a Social Security check that would be less than a third of what she currently makes. Plus it would extend the time Fern has to build her 401(k). She has $42,000 in it now, but she is not contributing to the account.
Nonetheless, Benny is hopeful he can get Fern out of the floor-covering business and into the backyard garden sooner. He recently spent $1,100 on a Screen Actors Guild membership in the hope that he’ll land an Einstein gig that’ll generate residuals until his hair falls out.
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Stephanie Losee is a New York-based writer whose work has appeared in Fortune and other national magazines. She can be reached on the Internet at slosee@aol.com. To be considered for a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
Information about choosing a financial planner can be found at The Times’ Web site at https://www.latimes.com/finplan.
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The Situation
* Investors: The Wassermans, Benny, 64, and Fern, 60
* Gross annual income: About $59,000
* Financial goals: Maximize retirement income
* The problem: Tendency to raid savings periodically
* The plan: Commit to living within means and follow a sound investment program
This Week’s Make-Over
* Investors: The Wassermans, Benny, 64, and Fern, 60
* Occupations: Benny, retired but has sideline business as actor/model; Fern, sales clerk
* Gross annual income: About $59,000
* Financial goal: Maximize return on savings for retirement
Current Portfolio
* Real estate: $138,000 equity in La Palma home worth $240,000
* Retirement accounts: Benny, $132,000 in IRA annuity invested in Templeton Pacific Growth I mutual fund; Fern, $42,000 in 401(k).
Recommendations
* Start living within their means and stop raiding savings. Educate themselves about investing.
* Roll over Benny’s IRA from the annuity into a diversified selection of mutual funds.
* Start an emergency fund with income from Benny’s sideline until there is enough to cover three to six months of living expenses.
* Fern should work as long as possible, at least until age 62, so the couple can delay a drop in income and save more.
* Draw up wills, living wills and financial and medical durable powers of attorney.
Recommended Mutual Fund Purchases
Artisan International (800) 344-1770
Gateway Fund (800) 354-6339
Oak Value (800) 622-2474
Selected American Shares (800) 243-1575
T. Rowe Price Capital Appreciation (800) 638-5660
Tweedy Browne American Value (800) 432-4789
UAM FPA Crescent Institutional (800) 638-7983
Vanguard Fixed-Income
Short-Term U.S. Treasury (800) 662-7447
Vanguard Fixed-Income GNMA
Meet the Planner
Jill Hollander is a fee-only certified financial planner and registered investment advisor with Gladstone Managed Investments in Berkeley.
