Diligence Puts Couple on Track to Early Retirement


Gary and Adrianne Glass hardly seem like budding millionaires. Neither has ever earned more than $55,000 a year, and the Hawthorne couple have lived on one income since Adrianne was laid off last summer.

But thanks to frugal habits, diligent saving and jobs that provided pensions, the Glasses are well on their way to their major goal of retiring in nine years when Gary turns 55.

By then, the couple’s $607,000 in savings is projected to grow to $1.4 million. That assumes that Gary continues contributing 10% of his earnings to his 401(k) account and that the funds grow at a 9% average annual rate.

“You are a great role model for a lot of people who live way beyond their means or who haven’t managed their finances nearly as well,” said Gary Caine, a Culver City fee-only financial planner and actuary who reviewed the Glasses’ finances at The Times’ request. “Because you started in your 20s, you’re now in a great position, even though you’re only in your 40s.”


Caine said that many people don’t even think about retirement until they hit their 40s, “and then it becomes much more difficult because there is a shorter time horizon for their funds to grow.”

That doesn’t mean the Glasses’ financial planning has been flawless, however. Their investments are too concentrated in large-company stocks and their portfolio desperately needs diversification, Caine said.

The Glasses also haven’t planned sufficiently for illness or death, he said. Like many couples, the Glasses have failed to draw up a will or make other estate-planning arrangements. Caine said the Glasses are good candidates for long-term care insurance, because a lengthy illness or nursing home stay could easily wipe out their savings.

The Glasses built their nest egg mostly through Northrop Grumman’s 401(k) retirement plan. Both started working at the aerospace company more than 20 years ago. Gary, 46, is an inspector at Northrop’s aircraft factory in Hawthorne. Adrianne, 43, was a purchasing representative until she lost her job in a round of layoffs last July.


By starting early and plowing all their contributions into stock funds rather than more conservative investment options, the couple have enjoyed the full benefits of compounding growth. In the last decade, the stock market’s strong performance has doubled the couple’s savings about every four years.

“It’s amazing how much it’s grown, considering that I was kind of oblivious to what the savings plan was when I started at 21,” Gary said.

Adrianne rolled her Northrop 401(k) money into an individual retirement account when she was laid off. That account, which is invested in the Vanguard 500 Index fund, is now worth $227,000. Gary has $344,000 in his 401(k) account, invested in a fund that roughly matches the performance of the S&P; 500. The couple’s other savings, $36,000, is also invested in the Vanguard 500 Index Fund.

Those savings won’t be the Glasses’ only source of retirement income. With 32 years of service at Northrop, Gary will receive an annual pension of about $24,000 at 55. When Adrianne turns 55, she will receive a $7,000 annual pension. Both also will eventually collect Social Security benefits.

Before Social Security and Adrianne’s pension kick in, the couple will need to tap only about $26,000 from their savings each year to match their current annual income of $50,000. As their nest egg is likely to grow by much more than $26,000 annually, their savings will actually increase during the early years of retirement. It will probably grow even faster when they become eligible for Social Security and Adrianne begins collecting her pension, Caine said.

In fact, the couple could be worth more than $5 million by the time Adrianne reaches 70, assuming that their lifestyle doesn’t change and that their investments continue to grow at 9% annually.

Alternately, Gary could retire tomorrow and still have a reasonably secure retirement, Caine said. Using probability simulations, Caine determined that the Glasses would have a 60% chance of having enough money throughout retirement should Gary retire immediately; the probability grows if they can live on less than they are now. Their chances improve to 99% if Gary waits until he’s 55 to retire.

Caine applauded the Glasses’ ability to save money even when their income was cut in half after Adrianne lost her job. He also liked the fact that they are debt-free, apart from their mortgage.


“You’ve been very diligent, so you shouldn’t have any financial worries in retirement,” he added. “You could actually spend more now and in retirement if there are some things you would like to do.”

The Glasses acknowledge being careful about spending. They go to the movies, for example, only when they get discount tickets. Even then, they take their own snacks.

“We’re pretty simple people,” Gary said.

The Glasses were delighted to find out that they are indeed on target for early retirement, especially because Adrianne has no plans to return to work.

“I feel like I worked for a long time even when our children were young and I enjoy staying home,” she said. Their son and daughter, ages 20 and 21, are financially self-sufficient.

To supplement Gary’s pension before he reaches 59 1/2--the age that retirement accounts are available without an early withdrawal penalty--the couple can tap the money in their mutual fund savings. They also will be able to use the proceeds from property they own on Bass Lake near Yosemite and their Hawthorne home, which they intend to sell upon retirement. The house is worth about $210,000 and has a $150,000 mortgage.

The amount they eventually pay for a retirement home--probably in the Mammoth Lakes area, where the couple can pursue interests in camping, hiking and photography--will determine whether those funds will last until they reach 59 1/2. But even if they do need to dip into their retirement savings early, there is a way to do it without suffering a penalty, Caine explained.

The Glasses could withdraw their funds over several years if they agree to receive the money through a series of “substantially equal” lifetime payments, Caine said. Under this exception, they must maintain that withdrawal plan for at least five years, he added.


More immediately, the Glasses need to tweak their asset allocation to increase their diversification. Currently, all their investments are in funds matching the S&P; 500--an index of 500 of America’s largest companies.

Unquestionably, the S&P; 500 was the right place to be in the 1990s, as U.S. blue chips soared. But the risks of owning only those stocks have become obvious recently, as the S&P; has slumped 8.3% this year. Other types of funds, such as global funds and small-company funds, have surged; the Russell 2,000 index of small-company stocks is up by about 10.5% year-to-date.

Specifically, Caine suggested allocating about 25% to global funds and 20% to small-cap funds.

Caine recommended against bonds for the Glasses. Pensions and Social Security will serve as a proxy for the fixed-income portion of their portfolio, providing a steady stream of money to balance the ups and downs of their stock funds, he said.

Their portfolio faces another risk, however. If one of the Glasses were to be injured or become ill and require a lengthy stay in a nursing home, the couple’s assets could be drained quickly, Caine warned.

“I’ve seen it happen with clients who have had a stroke and can no longer care for themselves, and their family must pay $4,000 a month in care,” he said.

Gary’s benefits include long-term disability insurance that would replace 50% of his income if he were unable to work. But only long-term care insurance covers some or all of the cost of nursing homes or in-home nursing care.

Although some planners question the appropriateness of this type of insurance--because of the relatively high premiums and the fact that not everyone will need long-term care--Caine feels the coverage is right for people in the Glasses’ position. The Glasses have too many assets to qualify for government support for nursing care, but they might not have enough to cover a lengthy nursing home stay. Premiums for the two of them would run about $3,000 a year, he said.

For the final part of the Glasses’ planning, Caine urged the couple to meet with an estate attorney to prepare wills, trusts and powers of attorney to cover health care and financial issues. That would ensure that their assets are passed on to their children or other heirs as they wish.

“All things considered, you’re in good shape,” Caine told the couple. “You’re a great illustration of the benefits of planning for your retirement when you’re young.”

Graham Witherall is a regular contributor to The Times. To be considered for a 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, or to money@latimes

.com. You can save a step and print or download the questionnaire at


This Week’s Make-Over

* Investors: Gary Glass, 46, and Adrianne Glass, 43

* Income: About $50,000

* Goal: Plan for an early retirement

Current Portfolio

* Retirement accounts: $344,000 in Northrop Grumman 401(k)'s U.S. Equity Fund; $227,000 in an IRA invested in Vanguard 500 Index fund

* Other accounts: $36,000 in Vanguard 500 Index fund

* Real estate: $60,000 equity in Hawthorne home; $50,000 in undeveloped residential lot on Bass Lake, near Yosemite.


* Diversify holdings, allocating 25% to global funds, such as Janus Worldwide Fund (five-year average annual return: 34.22%) and 20% to small-cap mutual funds, such as Firsthand Technology Value Fund (five-year average annual return: 67.95%) or Turner MicroCap Growth Fund (a new fund with a 144% return in 1999).

* Purchase long-term care insurance.

* Prepare wills, trusts and powers of attorney.

Recommended Purchases

* Turner MicroCap Growth Fund, (800) 224-6312

* Firsthand Technology Value Fund, (888) 884-2675

* Janus Worldwide Fund, (800) 525-8983


Meet the Planner

Gary Caine is a fee-only financial planner and actuary at Bruck & Caine Advisory Inc. in Culver City. He specializes in IRA and pension planning, as well as portfolio management.