Assets don’t add up to 2-home lifestyle

For Marc Levy and Susan Gaer, retirement is looking like a well-stocked buffet that will tempt them to overeat.

The Torrance residents have done well financially and, for the assets they have accumulated, their retirement dreams seem modest: a house in Big Bear and a town home in Paso Robles, Calif., where the wine-loving couple would like to spend three to four months a year.

It’s the kind of estate that most folks would envy.

But Levy, 55, and Gaer, 51, may not be able to enjoy as much of the good life in retirement as they had hoped, said financial planner Carl Camp, who nevertheless praised them for living below their means.

“They’ve done a lot of things right,” he said.

Until they sat down with Camp in his Fullerton office, Levy and Gaer didn’t have a clear understanding of their assets and what they might be able to do with them.

Although they sock away a lot of money, they spend a lot too. Despite substantial savings and combined income of nearly $240,000 a year, Camp said, they should probably forget about that town home in wine country.

Their $1.8-million net worth includes $1.1 million in real estate in two states and $600,000 in retirement accounts. An additional $136,000 sits in checking and savings accounts. Their credit cards are paid off, so their only debt is $445,000 in mortgages.

So, what’s the problem? They’ve worked so hard that they’ve left their finances untended to and didn’t realize that, based on their current lifestyle, they may not have enough to do everything they wanted. They need a plan.

“I deal with so many numbers at work, I don’t need to deal with others at home,” said Levy, an engineer who builds ground equipment to test satellites for Northrop Grumman Corp.

He’s so uninterested that Gaer has had no idea what her husband’s bank accounts contain or what his properties are worth.

This is partly the legacy of first marriages that proved costly to both. They have kept their money separate since they were married four years ago. They expect to combine their assets in retirement.

The couple’s coffers are full largely because they save automatically through programs run by their employers.

Their comfortably worn, four-bedroom home in Torrance is worth about $600,000 and carries a $200,000 mortgage. It sits in a small, gated community that acts as an oasis from the heavy traffic and bumper-to-bumper parking outside the walls. Rush-hour alone would make a mountain retreat appealing.

The couple already owns a place in Big Bear and another plot of land there with an old cabin they would like to demolish to make way for a new primary home.

The rest of their real estate collection includes a town house rental in Diamond Bar and two pieces of land in Colorado, all of which are paid off, and a town house rental in Colorado Springs that has a small mortgage on it. After taxes, repairs, housing association dues and mortgage payments, they net $5,000 a year in rental income on the Diamond Bar property but lose $5,000 a year on the Colorado Springs town house.

As for wage income, including overtime, Levy brings in close to $140,000 a year and Gaer almost $100,000.

She has spent more than 20 years on “my passion,” teaching English as a second language. For the last 11 years, Gaer has been a professor at Santa Ana College, where she also helps oversee information technology systems.

In her free time, Gaer maintains online communities where her students discuss a variety of issues, including the cost of living around the world and herbal home remedies for common ailments.

Of the couple’s $600,000 in retirement savings, $84,000 is Gaer’s. She would have had more by now if it weren’t for a bankruptcy a decade ago after her divorce.

“I know how easy it is to become homeless,” she said.

The experience has inspired her to help other women. In their retirement, she and Levy hope to do volunteer work helping disadvantaged single women and mothers make better use of the Web to find employment and services.

Given the bankruptcy, Camp said he was impressed that Gaer had done this well.

He calculates the couple has $736,000 in cash and retirement funds, of which they should keep $52,000 in a cash account and invest the rest.

Camp laid out two scenarios for their retirement, based on when they want to retire and when they should, realistically.

Overall, he estimates that they could save a combined $40,000 a year over the next five years and build their net worth to $1.24 million -- or, if Gaer works longer, $1.65 million over nine years. Levy said his plan to retire in five years at age 60 was nonnegotiable.

Camp based his estimates on a 7.5% return.

In five years, the couple could begin to draw an annual income of $103,018, including Levy’s $41,000 a year pension and Gaer’s $32,388 a year from the California State Teachers’ Retirement System.

Six years later, when Levy turns 66, he will begin drawing $24,000 a year from Social Security. Because Gaer will receive a government pension, she will get only nominal Social Security income.

Although their expenses will drop as they sell properties to pay for a new home, the couple’s projected annual income in five years of $103,018, adjusted for their new financial situation, is less than they are currently living on. Excluding mortgage payments, property taxes, repairs and retirement savings, Camp estimates the couple now lives on $140,000 a year.

“This is a great retirement for 97% of people,” Camp told the couple. “But it’s a lot less than you have been living on. That’s a big concern. When someone retires, they have a lot of free time, and free time is expensive.”

But things look better if Gaer works to age 60. Then the couple would have $1.65 million and an annual income of $121,113. At 60, her teacher’s pension income would increase to $3,759 a month, or $45,108 a year.

“Those years make a big difference,” Camp said.

Camp believes that selling their real estate now might be wise because a change in the White House next year could mean a change in the capital gains tax.

When Levy mentions he would like to buy a town home in Paso Robles, Gaer adds quickly, “That’s just if there is money.”

“There’s not,” the planner said with a laugh. “Sometimes the answer is just that simple.”

After taxes and closing costs, Camp estimates, they will have $850,000 from selling their real estate holdings to build the 2,700-square-foot Big Bear home, a sketch of which Levy has roughed out on his computer.

The size and quality of the house they build will, of course, determine the price.

Even at low construction costs for the Big Bear home, Camp said that paying an estimated $300,000 for a Paso Robles town home would strain their finances. That’s because they also have to allow for added taxes, maintenance costs and housing association dues for a second place.

They could end up cash poor with two dream homes.

There are other risks too. The building budget is contingent upon selling their current properties at the prices they expect. Home prices have been plummeting nationwide. Also, selling raw land can be especially difficult.

“I’d take anything you can get” for the two plots in Colorado, Camp advised Levy.

As for their retirement money, Camp told Gaer that after she turned 50 last year she became eligible to save $5,000 more than the $15,500 she now contributes annually to her 403(b) tax-deferred plan for teachers. He advised her to bump up her contributions.

And he advised Levy to change his 401(k) retirement account by moving $105,000 in Northrop Grumman stock into a diversified mix of investments that included bonds as well as large- and small-company stocks in the U.S. and abroad.

When they reach old age, Levy and Gaer want to sell their Big Bear home and move into an assisted-living facility. To prepare, Camp advises most clients to buy long-term care insurance after they turn 60.

“For people in the middle range of wealth -- from $300,000 to $3 million [in net worth] -- those are the people who should have it,” he said. “At $3 million or more, you can kind of self-insure.”

Upon learning they want to volunteer in retirement, rather than spend a lot on hobbies or travel, Camp said he was more confident that they could live within a new budget.

“They’ve got some plans that make me think these guys can do it,” he said.

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(BEGIN TEXT OF INFOBOX)

This month’s makeover

Who: Marc Levy and Susan Gaer

Income: Nearly $240,000, combined

Goals: Create retirement plan. Build new home in Big Bear. Buy town house in Paso Robles, Calif. Increase return on invested money. Prepare for old age in assisted-living facility.

Assets: $1.1 million in real estate, $600,000 in retirement accounts, $136,000 in checking and savings accounts.

Debts: $445,000 in mortgages. No credit card debt.

Recommendations: Sell Colorado acreage and town houses in Diamond Bar and Colorado Springs, Colo. Invest proceeds for higher returns. Both should retire at age 60, with Gaer working for five years after Levy retires. Save $40,000 a year. Contribute maximum amount to retirement accounts. Reallocate investments to hold a diversified mix of bonds and large- and small-company stocks in the U.S. and abroad. Do not buy Paso Robles town house. Buy long-term care insurance to help cover the cost of assisted-living facility later.

About the planner: Carl Camp, a fee-only certified financial planner, is president of Eclectic Associates Inc. in Fullerton.