At 60 with a high net worth, should he retire?
After 35 years on the job, retirement is just days away for Garden Grove resident Gregory Crowell.
Given a net worth of nearly $1.8 million, it would seem that the 60-year-old operations manager at a BP oil refinery has saved plenty. However, that amount must provide not only for him and his wife, Sherry, but also for a 32-year-old son, who suffers from schizophrenia and lives at home.
With the stock market’s dramatic drop recently, Greg knows that any decisions he makes now must be weighed carefully.
“It’s scary,” Sherry, 56, said.
“If you’re not nervous right now, you’re not human,” said Carl Camp, a fee-only financial planner and president of financial planning firm Eclectic Associates in Fullerton.
Despite Greg’s years of savings, “There’s not a lot of room for error,” Camp said. He thinks Greg should play it safe and delay his retirement date, currently scheduled for March 31, two more years.
The Crowells would like to leave something for their three grown children while also satisfying their own desire to enjoy life a little.
One of their favorite pastimes is rock hounding, scouring the desert for geodes and precious stones such as opals. Sherry likes to conduct genealogical research on her family.
They’re thinking of moving to the Pacific Northwest, where two of their children and six grandchildren live, but they’d like to spend $50,000 to renovate the kitchen in the Garden Grove house before they do.
Greg began his career in the 1970s as an hourly worker at an Arco facility in Carson refining gas from Alaska’s North Slope. He worked his way up to manager and stayed on after BP bought Arco. His current salary is $132,000.
The couple owe $93,000 on their tidy ranch home, which is worth about $375,000. Greg has $240,000 in a 401(k) retirement account through his company and $200,000 in an individual retirement account. An additional $4,625 sits in bank accounts.
The largest piece of the couple’s net worth is the $1.05 million that he plans to take in a lump-sum payment from his company’s pension account. Greg’s two other retirement accounts have plummeted more than 40% to a combined $440,000.
Greg thinks now is a good time for him to put his pension money into stocks, with values down sharply from their recent highs, but he isn’t sure.
“I’m going to get a big check, and what do I do?” he asked.
Added Sherry, “What if you put your money in the stock market and it goes bye-bye?”
“I’ve always invested in the stock market,” Greg said, adding, “Of course, we have lived through 30 to 40 years of a bull market.”
To project what income the couple could expect in retirement, Camp assumed a 7.5% return. That might seem high in light of the recent plunges in the value of most investments. But Camp said that even taking into account bear markets, the stock market has historically delivered 10% annual returns.
He couched his projections with the caveat that, if the markets continue to decline, Greg should consider working full-time for longer than two years.
The Crowells currently spend $6,500 a month on themselves and their son. Taxes cost them $1,500 a month on top of that. Although they think they could cut $500 out of what they spend monthly, they would prefer to maintain their existing lifestyle in retirement.
To help them get there, Camp recommends that Greg begin taking his expected Social Security income of $20,239 annually in 2011, when he turns 62. Sherry, who worked outside the home in the late 1980s and early 1990s, would receive about half that amount when she turns 62, starting in 2015.
The planner urged them to take that income at 62 rather than wait for a higher benefit amount to kick in at age 66, because in their case it works out to about the same amount of money over time.
He suggests that they put 5% of their assets in cash, 36% in bonds and 59% in stocks and other investments.
In addition to the Social Security, Camp calculated that once Greg begins drawing from his savings, the couple should have an annual income of $88,789 before taxes in retirement in today’s dollars. At that rate, they would have enough money to last until Greg turns 95 and Sherry is 91. The planner based his longevity assumptions on the couple’s medical and family histories.
Camp also wants the Crowells to add another item to their budget, however: $4,450 a year for two long-term-care insurance policies.
If either of them ends up needing in-home care or care in a facility, it would probably cost them more than $5,000 a month in today’s dollars on top of their existing expenses. That could rapidly drain their savings.
Camp recommended a policy that covers $180 a day for the cost of care whether it is at home or at a facility. That coverage would last for a maximum of five years for each of them.
Camp also suggested that they begin working with an estate planning attorney to set up a special needs trust to provide for their son after they die.
Working with estate planning attorney David Hiskey of Placentia, Camp advised them to set aside about $540,000 in today’s dollars in such a trust. That would generate a monthly $1,500 stream of income for their son until he turns 90 himself. These trusts are set up in such a way that they don’t trigger a reduction in the amount of Social Security Disability Insurance income that individuals receive. Right now, the Crowells’ son receives about $600 a month in SSDI.
The trust should be overseen by two people: a trustee and a care custodian. The Crowells’ other children or a professional could serve in either role. The account must be overseen carefully both to reconsider its total balance at regular intervals and to make sure that any disbursements comply with the laws governing financial support programs for the disabled.
If they move to the Northwest, Camp said, the couple should buy a home of lesser value than their current one so that they don’t have a mortgage.
He also advised against their plan to renovate their kitchen for $50,000. Using a variety of studies on the real estate industry, Camp said the Crowells might recover only 75% to 85% of that investment when they sold the home.
The couple have considered the risks that Greg’s looming retirement could pose to their 35-year marriage. Greg has read about people who stayed married for decades only to divorce in retirement.
“I’ve been in management,” he said, with a laugh. “How exactly will that work with me coming into her world? Definitely, I can’t stay management.”
One of Greg’s plans for addressing the issue is to work part time as long as he can. He could see himself working as a Wal-Mart greeter or in the wallpaper section at a Home Depot.
“I’d be great at that,” he said. “I’ll do anything. I’m not particular. I don’t want to stay at home and just atrophy.”
Anything the couple can do to bring in extra income will help their financial picture, Camp said. “I always tell people free time is expensive.”
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This month’s makeover
* Who: Gregory and Sherry Crowell, ages 60 and 56
* Income: $132,000
* Goals: Greg to retire March 31. Maintain current lifestyle with a retirement income of at least $90,000 a year. Provide for disabled son after they die. Renovate kitchen for $50,000. Possibly move to Oregon or Washington to be closer to other children. Leave inheritance for two other children.
* Assets: Estimated $1.78-million net worth: $1.05 million in anticipated lump-sum pension payout, $440,000 in retirement accounts, $282,000 in equity in home and $4,625 in regular bank accounts. At age 62, anticipated annual Social Security income of $20,239 for Greg and about $10,000 for Sherry.
* Debts: $93,000 mortgage at 4%
* Recommendations: Greg should delay retirement for two years or retire now but continue to work as full-time consultant at same salary for two years. Then, annual income would be $88,789 -- provided the financial markets can deliver a 7.5% return. Do not renovate kitchen. Buy two long-term-care policies for a total of $4,450 annually to cover $180 a day in care for five years for each. If they move, buy a home of lesser value to avoid a mortgage. Drop life insurance policy now that they’ve reached retirement and have saved enough.
* About the planner: Carl Camp is a fee-only financial planner and the president of Eclectic Associates in Fullerton.
