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Your retirement plans require lots of decisions. Get help

Surfers at the beach
Deciding on retirement at the beach or investing in the stock market requires the advice of a financial planner.
(Genaro Molina / Los Angeles Times)

Dear Liz: We are a working couple in our late 50s. We live a comfortable lifestyle, have no mortgage, no debt, and we enjoy our careers. Through luck and diligence we have built a sizable net worth of $4.5 million (37% equity in our primary residence, 37% IRAs, 25% taxable equities). The investments are being managed by a family member. We plan to wait as long as possible before taking Social Security but would like to quit working within the next five years. As we look to retirement, we are undecided about where we’d like to live. We could stay in our current large house in Los Angeles, or we could move to a just-as-expensive nearby beach town and opt for a much smaller condominium.

I’d like to purchase the condo before retirement (paying cash, as we are debt-averse at this stage of our lives). This plan could improve our current lifestyle by providing a weekend retreat. Once retired, we might then have the luxury of deciding which home to keep and which to sell.

However, my partner is rightfully concerned about having too much exposure to real estate and missing out on the portfolio growth we’ve enjoyed by staying in the stock market as long as we have. What should we do?

Answer: It’s not a bad idea to test drive your planned retirement community before you give up your current home. But your partner is right to be concerned about having too much money tied up in real estate. Most people need to keep a substantial portion of their portfolios in stocks even in retirement. Plus, any money you pull from your investments could incur a rather substantial tax bill.

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One solution could be to purchase the condo using a mortgage. Interest rates are quite low, and it sounds like your finances are in good-enough shape to pass the extra scrutiny lenders often give second-home purchases. If you eventually decide to sell your current home, the proceeds could be used to pay off the loan.

This would be a good time to hire a comprehensive financial planner who can help you figure out how this next phase of your life will work. The planner also could help you with all the other retirement issues you’ll face, such as picking a Medicare supplement plan, managing required minimum distributions and paying for long-term care.

You can get referrals to fee-only planners from a number of organizations, including the National Assn. of Personal Financial Advisors, the Garrett Planning Network, the XY Planning Network and the Alliance of Comprehensive Planners.

Planning philanthropy

Dear Liz: You recently explained to a reader why it was better to make one donation of $1,000 rather than 10 donations of $100. I understand why you gave the response you did and you made some good points, especially about the importance of researching charities before you give. You also mentioned the costs each organization would incur in processing the smaller donations. As a longtime nonprofit executive, I think the social capital enjoyed by those organizations outweighs the costs. It often is helpful to the organization to be able to count that donor among their ranks to demonstrate that they have widespread support, for example, or to include that donor in future efforts to serve the community. My experience is that it’s not always just about the dollars and cents.

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Answer: Thanks for adding your perspective. It’s understandable that a charity would prefer a small donation to no donation. The charity still gets some money, even after processing fees, and the opportunity to add another donor to their mailing lists.

Savvy givers, however, want as much of their money to benefit their favorite causes as possible. Giving larger donations to fewer charities is a good way to do that, since that approach minimizes processing costs as well as the volume of appeals for more donations. Also, adequately researching and monitoring 10 different charities is a tall order for most busy people. Winnowing the choices can help ensure we’re rewarding the best-run charities, rather than those that spend the bulk of their donations on fundraising and overhead.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.


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