Still time to re­cover from bad in­vest­ments

Austin American-Statesman - - BUSINESS BRIEFING -

Many col­umns ago, you wrote that the 50s decade of life was the ‘make it or break it’ decade.

Well, I think I re­ally messed up. I’m 57, in­vested in oil and gas min­eral rights and sub­se­quently lost $240,000. My bro­ker also has me with $516,000 in­vested in life set­tle­ments.

I don’t think I’ll see much of that oil and gas money again. The life set­tle­ments prob­a­bly won’t pay off for a long time. I have about $100,000 in in­di­vid­ual stocks (small-and medium-caps) and about $100,000 in my 401(k), to which I con­trib­ute the max­i­mum. I plan on work­ing as long as I can ($114,000 gross salary), which I hope will be an­other eight to 10 years. I cur­rently owe about $35,000 on my house. I have no other debt. Am I in bad fi­nan­cial shape?

— C.B., by e-mail

You’ve made some un­for­tu­nate in­vest­ments (more about that in a minute). Your re­tire­ment sit­u­a­tion may not be as bad as you think, how­ever, be­cause you won’t need an in­come of $114,000 in re­tire­ment.

You can es­ti­mate how much you’ll need by sub­tract­ing your share of the em­ploy­ment tax, 7.65 per­cent, your 401(k) con­tri­bu­tions, which could be a big slug of cash ($22,000 if you’re also tak­ing ad­van­tage of the ad­di­tional amount you can con­trib­ute as some­one over 50), the mort­gage pay­ment on your house, and some amount for costs re­lated to work­ing. All of those com­mit­ments will be gone by the time you re­tire. As a re­sult, the in­come you might need to re­place in re­tire­ment could be as low as $75,000.

If you work un­til full re­tire­ment age, 67, So­cial Se­cu­rity ben­e­fits will bring in about $25,000 a year. That means your sav­ings will have to re­place only $50,000 — and prob­a­bly less be­cause your in­come tax bill will be lower. Since you al­ready have $200,000 and are sav­ing a lot, your re­tire­ment in­come is likely to be some­where be­tween $50,000 and $75,000 even if your life set­tle­ment in­vest­ments are worth zilch. It’s a fair bet, how­ever, that many of those con­tracts will “ma­ture” over the next 10 years.

A bro­ker who puts $756,000 in illiq­uid and spec­u­la­tive in­vest­ments know­ing that your other liq­uid re­sources are only $200,000 is ei­ther an id­iot or he is work­ing to max­i­mize his com­mis­sions re­gard­less of what it does to his client. Don’t trust him with an­other dime of your money, ever.

I, like prob­a­bly most of the nation, thought we still had an­other 10 years or more be­fore we were spend­ing more than we were earn­ing. Can’t be­lieve we’re al­ready there.

That brings me to my ques­tion. I’m about to turn 57 and was plan­ning on re­tir­ing when I’m 60 to 62. My plan was to de­lay tak­ing So­cial Se­cu­rity un­til I was close to 70 so that my monthly checks would be much greater. But af­ter read­ing your col­umns on govern­ment debt, I’m start­ing to think that I should prob­a­bly start re­ceiv­ing checks as soon as I re­tire. Ba­si­cally, I’d bet­ter get what I can, as soon as I can, be­cause if I wait, who knows if I will get any­thing.

What is your guess on whether I should start as soon as pos­si­ble vs. wait­ing? — B.Y., Austin

You might take ben­e­fits at 68 or 69, but de­fer­ring ben­e­fits is still a good bet. So­cial Se­cu­rity is not an all-or-none sit­u­a­tion. It is a gi­gan­tic, slow­mov­ing en­ter­prise. It will be slightly short of rev­enue this year, but that’s not to be con­fused with dis­ap­pear­ing. In­deed, even if noth­ing was done and the sys­tem could rely only on em­ploy­ment tax rev­enue, ben­e­fits would not be re­duced by more than 27 per­cent in 2037 — 27 years from now.

Mean­while, con­sider what might be hap­pen­ing to other sources of in­come at the same time if So­cial Se­cu­rity ac­tu­ally had to cut ben­e­fits. It’s not a pretty pic­ture. My bet is that some­thing will be worked out for So­cial Se­cu­rity ben­e­fits, and de­lay­ing them will con­tinue to be ad­van­ta­geous for your per­sonal fi­nan­cial plan­ning.

Re­mem­ber, the real ele­phant in the room is Medi­care. Its un­funded prom­ises are a large mul­ti­ple of the un­der­fund­ing of So­cial Se­cu­rity.

SCOTT BURNS

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.