Pair in mid-40s worry about retirement
SEATTLE >> Rebecca and Bryan Vargas have steady work histories, some money in the bank and a rental home in North Seattle. They like their current circumstances.
What worries them is the future, especially 20 years from now.
The year 2037 is when Rebecca Vargas, 40, would like to retire from her nursing career. Bryan Vargas, 45, also hopes to retire that year, possibly after a second career in environmental services.
Their anxiety is widely shared by many people approaching middle age: Will their savings and retirement benefits be robust enough to keep them out of poverty when they’re old?
“We need to make sure that we’re going to be OK and not have to work until we’re 75,” Rebecca Vargas said.
That prompted the couple to apply for free financial advice through The Seattle Times’ Money Makeover project. Working with The Times, the Financial Planning Association of Puget Sound connected the Vargases with Steve Burkett, a financial planner with Palisade Investments.
Although the couple’s retirement nest egg is modest now, Burkett noted that their household income is sturdy enough to plan for the future.
“They’re going to be fine,” said Burkett.
The dependability of the couple’s household income works in their favor.
Rebecca Vargas earns about $98,500 a year before taxes as a registered nurse at Seattle Children’s hospital.
Bryan Vargas retired in 2016 after 23 years in the U.S. Navy as a diesel mechanic. He now receives a lifetime military pension of $28,800 a year as well as a disability payment of $13,800 a year for a servicerelated injury.
He is currently studying environmental science full time at North Seattle College, with plans to earn a bachelor’s degree and work in the field. The military pays for his education as part of its benefit package.
The couple have about $58,000 in debt. Most of it is for a car, although they also owe $5,000 on a student loan and $4,000 on a motorcycle. Interest rates on the debt range from 1.7 percent to 5 percent. As renters, they don’t have a mortgage.
Bryan Vargas has children from a previous marriage, but all of them are now independent adults.
Between them, the Vargases have three retirement accounts that add up to about $150,000, plus another $60,000 or so in personal property.
Do the math, and the couple’s net worth is about $152,000. They had doubts about whether they had accumulated enough money at this point in their working lives. An even bigger question was whether they could afford to retire on their current trajectory.
Burkett said the couple’s net worth seemed a little low, given their household income and ages. But he noted that their net worth is also higher than that of twothirds of households nationwide in their age group, according to an online calculator at the personal-finance website Don’t Quit Your Day Job.
A conundrum for the Vargases and many other Seattle-area residents is whether to buy or rent a home in the city’s increasingly costly housing market.
The Vargases opted to rent, and they pay $3,000 a month for a house in a quiet neighborhood.
Renting made sense to them. Bryan Vargas was transferred every three to five years during his military career, making it hard to put down roots. Increasingly in Seattle, the only homes they can afford are in outlying communities, which would lengthen their commutes on the region’s congested highways.
But homeownership is a way for families to accumulate wealth by increasing their equity stake and hoping their property becomes more valuable over time.
The Vargases’ rental home is a case in point. The assessed value of the real estate has soared 230 percent in 24 years to $724,000, according to King County property records. (On the other hand, the home also lost 27 percent of its value after the 2008 financial crisis.)
Burkett is open minded about whether to rent. Although homeowners can accumulate wealth with their property, the wealth isn’t “livable” because it’s embedded in the real estate, he said.
He told the Vargases that owning a house isn’t necessary, especially in a market with soaring home values.
Burkett noticed that the Vargases lacked an emergency reserve. So he devised a way for the couple to build one and save more money for retirement at the same time.
He advised each of them to open a Roth individual retirement account and contribute the maximum $5,500 a year. Account holders make their Roth IRA contributions after taxes, which has advantages when they want to withdraw the money later, especially in retirement.
In the short run, Burkett urged the Vargases to save at least $50,000 in their Roth IRAs. That’s enough to serve as an emergency fund capable of supporting them for six months, based on their current spending.
Longer term, Burkett advised them to make the maximum contribution to their Roth IRAs as long as they work. At that rate, the Vargases would each have an estimated $235,000 in their Roth IRAs by their target retirement date of 2037.
Both Roth IRAs would be in addition to their existing retirement savings plans. Rebecca Vargas would continue to save money in her workplace 403(b) plan, and Bryan Vargas would keep his traditional IRA.
Barring a major setback, the couple could have combined retirement nest eggs exceeding $2 million by 2037. They will need it to protect themselves against the effects of inflation and the rising cost of health care.
Burkett also urged the couple to increase their life and disability insurance. Bryan Vargas’ military pension ends with his death, while his wife’s paychecks account for two-thirds of the household’s income. Either spouse would be financially vulnerable if something happened to the other.
Burkett’s biggest surprise for the Vargases turned out to be welcome: His analysis told them that they are doing better than they realized.
The couple have already started working on Burkett’s recommendations.