Woman anxious to retire, but still nervous about it

Feeling unappreciated at work can make the days drag on and retirement seem like a distant dream. This week we spoke with a woman anxious to leave her current role but unsure whether retiring now is premature.

The Situation

Cindy, 58, and Rick, 62, live in Castle Rock and are avid tennis players. Rick has been retired for three years and Cindy is nervous, yet antsy, to join him. Lately Cindy has been extremely unhappy at work, and new management is making her life miserable. “My husband tells me to quit every day, I just need to know if we can swing it!”

Rick’s retirement consists of a pension from PERA of $81,000 per year, anticipated to increase by 2 percent every year. In the event something happens to Rick, Cindy would receive a benefit of $40,500 per year. Rick also has $70,036 in a PERA 401 account. Cindy is currently earning $96,000 per year as a pharmacist. She has a 401(k) from a previous employer valued at $921,085; $34,876 in her current 401(k); $60,194 in an IRA; $262,045 in dividend paying stocks($230,000 in one company) — with a taxable gain of $108,000, $138,765 in mutual funds outside of her IRA and $90,000 in their joint checking account. Their house is valued at $650,000 with an outstanding home equity line of credit of $54,000.

Cindy will also be able to take Social Security; her benefit at age 62 is $1,671, at age 66 is $2,384 and at age 70 is $3,052.

They are both in relatively good health, although both are smokers. They don’t have children of their own, but if there is any money left when they both pass, Rick and Cindy they would like to be able to leave some to their nieces.

Cindy wrote in to What’s The Plan for guidance whether retiring today is an option, or if she needs to make some adjustments in the event she is laid off before she is financially ready.

Recommendations

Cindy and Rick have done an excellent job saving and planning for their retirement. If Cindy quits working today she and Rick will be in a lower tax bracket until she is required to pull from her 401(k). They can sell the dividend paying stocks at zero percent to 15 percent capital gains over the next several years. Cindy and Rick can comfortably draw on $60,000 per year on Cindy’s assets as long as they don’t experience a big hit in their assets in the early years. I highly recommend Cindy evaluate the current structure of her accounts. A good rule of thumb is no more than 10 percent in one particular stock, and they should reduce their one position that represents 15 percent of their total.

Cindy and Rick’s biggest risk is a market correction in the early years. Most of the couple’s assets are in stocks and they need to take steps to protect their portfolio. Cindy was in a position to take risks while accumulating, but now she needs to limit the risk significantly. One of the downfalls to 401(k) accounts is there is not a wide enough selection of “protec- tive” type funds. Most 401(k)s are built for the accumulation phase and if the market goes down this will impact the long term retirement outcome. Now that she is retiring, an allocation of one third to half should be in more stable investments, bonds, and alternatives.

The couple does not have any long term care policies. They can consider their home their long term care policy and in the event they need the money they would need to sell it and move into something more modest.

Game, set, they’ve won the match! Congratulations on your retirement, enjoy every day together!