Get With The Plan: April 18, 2010

41810Darcy is a single woman who wants to make sure she doesn’t outlive her retirement funds.

She’s got longevity in her family and, at age 60, she figures she’ll need her nest egg to last three decades. But those years won’t be without change.

“I plan to relocate hopefully within this year to Arizona to be closer to my daughter,” Darcy says. “I know I will need to find a job with health benefits for five to six years minimum, but at age 66 I hope to be able to retire and if I want, to work part-time.”

Darcy, whose name has been changed, has set aside $402,729 in a 401(k) plan, $22,021 in IRAs, $32,807 in certificates of deposit, $6,492 in money markets, $4,109 in savings and $2,296 in checking. She has a small home equity line of credit balance but is otherwise debt free.

The Star-Ledger asked Douglas Buchan, a certified financial planner with Tilson Financial Group in Watchung, to help Darcy examine her prospects for moving and to see if her retirement plans are reasonable.

“Darcy is already ahead of the game in that she realizes that she has to plan on potentially needing an income for several decades,” Buchan says. “Her parents are alive and well in their early 90s, so she wants to plan as though she will be around at 90 as well.”


Buchan says Darcy understands that one of the big risks that results in the failure of retirement plans is longevity risk, and he says creating and implementing a plan that accounts for the potential of longevity risk is prudent.

Darcy has another advantage working for her retirement success: She lives modestly and within her means.

“There are multimillionaires that spend too much relative to what they have and are at risk to run out of money, and there are folks with more modest assets that spend the right amount that are not at risk,” Buchan says. “Kudos to Darcy for falling into the latter category.”

Given her current net worth and her annual expenses of approximately $30,000, she can feel comfortable that she can leave her existing employer and head out West to be with her family, Buchan says.

Darcy is concerned about health care if she leaves her current job, at least until she’s eligible for Medicare.

Buchan says finding a job that offers health coverage would be ideal, but it’s not necessary for her success, based on his projections.

If Darcy can find employment in Arizona paying roughly half of what she earns today, Buchan says she can feel comfortable that she will be able to live out her retirement while supporting her lifestyle, even as it rises with inflation.

“In other words, Darcy has the wonderful news that she can walk from her existing employer, take a 50-percent pay cut with no benefits in Arizona and still be confident she can live the lifestyle she wants throughout retirement,” Buchan says.


There are a couple action items for Darcy to consider to make her plan more iron clad.

Buchan recommends she roll over her existing 401(k) plans to an IRA that can be invested in lower cost, more diversified investment options. For a portfolio with the belief that Darcy may need an income in 30 years, he recommends at least a 60 percent equity, 40 percent bond portfolio.

She may want to consider an ongoing relationship with a financial planner who can help her navigate her emotions when the inevitable bear market comes. Buchan says the key to growing real wealth is to not panic when the fear of the day hits, such as Enron, Sept. 11 terror attacks, corporate scandals, anthrax, swine flu, the credit crisis and the like.

At the same time, investors shouldn’t get too euphoric when the craze of the day hits. Additionally, he recommends having cash worth two years of expenses to further prevent any propensity to panic.

Next, she should look at her risk management and, in Darcy’s case, long-term care insurance may make a lot of sense. She may want to use some of the cash value of her life insurance policy — which she doesn’t really need anymore — to purchase a long-term care policy that would help pay for her care should she need it in the future.

“One last bit of advice: Remember, the plan is only as good as the person following the plan,” Buchan says. “As long as Darcy stays disciplined in her spending and disciplined in her investing, she can live the retirement of her dreams.”