Get with the Plan: August 10, 2014

Jack, 72, and Charmaine, 67, have raised two children. Jack has already stopped working, while Charmaine is getting ready to leave her job. Eventually, they say they’d like to move to Florida.

But before she stops working and they make big move, they have a lot of questions.

“Will we have enough to retire?” Charmaine asks. “Do we continue to rent or buy a home and how much can we afford to spend on a place? Do we take a mortgage?”

The couple, whose names have been changed, have saved $289,300 in an annuity, $202,000 in savings and $500 in checking. Charmaine can count on a $60,000 per year pension when she leaves work, and they’re both collecting Social Security benefits.

The Star-Ledger asked Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna, to help Jack and Charmaine refine their retirement plans.

Meckler took a look at the couple’s current living expenses. Not including federal and state income taxes, they spend about $90,000 per year.

Then, he examined their retirement income. If Charmaine were to retire today, their total income from her pension and both of their Social Security benefits would be $112,764. After taxes, he says, they’d be left with approximately $90,000 per year to spend.

this one“In a perfect world, if there was no inflation and no other emergency expenditures, then Charmaine can retire now and never have to touch her other assets,” Meckler says.

But of course, life is not perfect.

Meckler assumed a 3 percent inflation rate for living expenses and a 3 percent increase in their Social Security benefits. If their assets remain invested as they are today, which is mostly in fixed income, Meckler says they will use up all of their assets at Charmaine’s age 91. At that time, they’d have to rely solely on Social Security and Charmaine’s pension.

Charmaine and Jack say they are conservative investors, but Meckler says they are, in theory, losing money by being too conservative and not having their assets keep up with inflation.

“They should consider diversifying their assets to a well-balanced portfolio of 50 percent equities and 50 percent fixed income,” Meckler says. “If they are relatively healthy, they will be living in retirement for another 20 years or longer. When I rerun the scenario with their assets appreciating at 6 percent per year, it shows them running out of assets at Charmaine’s age 99.”

That’s a much better scenario.

For both the conservative and 50/50 projections, Meckler assumed they’d both live to age 100, and that Charmaine chose a “joint and survivor” option for her pension payout, which means that even if she dies first, Jack would continue to receive her $60,000 pension income every year.

“If either of them passed away prematurely, the Social Security would stop for that person,” he says. “The surviving spouse is entitled to the higher of their own benefit or their spouse’s, but in their, case the difference is less than $1,000 per year if Jack predeceases Charmaine.”

And if one of them was to die early, it would make a big difference for the surviving spouse. For example, if Jack was to die this year, Charmaine would lose his $25,994 per year Social Security benefit. That would mean her assets would only last to her age 83.

Whether or not they decide to buy a home is also an important long-term money decision.

The couple says they’d only have to rent or own for the next 10 years, at which time a family home will be available to them. If they purchased a home now, they’d get rid of it in 10 years.

Meckler says depending on someone’s personal circumstances, home ownership can be a great move, but for this couple he recommends they continue to rent.

“If they bought a $250,000 house and put down a 20 percent down payment, they would need $50,000 plus closing costs of an additional $5,000 and would use up a significant portion of their savings,” he says. “After the mortgage, property taxes and maintenance on the house, they will probably be very close to the $2,000 per month they are currently paying for rent.”

And if they bought an older home, it could need significant and costly improvements down the road such as a new roof, driveway, windows and more. Costs to upkeep the house could just be overwhelming for them, Meckler says, based on their assets. When you add in other factors, such as how their income would be reduced should one of them die prematurely, buying could be too risky.

“There are positives to owning a home such as the tax deductibility of the interest paid on the loan and property taxes as well as appreciation of the home, but in their situation, I don’t feel the positives outweigh the negatives,” he says.

There are other areas that need attention for this couple.

Meckler says when most people plan for retirement, they only focus on their assets and pension plans.

“But in order to be successful you need to make sure you have all of your risk insurance in place and the proper amounts,” he says. “These include the proper limits and deductibles for auto, homeowners/renters, umbrella, medical, including long-term care and life insurance.”

While Charmaine and Jack have some life insurance, they have no long-term insurance, and that could be costly in the long run depending on their health going forward.

“At their ages it is expensive, but I feel they should look at it and decide for themselves if they should purchase a policy,” he says “The annual cost for assisted living or nursing home care can easily cost $100,000 per year.”

Meckler says they should also make sure they have up-to-date wills, health care proxies and power of attorney documents.

Get With the Plan is designed to illuminate personal finance concepts and isn’t a substitute for actual financial planning or dedicated professional advice. To participate, contact Karin Price Mueller at

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