Get With The Plan: January 11, 2009

Diego and Anna, both in their early 60s, are ready to throw in the employment towel and enjoy their later years together and with their extended family.

‘‘We want retirement with a steady income to allow for us to pay all our monthly bills, go on a yearly special vacation and to know that funds will be available when we reach the point where we need someone to care for us in our old age,’’ Diego says.

They’d also like to set money aside for the college educations of their grandchildren.

Diego and Anna, whose names have been changed, set aside the bulk of an inheritance in Certificates of Deposit, now worth $874,059. They’ve also saved $177,405 in IRAs, $57,119 in mutual funds, $20,461 in a brokerage account, $61,600 in checking and $2,500 in savings.

The Star-Ledger asked Jennifer Murray, a certified financial planner with Stonebridge Financial Advisors in Morristown, to help the two solidify their retirement plans.

‘‘They have no debt and are able to meet retirement living expenses with their Social Security and investment income on their fixed-income portfolio,’’ Murray says.

They consider themselves to have a very low risk tolerance. In keeping with that, their asset allocation is quite conservative. They have 84 percent of their holdings in fixed-income investments earning an average of 4.15 per- cent. The 16 percent of their portfolio in equities average an annual return of 8 percent. Overall, that leaves Diego and Anna with a weighted portfolio average return of 4.75 percent, not all that much higher than inflation, which Murray estimates at 3.14 percent.

Still, Murray says the conservative allocation is satisfactory, based on their relatively low living expenses, but the couple should make sure additional spending doesn’t eat into their principal.

While a conservative allocation may work for this cou- ple, they’ve spread their savings and investments among 19 mutual funds and individual stocks (excluding cash and Certificates of Deposit).

‘‘They are a hodge-podge of mutual funds and individual securities,’’ Murray says. ‘‘It would be hard for them to monitor and rebalance, so I recommend that they buy index funds in all the major asset classes.’’

One risk in the couple’s plan is long-term care. While they’re healthy now, as they age, there’s a good possibility one of them could need some form of long-term care in the future.

Murray says in New Jersey, the average cost for annual private nursing home care is $98,000, and the annual cost of an assisted living facility averages $56,000 a year.

‘‘If long-term care is needed, the cost of it will most likely eliminate the possibility of an inheritance for their children,’’ she says, noting it’s important to Diego and Anna that they leave something for their heirs when they’re gone.

To protect their assets, they should consider long- term care insurance. Of course, long-term care insurance can be a large expense, but Murray says it’s appropriate for Diego and Anna to consider. Murray quoted a policy with a 90-day elimination period and a 5 percent compound benefit rider for both spouses for about $4,600 a year. (That’s with a company that gives discounts for couples — other policies could be more expensive.)

At age 65, Diego and Anna will have some extra cash. They will no longer have to pay $1,200 a month for health insurance and related expenses, so they could use the money to fund the long-term care insurance premiums and for another of their goals: to help pay for college for their grandchildren.

‘‘They can afford to do both now,’’ Murray says. ‘‘However, instead of contributing to the 529 plan now they could wait until the health insurance payments end and see how they feel then.’’

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