Get With The Plan: January 3, 2010

1310Noah and Janice are trying to mesh their goals with their age difference. Noah, 55, would like to leave his current job and find a new career while he waits for Janice, 14 years his junior, to get some more work behind her. They also still have two children in the house.

“Our biggest goal is deciding which retirement pension option to select, to pay for one college and protect a special needs daughter financially,” said Noah.

The couple would like a retirement lifestyle that’s simple: living somewhere inexpensive while being able to continue world travel.

The couple, whose names have been changed, have set aside $523,111 in employer-sponsored retirement plans, $59,728 in IRAs, $196,364 in mutual funds, $149,508 in money markets, $8,611 in savings and $157 in checking. Noah’s pension distribution offers monthly payments options from $5,165 to $4,467, depending on his payout choice.

The Star-Ledger asked Douglas Duerr, a certified financial planner and certified public accountant with U.S. Financial Advisors in Montville, to guide Noah and Janice through their pension and financial planning decisions.

“Noah and Janice have various items to think about in planning for their future,” Duerr said. “He is about to embark on a new career but is unclear as to what his earnings will be.”

First, the pension. Noah has several options. The largest monthly benefits would only be based upon his life, while the smallest would be paid to Noah, and after his death, to Janice, for the rest of her life. Duerr said in making this decision, they need to think about the difference of approximately $700 per month.

They are both young, in excellent health, and have longevity in their families. Prior to making a choice on the pension, he recommends Noah get some life insurance quotes on his own life.

“I would ensure that the policy last for 20 years and be a fixed cost, and not be an annual renewable term,” Duerr said. “This means the policy’s premium will be the same in year one as year 20.”

Duerr said if they can get a good policy that is less than the $700 additional amount they could receive by choosing the largest payout, it may make sense to purchase the insurance and take the largest monthly pension payment. The life insurance, upon Noah’s death, would then give Janice a chunk of money to replace the monthly pension.

Given that there is a 14-year age difference between Noah and Janice, taking the lower monthly payment that is guaranteed on her life may also make sense. But Janice also has a pension coming to her when she retires, so Duerr said they need to look over what they believe she will receive in retirement and determine if that would be enough for her to live on should Steve pass away prematurely.

“They also need to consider insuring Noah to cover their son’s college costs and have additional funds to care for their daughter should Noah pass away prematurely,” Duerr said.

Another key item is to update their wills. Specifically, Duerr said they need to ensure they establish a trust to protect their special needs daughter, as she’s not expected to ever be completely independent. Duerr recommends Noah and Janice meet with an estate planning attorney and address this issue immediately. They also need to select someone they trust to act as trustee over this trust.

Noah and Janice also have concerns about becoming disabled and losing their current income. Duerr said disability insurance may be the answer. But they may need to wait because Noah doesn’t know how much he’ll earn at his new job, so it may be difficult to get a policy.

Long-term care insurance is another consideration.

“Given their age they still have time and do not have to purchase a policy immediately,” Duerr said. “But like all insurance, the younger that they purchase it the cheaper it will be.”

Duerr recommends they get quotes on what a policy costs today compared to what it may cost when they’re a few years older.

Of their large cash stake, Duerr recommends they earmark some funds for their son’s college education costs. They plan on paying for an in-state public university, which Duerr said would cost about $105,000 for four years.

“Since they still have a few years before he enters school, they still have time to save additional funds,” Duerr said. “I would suggest that they keep these funds in relatively risk-free investments.”