Get With The Plan: June 29, 2008

Tim is a 44-year-old single guy with big-money retirement dreams.

‘‘My goal is to achieve financial independence by 55 at the latest, with $3 (million) to $4 million. Fifty would be ideal,’’ he says. ‘‘The challenge is ensuring that I’m saving enough each year and maintaining appropriate asset allocation.’’

Tim, whose name has been changed, has saved $43,269 to his 401(k) plan, $320,113 in IRAs, $1.144 million in a brokerage account, $174,000 in mutual funds and $2,000 in checking.

The Star-Ledger asked Jody D’Agostini, a certified financial planner with AXA Advisors in Morris- town, to help Tim see if his early retirement dreams can come true.

‘‘He is a successful, single man who has been a diligent saver,’’ she says. ‘‘His hard work is starting to pay off, so that he can enjoy the fruits of his labor.’’ D’Agostini says Tim’s response to a risk tolerance questionnaire shows he’s a moderate investor. He’s been making all of his own investment decisions to this point, and while his portfolio is sizable, there’s room for improvement.

‘‘Even though he holds many different mutual funds and individual stocks, what he might not realize is that he owns many of the same companies in different mutual funds, therefore over-weighting those positions,’’ she says.

His investments have quite a bit of overlap, so while it appears to be adequately diversified, it may actually not be, she says. Additionally, Tim’s asset allocation is not reflective of his risk tolerance. He is over-weighted in the large-cap value area, in particular.

‘‘It would be important for him to establish some trading discipline, selling to secure gains and buying when the price was down,’’ D’Agostini says. ‘‘This should help the volatility of his returns.’’

Also, even though he holds many different positions, Tim is lacking in aggressive asset classes, which might greatly benefit his diversification.

The good news for Tim is his cash flow analysis easily supports his retirement plans at age 50, D’Agostini says, but he won’t have the $3 million in the bank. To realize that number, Tim would have to work until 53. But even retiring at 50, he has sufficient resources to sustain a retirement well into his 90s, based on his current and projected savings, D’Agostini says.

She used a conservative 3.5 percent inflation rate to be sure Tim will have the purchasing power needed to finance more than 40 years of retirement. He’ll need to continue funding his 401(k) contributions at the cur- rent rate, and he should adjust his asset allocation to seek the rate of return expected from a moderate port- folio.

One area could be a potential financial trap in retirement: the funding of health care. If Tim retires at age 50, he would not be entitled to medical benefits from his company. That means he would have to buy individual coverage, which could be quite pricey. D’Agostini says for an individual, it could cost $500 per month or more for the same coverage he currently has, plus, medical costs have been rising fast. He would need to pay for health insurance until age 65, at which time he’d be eligible for Medicare coverage.

This also may be a good time for Tim to consider long-term care insurance. D’Agostini says he should first try to acquire coverage through his job, but alternately finance it on his own.