Get With The Plan: March 9, 2008

George and Liza have two primary goals: George’s retirement this year and funding their daughter’s wedding within the next two years.

‘‘With the inflation and health care being so expensive, will I be able to survive with all our anticipated expenses?’’ George asks. ‘‘We would like to travel, as that is our hobby. We would also like to leave as much as we can for our children.’’

George and Liza, whose names have been changed, have so far saved $237,588 in George’s 401(k), $828,271 in IRAs, $195,019 in mutual funds, $262,365 in a brokerage account and $200,000 in bonds.

The Star-Ledger asked Paul Knodel, a certified financial planner with the Knodel Group in Princeton, to help George and Liza analyze their retirement prospects.

‘‘George and Liza live well below their means and do not expect any increase in spending when George transitions to retirement later this year,’’ Knodel says.

Knodel ran a Monte Carlo simulation of their current situation, which looks at thousands of ‘‘what-if’’ scenarios for the couple’s finances. It showed 85 percent probability of success, meaning they will not outlive their assets.

Because George plans to retire this year, Knodel says there’s no need for a personal disability policy, and he also says there is adequate life insur- ance. Knodel says George should review his group life policy from his employer before he retires to see if there is a convertibility clause, which could enable him to convert the policy to a term life policy at prevailing market rates without having to have a health exam. This a strategy to retain insurance whenever you separate from service, he says.

George and Liza do not have long- term care insurance, but Knodel says they should consider buying a policy. He ran one scenario that shows projected long-term health expenses in excess of $1.5 million, should George require nursing home care at the end of his life.

For Liza, the projected expense would be $2.6 million, should she require it. Knodel says a policy with a $150 daily benefit in today’s dollars covers $363,000 of George’s expense and $474,000 of Liza’s expense.

‘‘While the projected growth of the overall portfolio shows adequate assets to cover this type of expense, they should certainly consider long- term care insurance as a part of their wealth preservation strategy,’’ he says.

Looking at the couple’s investments, they have a moderate risk tolerance. They should have an asset allocation of 61 percent stocks, 35 percent fixed income and 4 percent cash, Knodel says. Their current portfolio is more conservative, with 60 percent stocks, 11 percent fixed income and 29 percent cash.

‘‘Because life expectancies are increasing, retirees need to ensure they have enough risk in their portfolio to generate growth of their assets and keep ahead of impact of inflation,’’ he says.

Because of market volatility over the past year, and even more recent volatility, coupled with George’s near- term retirement, Knodel recommends they carve out two years of living expenses from the portfolio, including funds to cover the anticipated wedding costs.

‘‘This covers living expenses for two years and allows for a more effective management of their retirement portfolio,’’ he says.

This strategy leaves approximately $1.8 million to be rebalanced, he says. Approximately $81,000, or 4.5 percent, is the couple’s anticipated retirement living expenses. Knodel says this is a sustainable withdrawal rate. If they draw more than this from the portfolio, he says it increases the risk of outliving their assets. Social Security will provide approximately $32,000 of their retirement income, so the reality is the portfolio will only need to provide approximately $50,000 after-tax, well below a 4.5 per- cent withdrawal rate, he says.

Knodel says George and Liza also should review their wills and beneficiary designations on their life insurance and retirement accounts.

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